Solana Validators: A Community Validator’s Primer on the World of Validators and Fee Economics

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College DAO

19 min readFeb 29, 2024

I can still lucidly remember my first time heading downtown in Singapore to a quaint shophouse in Chinatown to join my friend (and fellow intern) for a blockchain meetup. Little did I know back then that this was the Draper Startup House and I was about to join in on my first Solana workshop by Metacamp (OpenHaus back then) and meet some folks from SolanaFM (a student-led startup building the fastest Solana block explorer).

It was an introductory session into the account structure of Solana and how to build frontends that connect to wallets like Phantom. I was a freshman in college and I was code-literate at best, so everything seemed like rocket science. But this sent me down the Solana rabbit hole — diving into docs, building tiny personal projects, to reading up about ecosystem projects as I went along.

About 4 years later, I am still by no means an expert in consensus mechanisms or cryptography. But in my journey co-founding College DAO, I explored the Solana ecosystem from an educator’s perspective this time. This involved introducing fundamental concepts like what validators are and the incentive mechanisms at work behind the blockchain. And the main reason why was because some of the first questions students ask were fundamental questions like why would anyone run a validator? So I looked into validators more closely.

And boy was this an eye-opener.

Solana Validators

One of the Solana network’s major value propositions is that is the most high-performance blockchain with high throughput (Transactions per Second or TPS) and the lowest transaction fees. Every validator that is part of the network plays a part in securing Solana and contributing to its decentralized infrastructure.

Validators are a important cornerstone of the blockchain world, powering the infrastructure that runs beneath everything else built on top of the blockchain.

On Solana, validators are grouped into clusters and there is a leader schedule where the leader validator is assigned 4 consecutive slots and is responsible for producing a block for the current slot (each slot lasts ~400 milliseconds).

A quick diagrammatic overview of how validators process transactions on Solana [Source]

When a transaction is initiated, the transaction hits a server that then checks the leader schedule to see who to forward this transaction to. Validators then work together to:

1. Validate Transactions

One of the key roles that validators have are to verify transactions to ensure that transactions comply with the network. For example, this includes checking the signature of the transactions, and if the transaction is valid.

2. Block Production:

This is where the leader validator groups transactions into blocks and broadcasts it to the rest of the network to be added to the blockchain (and become part of the blockchain’s history).

While on blockchains such as Ethereum, block builders are separate from validators, Solana validators also fulfill the function of block builders. Validators use the Proof of History (PoH) mechanism, a relatively new consensus mechanism that Solana developed. PoH uses a cryptographic Verifiable Delay Function (VDF) to generate a timestamp for each block as it is built in a way that makes it hard for attackers to manipulate timestamps.

On the topic of block production, this is where priority fees are important! We’ll cover priority fees in a bit when we explore the fee economics and income sources for validators but for now, a basic understanding of it is that users can pay priority fees when sending a transaction for their transaction to be executed earlier.

While most validators use the block building algorithm provided in the software (client) built by Solana Labs, validators can choose to run different implementations.

Unlike Ethereum, there is no public global transaction queue on Solana. Instead, how Solana processes transactions so fast is by looking into the transactions, and seeing if the transactions interact with the same state (E.g. two transactions interacting with an account in a similar way). If the transactions are independent, they can be executed in parallel!

With the default implementation of the validator’s block building algorithm, while there is a degree of randomness, the transactions are ordered using both priority fees as well as a first-in-first-out (FIFO) approach.

3. Participate in Consensus:

Next, after the transactions are executed by the leader validator, it would then broadcast the latest block to the rest of the network for the consensus mechanism to kick in and confirm it.

Consensus mechanisms are algorithms that help validators across the network agree on adding a new block to the blockchain. Solana uses a delegated Proof of Stake (dPoS) consensus mechanism where validators are delegated SOL tokens. Validators are chosen to participate in the consensus process where validators that are delegated more SOL have more influence.

Blocks are considered “confirmed” after at least 2/3 of validators have voted on the block, and are considered “finalized” after 32 confirmed blocks have been added on top of it.

Interested to learn more about how Solana’s consensus mechanisms work? A deep dive into that would be beyond the scope of this write-up. But I would thoroughly recommend referring to further material such as Helius Network’s article on consensus on Solana that is very comprehensive and well-researched.

Now to the fun part — fees and how validators generate income.

Fee Economics — Income Sources, Spam Protection and the Emergence of MEV

While running validators might not seem like rocket science to technical professionals, it still is definitely not a walk in the park. It can be a time and effort intensive process that sometimes takes entire full-time teams to carry out.

