Solana Validators Face Tough Choices: Yield vs. Ethics

In the Solana network, validators are finding themselves at a crossroads as they navigate between boosting yields and avoiding unethical practices. For smaller validators, and indeed all Solana validators, the key challenge is attracting more delegated stake. But as competition intensifies, some are turning to questionable methods.

Falling Fees and Shrinking Profits

The decline in Solana transaction fees and tips has coincided with the drop in SOL prices since the summer. This has put pressure on smaller validators, especially after the Solana Foundation lowered commission caps for those receiving stake from its delegation program.

For validators, profits scale with stake, while operating costs stay relatively fixed. This means the more delegated stake a validator can attract, the more profitable they become. Validators can either market themselves to stakers directly or tap into stake pools, which distribute staked SOL across multiple validators. However, recent changes in the stake pool landscape are making it more difficult for smaller players.

Marinade’s Stake Auction Shakes Things Up

The second-largest stake pool, Marinade, recently launched its stake auction marketplace (SAM). In this system, validators bid for Marinade’s delegated stake, and those who bid the most SOL receive the delegation. As a result, mSOL’s native yield has soared to 8.1%, the highest among pools with more than two validators.

But this system has raised concerns. Some validators claim that only those engaging in questionable practices, like sandwich attacks, can afford to win these auctions. Sandwich attacks exploit less experienced users, and DeezNode, widely believed to engage in such tactics, has attracted substantial stake from Marinade.

Both Jito and the Solana Foundation have condemned sandwiching, a form of maximal extractible value (MEV). However, there’s no simple solution to the problem. Michael Repetny, a core contributor at Marinade, acknowledged that some validators using SAM may engage in sandwiching, but he noted that most of Solana’s stake operates on an MEV client, making it nearly impossible to prevent sandwiching without disabling MEV entirely.

Yield vs. Ethics: The Debate Continues

Repetny argued that SAM is beneficial for the Solana network because it creates clear rules and could encourage stakers to move away from centralized exchanges like Coinbase, which operates the third-largest validator. His view is pragmatic: if MEV can’t be fully eradicated, at least validators can pass higher yields back to stakers.

Interestingly, staker returns have seen a significant increase this year. Last year, stakers earned about 1% of transaction fees and tips, but that number has jumped to 29% in 2024, according to Blockworks Research.

Not everyone agrees with Marinade’s approach. AeroSOL, another Solana staking project, recently launched its Aeropool, seemingly taking a swipe at Marinade’s yield-first strategy. In a post on X (formerly Twitter), AeroSOL criticized modern delegation methods, saying they often prioritize maximum APY at the expense of stake decentralization.

Instead, Aeropool plans to delegate 150,000 SOL to validators who contribute positively to the Solana ecosystem, even if that means sacrificing some yield. The goal is to decentralize the validator set by supporting new and ethical validators, rather than concentrating power in a few large pools.

Repetny might argue that such an approach is unrealistic in today’s competitive market, but it reflects a growing desire within the Solana community to balance profitability with ethical practices.

Looking Ahead: What Will the Market Decide?

The ongoing debate between yield-driven strategies like Marinade’s SAM and ethics-focused models like Aeropool raises important questions for the future of Solana’s validator network. As the Solana ecosystem evolves, it will be interesting to see how the market responds to these differing approaches. Will stakers prioritize higher returns, or will they reward validators committed to decentralization and ethical behavior?

While there may not be a clear answer yet, one thing is certain: Solana’s validator community is at a pivotal moment, and the decisions made now will shape the network’s future.