The long-awaited Solana Update is now live. The validators will receive all the optional fees that users have paid.
Solana Compass reported that Solana’s median priority fees dropped by 40% from just prior to the activation of this new feature. But it is too soon to know if that trend will last. A more immediate consequence is that liquid staking tokens — which allow validators to pass along priority fee rewards, whereas regular Solana staking does not — just became the highest-yield show in town.
Solana users have the option to pay a higher priority fee than the standard network base fee. This will increase the likelihood that their transaction is accepted onto the blockchain. In Solana’s original architecture, the priority fees paid by users were split between validators running Solana’s code and burnt, effectively removing them from circulation.
Validators will begin to receive 100% of the priority fees in May 2024. Justification for the decision was that validators were negotiating side agreements with traders to benefit from the burn of 50%. Some developers pointed out, as the SIMD 0096 activation date neared, that Solana did not have a way to allow validators to split priority fee rewards between stakers. Validators will be relatively wealthy at stakers’ expense.
It will be a few months before a future proposal SIMD-0123 is activated. This could permit in-protocol priorit fee sharing. Validators can share extra yields with stakeholders via liquid stake tokens. These tokenized claims are a portion of yields generated from a stake pool. The LST holders will receive an increase in yield if validators move the SOL earned by them into stake pools.
Sanctum is the Solana LST supplier. It announced this morning that they would create a Solana Validator for each validator. That would bring Solana’s total number of LSTs to over 1,000 — a more than tenfold increase.
Solana LSTs saw an increase in yields across the board. Jupiter’s yield is now 11.96% compared to 10.69% the previous period. Most LSTs have followed.
LSTs might not be the perfect solution. Converting native stake to an LST can create a taxable situation for SOL investors. LST owners must believe that the validators will pass on all yields.
“I absolutely hate ‘trust me bro’ situations,” Sol Strategies’ head of staking Max Kaplan penned on X. “I believe the LST method is confusing, a bad UX, and opens the door for potential [rug pulls].”
Jito, the operator of Solana’s largest LST, recently launched TipRouter. This system automatically distributes priority fees to users and allows them to be verified via blockchain.
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