This is especially so for companies that run multiple validators or manage a large delegation of SOL in their validators. Still, there’s the question of what incentives are provided for validator operators to contribute while remaining sustainable or profitable.

This is where it’s important to understand the income sources for Validators.

Income Sources for Validators

Validators on Solana primarily generate income through three main sources.

1. Inflation Commission

One of the income streams comes in through inflation commissions. Inflation in this case occurs as tokens are created and issued to the validator, increasing the total outstanding token supply, diluting the circulating pool of tokens.

Validators receive their rewards at the end of every epoch (432,000 blocks), and this is calculated based on a couple of factors such as:

The Global Inflation Rate which is predetermined by Solana and helps to incentivize earlier participation by validators.
The Staked Percentage which is the proportion of total SOL that is staked where a greater proportion results in greater potential rewards.
The Commission Rate which is charged by validator-clients as a proportion of the total inflation rewards for the validator.
The validator’s participation which is from the validator’s uptime and slots where the validator successfully voted on transactions.

A diagram on inflation schedule ranges [Source]

Solana’s inflation schedule includes an initial inflation rate of 8%, a dis-inflation rate (annualized rate at which the inflation rate decreases) of -15% and a long-term inflation rate (the stable long-term inflation rate to be expected) of 1.5%, and the full details can be found on Solana’s website.

This means that starting to run validators as soon as possible helps validators capitalize on higher inflation commissions earlier on in the inflation schedule.

2. Transaction Fees

To begin with the structure of block rewards, we would need to briefly understand a bit of Solana’s history. Solana used to be plagued with a fair bit of technical issues and downtime primarily due to trading bots that spammed transactions on Solana, resulting in massive congestion on the throughout network.

Things have significantly improved since then (check Solana’s uptime here) with major upgrades to the network like the rollout of QUIC TPU, Stake weighted QoS, and localized fee markets. Since then, the recent outage in Feb 2024 was the first outage since Feb the previous year in 2023.

Localized fee markets is a big differentiating factor that helps with network congestion as a spike in activity in one corner of the network does not drive up transaction costs across the entire Solana network.

Here’s a quick example — If there is a suddent surge in trading activity between two tokens on Jupiter, users might need higher prioritization fees for their transactions to be processed. But someone minting an NFT on Magic Eden won’t see that spike in transaction fees.

Now onto how Solana’s transaction fee structure works to help out with this. Solana fees are comprised of 2 components — a base fee and a prioritization fee.

Base fees are currently set to 0.000005 SOL (5,000 lamports) per signature on the transaction.
Prioritization fees are optional but are in place to help validators prioritize specific transactions (if users are willing to pay priority fees) as it increases the likelihood that a transaction is included in the next block that is being built by the leader validator.

Solana Prioritzation Fees on Dune [Source]

Both base fees and the prioritization fees are awarded to the validator that is the leader of a given block. However, 50% of the base fee and 50% of the prioritization fees are burned, so the validator receives half of the base and prioritization fees.

50% of Base fees and 50% of Priority fees are burnt [Source]

As the rewards validators earn is proportional to the amount of SOL staked, community stakers are incentivized to adhere to performance and uptime guidelines to remain attractive validators for stakers to stake their tokens with. This mutually beneficial arrangement allows both the staker and the validator operator to earn more based on good behavior.

The average transaction fees on Solana was 0.000033234 SOL per user in epoch 580, adding up to 3,886.07 SOL spent, or nearly $498,855 USD at the time of writing.

Here’s some live tracker dashboards that break down Solana fees on Solana Compass and Solscan.

The Emergence of MEV on Solana

Maximal Extractable Value, or MEV for short, is the profit that participants in the transaction lifecycle include, exclude, or reorder transactions within the blocks they produce. MEV has been running rampant in the blockchain space, with the amount of MEV exponentially increasing since 2018 to an eye-watering $550–650 million USD in 2022.

However, while MEV entails similar concepts across blockchains, Solana is a very different blockchain than Ethereum, and it has taken a different flavor on Solana. Nevertheless, there are still opportunities for validators to benefit from fees that MEV provides. More on how specific validator software (clients) can help validators earn additional MEV rewards.

Costs & Requirements

Running a validator can offer great upside, but as always, there’s no such thing as free lunch. There are costs associated with operating validators, and there are also strict requirements that validators should meet, together with accompanying penalties if they are not met.

This is where there is some level of technical expertise that is required, but here are some quick pointers on what to be careful of!

