Jito Analysis
Project: Jito
Token: JTO
Date: 8/11/24
Analyst: https://x.com/prezzel
Key Insights
- Jito averaged 33.8 million dollars in fees per month over the March ’24 to July ’24 time frame. Solana started the year with some instability, but once rectified in March, fees have been strong for Jito.
- The jitoSol liquid staking token has captured ~50% market share in the Solana ecosystem and is continuing to grow. Marinade’s msol is the closest competitor, but they’ve been bleeding TVL to niche LSTs launched on Sanctum.
- A large unlock of the JTO token for investors and core contributors will begin on December 7th 2024. Token unlocks have historically been a bearish event and JTO is set to see their float double in a month.
- Jito has announced the Jito Restaking platform. This restaking platform is designed to maximize flexibility to empower developers and let the market decide how much security is needed for what services.
Jito Overview
Founded in December 2021 by Lucas Bruder and Zano Sherwani.
Notable investors include Multicoin Capital and Framework Ventures.
Jito is a liquid staking service based on the Solana blockchain, with its primary product being the jitoSol liquid staking token (LST). JitoSol’s yield is augmented by maximal extractable value (MEV), which refers to opportunities to profit from transaction ordering. The stake weight from the LST enables the protocol to capitalize on MEV opportunities, fueling higher yields and making the LST more attractive in a virtuous cycle that powers the protocol.
Staking on Solana works by depositing $SOL into a stake account, then allocating that stake account to a validator. A staking pool for an LST operates as a layer above the stake account, where a user contributes to a staking pool that is managed by an admin hot wallet. This wallet has logic to determine how stake gets allocated to validators in the pool. This forms the foundation for the LST half of the Jito protocol.
The MEV half of the protocol is enabled by the jito-solana validator client produced by Jito Labs. Validators running this client can support the bundling of multiple transactions into a single operation, creating opportunities for extracting MEV, thus generating a new source of revenue for validators. As a result, approximately 80% of validators on Solana are running the jito-solana client.
There are two distinct organizations behind the Jito protocol. Jito Labs is a private company focused on developing and selling MEV optimization technologies and services for Solana validators. Jito Foundation is a non-profit entity aimed at supporting the adoption, education, and healthy development of Jito technologies and the Solana ecosystem as a whole. These two entities are closely aligned to deliver positive outcomes for the Jito protocol as well as the broader Solana ecosystem.
The latest project for Jito is the launch of their restaking platform, announced on July 25, 2024. Restaking is a method by which an already staked asset can be used to secure other services, which in turn allows the asset to earn additional yield. The term “restaking” is somewhat of a misnomer for Jito because their approach focuses on maximum flexibility in how services can be structured and what assets can be used to secure them. This means that any token on Solana could be used with the platform.
Jito Stats
While JitoSol’s TVL has fluctuated in USD terms, currently at 1.8 billion dollars, the protocol has seen steady growth in the absolute amount of Solana staked within it. As they’ve amassed more and more SOL TVL, they’ve become the leading liquid staking protocol on Solana, rapidly establishing a strong position thanks to their points program in late ’23 and continuing to march up to a commanding ~50% market share today.
There are 281 validators supporting JitoSol as of 8/6/24, with a total of 11,884,570 SOL staked on those validators, earning approximately 8%. The pool manager charges a 4% fee against the rewards earned each epoch. Any holders who wish to unstake via Jito’s unstaking mechanism are charged a 0.1% withdrawal fee. There is also the option to swap out of JitoSol via DeFi protocols, where slippage can vary based on liquidity.
While the majority (~70%) of JitoSol is held in user wallets, there is still a healthy amount of usage in the Solana DeFi ecosystem. Kamino is responsible for approximately 10% of JitoSol usage, a lend/borrow protocol that also offers a variety of automated vault strategies. This is closely followed by Drift at 9%, a perpetuals DEX. These two are trailed by MarginFi at 5%, another lend/borrow protocol. MarginFi has an active airdrop program running, which could be positively influencing its ability to attract capital. Then there’s a long tail of other protocols, including other DEXs and services like Squads, the leading multisig protocol on Solana.
One of the most impressive metrics from the Jito protocol is its ability to monetize in the form of fees, which has recently rivaled that of Solana. In May, the protocol earned approximately 41 million dollars in fees; in June, around 27 million dollars; and in July, approximately 36 million dollars. While most utility tokens don’t have any value accrual mechanism today due to the fear of regulatory crackdowns, the ability to generate fees is a strong indicator of a healthy protocol that could eventually serve as a fundamental evaluation metric for the JTO token price.
https://dune.com/ilemi/jitosol
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JTO Analysis
The JTO token launched on December 7, 2023. The launch was marked by a particularly significant airdrop to early adopters, validators, and MEV searchers within the Solana ecosystem.
As of August 8, 2024, there are currently 124,442,742 circulating tokens with a total supply of 1,000,000,000. The current price is $2.81 per token, giving the token a 12.4% float and a fully diluted valuation of $2.8 billion.
The most comparable tokens are Lido’s LDO, the largest liquid staking token on Ethereum, and Eigenlayer’s $EIGEN, the pioneer of restaking on Ethereum. LDO has a fully diluted valuation of approximately $1 billion, well below Jito’s. The EIGEN token hasn’t launched yet, but the pre-market on HyperLiquid has it valued at around $4 billion. The JTO token valuation seems to be in the ballpark with comparable protocols, and there’s a strong case for the whole being greater than the sum of the parts with Jito controlling the full value stack of MEV, JitoSol, and the restaking platform.
