Solana Validators to Get More Fees, Amid Side Deal Concerns

Solana validators are set to receive 100% of priority fees, following a governance vote, after their income surpasses Ethereum’s.

Solana astronaut collecting DEFI SOL clusters.
Created by Kornelija Poderskytė from DailyCoin
  • Solana governance approves full priority fees for validators.
  • The change aims to address issues with validators making side deals. 
  • Earlier, Solana validator’s income surpassed Ethereum’s. 

In blockchain tech, validators play a crucial role in securing the network. They record all transactions on the chain correctly and ensure that all participants get equal access. However, a recent proposal has highlighted that this may not always be the case in practice.

Most recently, Solana holders have voted on a proposal to give 100% of priority fees on the network. The decision comes after several users reported issues with validators engaging in side deals to boost their income. 

Solana Vote Allocates Full Priority Fees to Validators

On Tuesday, May 28, Solana’s governance community voted to pass a proposal documented as Solana Improvement Document number 96 (SIMD-0096), which allocates 100% of transaction priority fees to validators. 

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This proposal, which received 77% approval, aims to address issues from validators making side deals with transaction submitters to increase their rewards. Under the previous system, the network split the priority fees equally between burning tokens and rewarding validators.

Validators are critical participants in the Solana blockchain, running software that confirms transactions and ensures network security. The problem of side deals emerged because validators had the incentive to prioritize transactions off-chain for additional rewards, bypassing the intended fee structure.

The proposal aims to eliminate these side deals by granting validators full priority fees. According to the proposal’s creator, tao-stones, this change will ensure that validators have the proper incentives to maintain the network’s security and efficiency.

Solana Holders Complain Proposal Does Nothing to Eliminate Issue

Despite getting the majority of the votes, many Solana holders were unhappy with the decision. Several holders claimed that the vote would increase validator income, without doing anything to tackle the issues with side deals.

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On May 8, the total income of Solana validators surpassed that of Ethereum validators, despite Ethereum being a much bigger chain. This was due to Solana validators having higher Maximum Extractable Value (MEV) opportunities, which are not limited just to transaction fees. 

Validators on Solana earn income from several sources, including block rewards, arbitrage trades that front-run transactions, and side deals with network participants. While this structure benefits validators, it is unclear whether alternative sources of fees benefit network participants. 

Solana validators are also in a good position to earn fees due to the high transaction volumes on the network. Solana’s low fees incentivize high-frequency and bot transactions, which are not as common on Ethereum. 

On the Flipside

  • Solana holders have complained about the impact on Solana’s tokenomics. By redirecting fees that were previously burned to validators, SOL will be less deflationary. 
  • The vote highlights the issues with governance among many crypto projects, where each token counts as one vote. This system necessarily benefits large holders and insiders, at the expense of others.

Why This Matters

The recent decision by Solana holders showcases several key issues in blockchain networks, including validator power and governance imbalances. If a network decides to favor insiders and large holders, it may lose the support of its community.

Read more about validator income on Solana: 
Ethereum Faces Solana Challenge as Validator Income Rises

Read more about Solana’s potential ETF approval: 
Solana EFT Incoming? SEC Unlikely to Approve, Says JPMorgan

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
David Marsanic

David Marsanic is a journalist for DailyCoin who covers the intersection of crypto, traditional finance, and government. He focuses on institutionalized crypto entities like major cryptocurrency exchanges and Solana, breaking down complex topics into easy-to-understand writing. David's prior experience as a business journalist at various crypto and traditional news sites has enabled him to maintain a critical approach to news while adhering to high journalistic integrity standards.