Running validators for Solana reliable and performant hardware, and a stable internet connection. For validators to earn rewards consistently, they need to have good uptime. While it is normal for validators to have some downtime for maintenance or reconfiguration, they miss out on rewards when they are offline.

Additionally, there is also something called the skip rate that measures the percentage of cases where a validator that is the leader fails to produce a block which is then confirmed on the network. This could be due to latency or lag in the leaders and validators in the network.

Here are two articles that are immensely useful diving into trends between the data center location, blockchain load and many other factors that you can be conscious of when running validators to maximize your validator performance:

Next, the primary costs associated with validators includes the hardware costs, or the server costs if you are utilizing a cloud provider. When selecting hardware, it is important to note that Solana requires reliable and performant hardware, and a stable internet connection to ensure uptime.

For now, let’s go with the requirements that are provided on Solana’s documentation. As always these are just guidelines and validators are encouraged to do their own performance testing on their hardware. A good place to do such testing is the devnet.

CPU

12 cores / 24 threads, or more
2.8GHz base clock speed, or faster
SHA extensions instruction support (AMD Gen 3 or newer | Intel Ice Lake or newer)
AVX2 instruction support (to use official release binaries, self-compile otherwise)
Support for AVX512f is helpful

RAM

256GB or more
Error Correction Code (ECC) memory is suggested
Motherboard with 512GB capacity suggested

Disk

PCIe Gen3 x4 NVME SSD, or better
Accounts: 500GB, or larger. High TBW (Total Bytes Written)
Ledger: 1TB or larger. High TBW suggested
OS: (Optional) 500GB, or larger. SATA OK
The OS may be installed on the ledger disk, though testing has shown better performance with the ledger on its own disk
Accounts and ledger can be stored on the same disk, however due to high IOPS, this is not recommended
The Samsung 970 and 980 Pro series SSDs are popular with the validator community

GPUs

Not necessary at this time
Operators in the validator community do no use GPUs currently

Additionally, there are also costs involved for operating the validator, such as data ingress and/or egress costs (depending on your server setup — running it on servers or with a technology provider) and costs of voting on transactions (one of the largest expenses).

How Profitable is it to run a Solana Validator?

The next question that some might have would be surrounding how do all the relevant costs stand up against the income that validators can bring in. Can the current fee structure support community validators without additional grants or subsidies?

Solana validator servers cost about $350-$700 USD per month to run (let’s take $4,500/year as an estimate), and assuming about 2–3 SOL in voting costs per epoch (~2 to 3 days), this amounts to about $45,000-$68,000 USD per year.

In terms of revenue, if we assume 100,000 SOL of delegated stake in the validator, it is estimated that validators are assigned about 4 leader slots per 3500 SOL staked, resulting in 113 slots per epoch. With an estimated 0.0078 SOL in block rewards, this generates between $48,000/year in delegated stake revenue and about $18,600/year in block rewards revenue. After voting costs and server costs, this amounts to about $20,300/year in net income.

Cogent Crypto is a validator that has been contributing to the Solana ecosystem with a strong track record of validator uptime with an experienced team and a culture of transparency when communicating with the rest of the community.

The Cogent Crypto team have built a very handy validator calculator for community stakers to access the profitability of their validator sets. I would highly encourage aspiring validator operators to use the calculator to draw up some estimates.

Why Community Staking is Important — Decentralization

On the topic of decentralization, one of the fundamental value propositions of the blockchain is the resilience of a network

Blockchains are built to be resilient and censorship resistant, with a decentralized network of validators running software that ensure consensus rules are being followed before executing, storing, and propagating valid transactions.

The objective is to ensure there is no 1 point of failure or a central body that can censor transactions. With regards to this, Solana is one of the most distributed blockchains. With a robust community of stakers and validators, this has helped Solana run its infrastructure all around the world at independent data centers.

Here’s a live dashboard on Solana Beach listing major validators on Solana.

Geographical Distribution

Distribution of validator nodes geographically [Source]

The security of the Solana blockchain is also tied to the distribution of stake across validators. On this front, there is a large number of validators that provides a a fair amount of decentralization for Solana. This is why community staking is important — it helps to secure the network against attacks like censorship.

Stake distribution amongst validators on Solana [Source]

Client Diversity and Decentralization

Clients are the software that blockchain validators run, and are fundamental to the security of any blockchain. However, code is written by humans and humans can make mistakes, wittingly or unwittingly.

