A shakeup to Jito's economic rails is in the works.

Updated Nov 21, 2024, 4:17 p.m. Published Nov 21, 2024, 4:09 p.m.

Investors in Jito's JTO token could soon start collecting payouts on top of their holdings under a redesign of the major Solana protocol's economic rails.

Billions of dollars in crypto value already flow through the network Jito Labs built to make Solana crypto transactions more efficient. Along the way, profit-seeking bots spent billions more in SOL to reorder transactions in their economic interest.

While Jito Labs has historically overseen the distribution of those tips to validators running Jito software, a new setup called the TipRouter is spreading that burden across a network of node operators. They'll be tasked with reaching consensus on who gets a piece of the $15 million worth of tips Jito generates every few days.

In return, those node operators will get a taste of the upside. And so too will JTO holders who grant them legitimacy by staking their assets with them, assuming the new governance proposal JTO-10 is adopted.

The proposed system leans on two of Jito's recent headline-grabbing plays. First, its decision over the summer to build a restaking network for Solana. Second, its embrace of a new type of governance model called futarchy that empowers markets, instead of tokens and votes.

Jito's governance token JTO was created in the image of most every cryptoasset tied to a DAO: holders vote on proposals, and the more tokens they have, the more power they wield in the DAO. Like most governance tokens, JTO captured no direct economic upside.

That will change if JTO-10 passes first through Jito's traditional DAO and then is approved at the futarchy-based MetaDAO. Passage there seems all but certain because futarchic models push traders toward the outcome that is most likely to be economically beneficial for the token.

Interest in MetaDAO has been steadily building the Solana venn diagram of market nerds who care about decentralized governance, but struggled to catch on more broadly because it's quite complicated to participate in. Jito is MetaDAO's most prominent user and a proposal of this magnitude could drive more engagement with futarchy.

The TipRouter setup will also be an early stress test for Jito's restaking setup, one of the first to launch on Solana. Jito Foundation's Brian Smith said the project partly built a restaking setup in order to support the decentralization of the TipRouter.

"Its a good demonstration that these networks actually have utility, and people are willing to pay to use these networks," he said.

Some critical pieces of the final design won't be ready at launch of Jito restaking and TipRouter. For instance, there won't initially be a slashing mechanism that would punish node operators who attempt to lie about where tip rewards ought to flow. Slashing would cut the JTO that stakers allocated to them.

That would be a costly reversal on a setup that — if all works properly and if current network activity persists — might see $3.6 million in tips flow to node operators and their JTO stakers annually.

Slashing is a critical element of ensuring economic security in crypto's broader restaking movement. It's also seen as a paradoxically optional piece of early-days design by the biggest proponents of restaking, most notably sector leader and pioneer EigenLayer.

Smith said Jito's TipRouter will probably have some sort of slashing mechanism eventually. But there's a lot of "really complicated edge cases" that need to be accounted for in the meantime, he said.

"You can have a carrot and a stick. The carrot is big enough at the moment that we probably don't need a stick," he said.