Being a validator on Solana: Some lose money, some earn up to $14 million

Original title: " Solana Validator Business: The largest validator earns $14 million, and thousands of nodes are losing money"

Original author: Frank, PANews

Solana has recently been leading in data in all dimensions. Previously, PANews wrote an article introducing the rapid development trend and pattern of its ecological liquidity pledge track. In addition to these projects in the front stage, the validators behind Solana seem to have always been relatively mysterious. How much can you earn as a validator on Solana? What is the level of investment? PANews has done some research on this business.

The consensus mechanism adopted by Solana is a combination of Proof of History (PoH) and Proof of Stake (PoS). Token holders can pledge their tokens to validators of their choice. The more tokens a validator obtains, the higher the proportion of blocks generated by the leader. At the same time, users who participate in staking can also receive block rewards in proportion.

Usually, validators can decide to charge 8%~10% staking commissions to stakers, while those who choose not to charge commissions and have a relatively stable network are more favored by staking users.

Solana has two types of validator nodes, one is the validator node that participates in voting and bookkeeping, and the other is the RPC node. RPC nodes can provide data access interfaces for developers and applications, and have lower configuration requirements. However, RPC nodes do not directly participate in network verification, so they cannot receive block rewards.

In comparison, validator nodes have higher requirements for hardware bandwidth, memory, storage, etc., so generally speaking, they are deployed in data centers around the world, making it difficult for ordinary users to reach a business.

The cost is at least $60,000 per year

Specifically, the main costs of validators are as follows.

Hardware:

Hardware cost is one of the biggest costs of becoming a Solana validator. The official Solana recommendation is a 12-core/24-thread CPU, 256GB/512GB of memory, and a disk of more than 1TB. This configuration is far beyond the average home computer, especially in terms of memory. The price of this item alone is basically more than 10,000 yuan. In addition, a stable 1GB transmission bandwidth is required. Therefore, most validators choose to rent a server. According to the Helius article, the rental fee is between $370 and $470. The annual cost is about $4,500 to $5,600.

Bandwidth fees are often based on the amount of stake, and the more times you lead a block, the higher the bandwidth fee.

On-chain voting:

Solana requires voting on the chain to reach consensus, and these voting transactions incur the same fees as other transactions on the network. In each epoch (432,000 slots), validators are required to vote, and the price of each voting transaction is 0.000005 SOL (voting is a privilege and there is no associated priority fee). This equates to a total fee of about 2-3 SOL per epoch. Given that an epoch usually spans 2 to 3 days (usually close to 2 days), the annual cost of voting transactions is about 300-350 SOL, which is about 1 SOL per day. At the price of $182, this part of the fee is about $54,600 to $63,700. When the price of SOL is high, this part of the cost usually becomes one of the largest costs.

In general, the annual cost on Solana is at least about $60,000. This amount of capital investment is not a small investment for ordinary users, and it does not involve the labor costs of operating and maintaining servers.

The income may be negative

Although the investment is not small, what about the income as a validator?

The income of Solana validators comes from several parts, inflation income, whole block rewards, and MEV.

Inflation income:Inflation income is the SOL token reward obtained by participating validators. The inflation rate of SOL tokens was initially set at 8%, and then it was reduced by 15% each year. The inflation income of the validator is also related to the staking ratio of the entire network. The lower the total staking ratio, the higher the staking income of the validator. The current inflationary comprehensive income is 5.52%. According to the 8% commission charged by general validators, the current annual staking income for a staked share of 10,000 SOL is about 8,000 US dollars.

Whole block reward: Each validator has a certain chance of becoming a block leader, and the number of times he is elected also depends on the number of staked SOLs. Taking 10,000 SOLs staked as an example, the number of times he is elected in each epoch (usually 2 days) is about 11 times. The income of this part is about 52 SOLs for the whole year (the current average block reward is about 0.0332SOL), which is about 9,400 US dollars.

MEV Rewards: stands for "Maximum Extractable Value", which refers to the profit that a validator earns through the ability to arbitrarily include, exclude, or reorder transactions in the blocks it generates. On Solana, validators designated as leaders have full control over the packaging and scheduling of blocks. Searchers can send bundles to leaders through an off-chain auction mechanism for inclusion in blocks, while paying a certain tip. If a validator runs the Jito-Solana client, this part of the profit can be collected, but this income also depends on whether it can be elected as a leader multiple times. The average MEV reward per block is currently about 0.0427SOL, and in the Jito client, this income is generally shared with the staking users, and the validator charges an 8% commission. Based on this calculation, the income from this part of staking 10,000SOL per year is about US$970 per year.

According to this ratio, if the staked amount is only 10,000 SOL, the annual comprehensive cost is at least $60,000, while the income is about $18,370, and the loss reaches $41,630. It seems to be a deal that can only lose money.

However, the main reason for this loss is that the staked amount of SOL is insufficient. If the staked SOL tokens are increased to more than 32,300, the loss can be turned into profit.

There are currently 2,724 validator nodes on Solana, of which 857 validators have staked more than 32,300 tokens. According to this calculation, the remaining more than 1,000 validators are all in a loss state. However, the Solana Foundation also has a related support plan. For new validators, if the total stake of validators entering the Delegation Program is less than 100,000 SOL, the SOL stake will be matched 1:1. However, according to this, validators still need to strive for at least 15,000 SOL stakes. If they stake out of their own pockets, the investment is currently no less than 2.73 million US dollars.

The largest validator's income reached 14 million US dollars

For those mature validators, the income of the validator is already a sufficient profit. For Helius, which has just become the largest validator, the current entrusted staked tokens are 13 million SOL. Helius does not charge any inflation commissions and MEV commissions. This part of the income is fully fed back to the staking users. In this case, Helius's block rewards will reach 14.05 million US dollars per year. If Helius also charges an 8% commission, its revenue will increase by another $14 million. However, perhaps it is precisely because of this part of the revenue that more staking users choose to stake their tokens to Helius.

In addition, large validators like Helius do not rely solely on block revenue. Helius also earns revenue by providing RPC node services and API access. The current subscription standard ranges from $49 to $999 per month. Helius has become one of the main RPC service providers in the Solana ecosystem.

It may be difficult to make a profit by staking alone

For users who stake to such validators, they can usually get an annualized return of 6% to 8%. However, this is not a stable return that is immutable. It usually faces the risk of a decline in the SOL token, penalties for unstable validator servers, and the risk that some bad validators will quietly increase the commission ratio to 100%. However, from the data point of view, at present, the staking ratio on the Solana chain is about 65.7%, which is in a leading position among public chains. It seems that participating in staking has become a collective choice of large SOL holders. However, this investment strategy is only feasible in the market where the SOL token is expected to rise. If the cost of holding SOL is too high, it is easy to wipe out all gains and turn them into losses in the decline.

In general, whether it is financial reserves or technical complexity, Solana's validator income has a certain threshold. But for those groups who have a certain appeal and financial strength in the ecosystem, becoming a validator is indeed a relatively stable income. However, the high threshold has also made Solana questioned that it is becoming more and more centralized or monopolized by a small group of people. For ordinary users, relying solely on staking and the sharing of MEV rewards is difficult to become a reasonable means to resist the risk of asset fluctuations.

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