This also means that running a large proportion of a blockchain’s validators on a single client would increase the risk of severe network outages due to vulnerabilities in the code, or Day-zero exploits (code vulnerabilities that are novel and have not been discovered yet).

The Solana Client by Solana Labs

The first validator client on Solana was originally developed by Solana Labs. This was the dominant client, and still is to this day.

The Jito Labs Client — A client built to capture MEV

We discussed a little about MEV earlier when fee economics and validator income sources were introduced. Well, there Jito Labs developed and released Solana’s second validator client to the mainnet in August 2022. This was a fork of Solana Lab’s code configured to help validators support MEV and receive rewards from MEV activity on Solana. However, as this is a fork, a bug in the Solana Labs clinet might also be present in the Jito-Solana client as well.

MEV as a major opportunity and JITO leading the way [Source]

Firedancer — A revolutionary client by Jump Crypto

Firedancer is a new client developed by Jump Crypto with tremendous performance gains. The original Solana Labs client was built in rust, but Jump Crypto rebuilt another version in C++, and is not a fork. This means that a bug in the Solana Labs client is likely to not be present in Firedancer, helping to reduce risk of a majority client bug.

Jump Crypto presents a second Solana validator [Source]

For a deeper dive into Firedancer, and its significance to Solana, definitely run through Jump Crypto’s release of the client and this article a read.

Sig — the client by Syndica written in Zig

Sig optimizes performance by optimizing for reads-per-second (RPS). This intends to tackle heavy read calls, a big contributor to slot lag on Solana (nodes currently can handle about ~60 getProgramAccounts calls/s before performance degrades)

Why Minority clients Matter

Having 3 main clients, and one perhaps on the way, the current ecosystem offers some level of diversification, and developing new clients is a herculean task on its own. However, client diversity for Solana is still very much a work in progress and there is a need for more minority clients to alleviate the undesirable risk of network compromises.

How to Run a Solana Validator

Now it’s time to roll up our sleeves and dive into the nitty gritty of running our very own Solana Validator. So far, we have covered the fundamental principles of validators, and the only better way to learn would be to do it yourself and get some hands-on practice.

First, we would need to source for a server that meets the hardware requirements to run the validator client of your choice. Then it’s time to spin up your validator and see how it performs.

Spinning Up Your Validator

This is where it’ll not be too productive doing CLI/code examples as there is already a wealth of documentation and tutorials by Solana Labs and other client developers. Here are some great links to spin up your validator when your hardware is set up.

Solana Labs —https://docs.solanalabs.com/operations/guides/validator-start and https://docs.solanalabs.com/operations
Jito-Solana — https://jito-foundation.gitbook.io/mev/jito-solana/building-the-software
Firedancer — https://firedancer-io.github.io/firedancer/guide/getting-started.html

Performance Testing

Definitely do some performance testing of your validator on the devnet first, and with small stakes on the mainnet first. This helps you to monitor your servers and make sure that you can maintain your validator performance. Running performant validators over an extended period of time is a good indication to users to delegate stake to you based on your track record.

Receive Stake

After your validator is up and running, you can publish your validator information to the chain to be publicly visible to other users. By default your validator will have no stake, which means that it would not be eligible to become a leader to land votes and earn rewards.

This is where you would need to receive stake into the validator either from yourself or from people who delegate their tokens to you. Here’s the guide to staking on the Solana Labs docs.

When it comes to attracting stake to your validator, the Cogent Crypto team has also written a great article on how to build trust with the community and receive delegations, covering major stakers like Marinade and Blaze Stake.

Monitor and Maintain

From here, you would need to continue to monitor the performance and uptime for your validator set to ensure that it is running well and that the validator is caught up with the rest of network. It’s best practice to regularly check your validator to monitor it make sure everything is going smoothly.

https://docs.solanalabs.com/operations/best-practices/general

Docs, Grants and Resources

There is a wealth of documentation, support and resources that are put behind getting more participation from validators and to smoothen the onboarding of new validators.

Here’s some of the documentation that I found that are very useful:

Solana Labs Docs — https://docs.solanalabs.com
Solana Economics — https://solana.com/docs/intro/economics

Solana Foundation Delegation Program

Node operators contribute to the Solana ecosystem at a foundational level. To encourage more node operators to join the network, the Solana Foundation Delegation Program (SFDP) is a program rolled out to smoothen the onboarding process, provide a roadmap to start reliably running validators, and increase the number of validators with diverse sources of stake.

