PAL Token

Solving Bad MEV for Good (3/4)

PAL is a Token Extension (aka T22) and as discussed in the first post, its two main functionalities are:

1. Funnel MEV rewards to Token holders
2. Collateral to keep Palidators honest

Below we outline the design and mechanisms PAL uses for:
- MEV reward distribution
- Staking
- Slashing
- Airdrop

MEV Reward Distribution

When the Paladin bot captures MEV, it is converted to SOL and sent to a smart contract which distributes:

• 90% back to the leader
• 5% staked PAL
• 5% all PAL holders

This means:

• Current leader captures 90% of its MEV directly.
• 5% distributed to all Palidators and their stakers, pro-rata to the amount of staked PAL they hold (more on staking below). This is effectively “smoothing” — a leader captures less MEV in its own slot, but captures MEV in other Palidator leaders’ slots — so these 5% also go exclusively to the Palidators and their stakers.
• 5% distributed pro-rate to all PAL holders, but since 50% is airdropped to validators and their stakers, they capture 2.5% of it.

In total, Palidators and their stakers capture 97.5% of the MEV (not of their entire reward, just the MEV).

Staking

PAL’s goal is to act as collateral to ensure Palidators’ honest behavior.

So, PAL needs to be valuable, slashable, AND sticky; if all the validators can just move/sell their PAL they will no longer be incentivized to act honestly and funnel a portion of their MEV into it. PAL would no longer be valuable, and fail to achieve its goal.

So Solana validators and their SOL stakers get an airdrop of staked PAL.
Staked PAL has the following properties:

Additional 5% of MEV reward

In addition to the “general” 5% MEV reward which is distributed to all 100% of PAL holders, this “Palidators reward” is distributed solely to the Palidators and stakers with staked PAL. Assuming 50% of PAL are being staked, this reward pays twice as much per PAL, and in total staked PAL pays three times higher (equivalent to 15% of MEV) than unstaked PAL.

This changes proportionally to % of PAL staked:

• If 100% of PAL is staked, they will jointly capture 10% — all 5% of the “general reward” + all 5% of the “Palidartor reward”
• If 25% of PAL is staked, they will jointly capture 6.25% — 1.25% of the “general” reward + all 5% of the “Palidator” reward. Distributing 6.25% to only 25% of PAL holders is equivalent to 25% of MEV.

Only 5% of staked PAL can be withdrawn at any time

This induces a cooldown of 1 month before more PAL can be unstaked.

PAL can only be staked by Solana validators and their stakers, proportionally to the amount of SOL they control

• For every 1 SOL staked, both staker and validator can each stake 1.3 PAL
• All 100% current stakers (382M staked SOL) could stake 500M PAL, and their validators could stake 500M PAL, totalling in all 100% 1 billion PAL
• If a staker or Palidator exceeds this amount (eg, staker unstaked its SOL), their PAL will not be unstaked, but their share of the reward and vote’s weight will be capped at this ratio.

Slashable

Majority of the Staked PAL can decide to slash the staked PAL (and only staked PAL) of any Palidator or staker, for not following one simple rule:

Just run Paladin.

Slashing

PAL is not a “governance token”, it’s a cashflow token — there are no multi-stage proposals, no gradual upgrades, no forums. PAL does have a single important “governance” function: the majority of staked PAL can slash staked PAL of any validator which doesn’t “just run Paladin”.

Not running Paladin? Your initial airdrop will be slashed.
Majority thinks you’re frontrunning? Slashed.
Tweaking the Paladin bot with a new strategy? Slashed.
Trying out an alternative to Paladin? Slashed.
Delaying votes? Slashed.

Just run Paladin and get your share of the reward. Simple.

Any enhancement or experiment should be publicly shared with the other Palidators, and when appropriate — added to the Paladin code.
Paladin therefore turns MEV (and staking operations) from PvP to PvE — incentivizing everyone to grow the pie instead of secretly trying to carve a larger slice.

For Slashing to occur, majority (>50%) of staked PAL needs to vote to slash a specific entity for a specific amount. Once majority is achieved, it needs to be maintained for 1 week (giving Palidators and stakers time to hear more details of any incident and change their minds). If majority was maintained for 1 week, the Slashing takes effect immediately and the staked PAL are burned and reduce the total amount of PAL.

The incentive for Palidators to slash others is strong — the less staked PAL others hold, the greater their share of the reward.

Airdrop

There are a total of 1 billion PAL tokens, 100% of which are created and airdropped on launch.

• 50% of PALs will be airdropped as staked PAL to validators and their stakers, pro-rata to the amount of SOL they stake / are delegated.
• 23% will be airdropped to Solana builders, including teams and partners that have helped us to make Paladin a reality. Our goal is to reach out to every team building on Solana and airdrop every person in every team.
• 20% Team Allocation
• 7% of staked PAL is airdropped to an Evergreen Dev Fund, which could fund any foundation, dev work, research, or anything else, in advance or retroactively. These PAL tokens cannot be unstaked or sold, their (significant) rewards accumulate and can be spent by the majority of Staked PAL in any way they choose.

In the next post we explore the “Pack of Wolves” dynamic PAL creates, incentivizing all Palidators to act honestly, get their share, and never act against the pack since it will turn against them.