Regarding the 12.4% float, there is a steady stream of JTO tokens being allocated to liquidity providers as rewards for liquidity vaults on the Kamino protocol. This is currently the only source of new JTO being introduced into the market. The Sol/jitoSol vault, yielding approximately 10% APY in JTO tokens, is particularly attractive as a means of earning JTO, rewarding users for a long Sol position in exchange for an additional layer of smart contract risk.
The biggest known impending event that could affect the token price is the one-year anniversary on December 7th. This date will begin token unlocks for both investor and core contributor allocations, which will quickly introduce an additional 150 million tokens, doubling the float within a month, followed by two years of linear vesting for an additional 250 million tokens. https://www.jito.network/blog/announcing-jto-the-jito-governance-token/
Governance
The JTO token’s primary utility is the governance of the protocol. Holders are able to participate in the protocol’s forums at https://forum.jito.network/ and vote on proposals on the Realms platform at https://gov.jito.network/dao/Jito.
JIP-3, “Transfer of Jito Stake Pool Management to StakeNet,” was approved a month ago and is currently in phase one of implementation. https://forum.jito.network/t/jip-3-transfer-of-jito-stake-pool-management-to-stakenet-protocol-development/309
The standard Solana LST model has significant centralized risks due to the centralized hot wallet, which fails to align with the core principles of crypto. The Jito team launched StakeNet to help automate the functions of the admin wallet in a transparent way while mitigating the risk of admin hacks or censorship that come with a central hot wallet controlling the stake pool. StakeNet runs entirely on-chain and consists of a network of keepers that track the history of all validators on the network and a steward program that allocates stake to the best-performing validators based on that history. Once implemented, this will improve the decentralization, security, and scalability of JitoSol.
The Jito Delegate Call on 8/8/24 at 10 a.m. PST covered the details of JIP-4 and JIP-5, which involve blacklisting bad actor validators and initiating a bug bounty program, respectively. The more interesting discussion was around a JIP draft for a Node Consensus Network (NCN) Grant Committee. NCNs are roughly analogous to Actively Validated Services (AVS) in the Eigenlayer restaking ecosystem.
The draft proposes allocating 10 million JTO to Development Grants, which will be awarded based on estimated economic activity generated by the NCN; Production Grants, which will offer NCNs tiered liquidity mining/security mining rewards based on economic activity benchmarks once the NCN is live; and Futarchy Grants, which will have similar goals to the Development Grants but will utilize the MetaDAO platform for decision-making. https://forum.jito.network/t/node-consensus-network-ncn-grants-committee/360
The goal of the grants program is to get NCNs generating value as quickly as possible on Jito’s restaking platform. Eigenlayer is lacking core functionality around slashing and reward distribution, and the Jito team believes there’s an opportunity to reach the market first with a fully formed product and accrue a critical mass of the services that will determine the success of restaking protocols. The first NCN will be Switchboard, an oracle service that specializes in the Solana ecosystem.
Competitive Landscape
JitoSol has an iron grip on the liquid staking market on Solana, having clearly won over Marinade (mSOL) and Blaze (bSOL), which were their primary competitors during the bear market. The latest competition comes from Sanctum, an LST launching platform pushing a novel infinite LST paradigm. Their platform enables each validator to launch their own LST, and then everyone can use the Sanctum LST (INF) to mitigate slippage when moving between the various LSTs.
This has allowed Jupiter (jupSOL), the primary DEX aggregator on Solana, and Helius (hSOL), an RPC provider on Solana, to easily launch their own LSTs with unique differentiators. Both offer yields above what JitoSol currently offers and have seen strong early adoption. Whether one of these becomes a serious competitor is yet to be seen, but Sanctum has significantly reduced the barrier to entry for new potential JitoSol competitors. https://app.sanctum.so/lsts
Restaking competition on Solana is coming from Solayer, which has an active points program and has rapidly risen to $160 million TVL in their protocol. Both Solayer and Jito Restaking differentiate from Eigenlayer by securing services that live on the base layer of Solana, whereas Eigenlayer focuses on using ETH to secure exogenous protocols like Layer 2s and DA layers.
Solayer only supports SOL and SOL LSTs as the collateral to secure services on their platform. Jito’s platform will allow any SPL token, which seems to be a strictly better model that provides developers with more options around how they build and secure services on the platform. Both protocols are young and worth watching to see how they adapt and grow. The critical component will be who can attract the most valuable services to build on them, amplifying returns for restakers and creating network effects for the platform.
Closing Summary
One of the goals of Jito restaking is to allow protocols with utility tokens, previously only used for governance, to be used to secure some aspect of the protocol. Lucas mentioned there were compelling MEV use cases for restaking on a July 30th episode of the Blockworks Bell Curve podcast. While nothing explicit was said, we could see the JTO token become an asset used to secure a Jito Labs NCN protocol launched on the Jito restaking platform.
While there isn’t currently a primary source of competition to JitoSol in the ecosystem, Sanctum has created a platform where a compelling application could easily launch an LST that gains enough traction and produces enough yield to challenge Jito’s MEV + LST flywheel at a large scale.
The ability of Jito to generate significant fees is particularly interesting as the political climate starts to create regulatory clarity around crypto. Dividend or buyback-like programs could tether the JTO token price to fundamental properties. Though this level of fees has only been present since March 2024, how they hold up during all market conditions is yet to be seen.
Jito is one of the largest and strongest foundational DeFi protocols in the Solana ecosystem. JitoSol has achieved a tremendous amount of adoption. The Jito team has a defensible moat with their expertise and integration of MEV into their product. The protocol has future growth opportunities with the launch of its restaking platform. Overall, Jito is succeeding in all the right areas for a blockchain infrastructure team, particularly given Solana’s status as the top-performing Layer 1 in this cycle.