The delegation program also involves validators to participate in the testnet, gain experience and also demonstrate their ability to meet requirements when running validators. Additionally, it also covers voting costs for validators over a period of time, and even matches the stake in the validator. This is a great program for aspiring Solana validators that are able to meet all performance requirements.

Opportunities for the Solana Ecosystem and Recommendations

Before we wrap up, I wanted to summarize some of the opportunities for the Solana validator ecosystem and spitball some ideas. The implementation and execution of some of these are definitely heavy and by no means easy. However, Solana is always evolving and I believe that the ecosystem would eventually achieve its goals of greater decentralization and security.

Greater Decentralization in Staking

There has been major initiatives and developments, accompanied by amazing programs like the SFDP to advance the decentralization of stake. For example, there has been great progress in diversification in terms of the geographical distribution or data center.

However, I believe that there is a lot of value that can be unleashed if we are able to unlock opportunities for new demographics and target communities such as higher education institutions and public goods projects to run validator nodes.

There might be a high barrier to entry due to the intense requirements to run a high-performance system. Nevertheless, as the technology gets better, these barriers to entry will hopefully gradually be lower. In the meantime, we can continue to up-skill contributors to be “validator-ready” and also provide additional support for the teams that need it.

Development of minority clients

Recalling the analysis on client diversity, as the development of new clients progresses, a major opportunity for Solana to reduce its risk would be for the community to adopt and deploy minority clients.

Staking Pools and Potential for DVTs

Staking pools are powerful tools that can help in the decentralization of Solana stake. However, there would need to be a continued effort by staking pools to delegate to diverse community validators, and also for new validators to join staking pools to decentralize large staking pools.

Otherwise, staking pools meant to help with decentralization can also end up consolidating as well, resulting in small groups of validators commanding heavy stakes. This could present risks of censorship if a single staking pool dominates over 33% of staked SOL.

Thankfully, this risk is low as Solana continues to be one of the most distributed chains with the highest Nakamoto Coefficient across many major blockchains (October 2023 Solana Validator Health Report).

Nakamoto Coefficients across different blockchains in the October 2023 Solana Validator Health Report.

While there are a few validators that have large stakes, there is still considerable decentralization across smaller validators as well. The threshold for validators to collude to censor transactions would take about 31 validators, making Solana one of the most censorship resistant chains.

Another key technology that could be useful would be Decentralized Validator Technologies (DVTs) where multiple validators run together as one. If we think about a single validator as a single propeller plane, a DVT validator network would be akin to a multi-propeller plane that can still fly if one propeller goes down.

A delegation into the DVT cluster would experience lower risk as the DVT cluster as a whole would have greater resilience and improved uptime. The need for DVTs for Solana is not very present at the moment but this could be food for thought for future development if validator income and stake grow to able to cover for the cost of running multiple validators in a DVT cluster.

Conclusion

And as we wrap up this piece, I hope that this would be a good resource for the Solana community staking ecosystem, as well as enthusiasts looking to learn more about validators on Solana.

Here’s a quick summary of what we covered:

What are Solana validators and what do they do
Fee economics, spam protection and the emergence of MEV on Solana
Cost and requirements of running validators on Solana
Decentralization and why community staking is important
A further dive into decentralization and client diversity on Solana
Wrapping up with how to get started running a validator and key resources community validators can leverage
Some recommendations and notable Solana roadmap items

Of course, this is a 20,000 feet overview of validators and the fee economics of Solana, but then again, I am writing this on a flight to ETH Denver from Michigan (Go blue!). This is one of the largest blockchain conferences of the year (that I’m able to attend), and I’m excited to meet folks from the Solana Foundation and Solana ecosystem project teams at their booth and side events.

There’s still much for me to learn and cover for the Solana ecosystem, but as I reflect back to my journey since my first workshop at the Metacamp shophouse, I’m ever more thrilled to dive deeper — and I hope that this overview transmitted some vibes to you as well :))

A huge shoutout to SolanaU! They’re arguably one of the best-run student programs in the blockchain space, and also an active contributor collective led by students.

I’ve only had the privilege of orbiting around SolanaU, but it is always a pleasure working together with the team and supporting them as a part of College DAO. This became a major motivator that reignited my interest in Solana and getting students familiar with key technologies and concepts such as validators and fee economics.

DISCLAIMER: This is not financial advice. Staking, delegation, and cryptocurrencies involve a high degree of risk, and there is always the possibility of loss, including the failure of all staked digital assets. Additionally, delegators are at risk of slashing in case of security or liveness faults on some protocols. We advise you to do your due diligence before choosing a validator.

References: