Proposal for an In-Protocol Distribution of Block Rewards to Stakers

Governance
1

Summary

A new mechanism is proposed to allow validators to set a block reward commission and share part of their block revenue with their delegators and to receive their own block rewards to an account of their choice.

Commission rates from validator vote accounts will be used by the protocol to calculate post-commission rewards that will be automatically distributed to delegated stake accounts at the end of each epoch

Block rewards after commission will be distributed to an account of the validators choosing. The default will be the validator identity account. If a validator takes no action then block rewards will continue go to the Identity account.

Motivation

Delegated stake directly increases the number of blocks that a validator is allocated in an epoch leader schedule but the core protocol doesn’t support diverting any of that extra revenue to stake delegators.

Due to the lack of core protocol support for distributing block revenue to stakers, validators have developed their own solutions which are not enforced by the core protocol. For example, some validators use NFTs or LSTs to distribute some amount of their block revenue, however this requires trust in the validator’s honesty and accuracy, while making it difficult to surface this information and accurately track resulting yields.

With the option to specify a collector account validators can improve operational security by diverting their revenue into a multisig or cold wallet rather than the identity hot wallet that sits on their servers.

Additionally the ability to specify arbitrary collector accounts, including PDAs, means that additional custom functionality and distribution mechanisms can be built on top of this, such as auto-conversion to USDC or a validator LST, or deployment to Defi.

Changes in the spirit of this proposal

Should any changes be necessary to ensure a safe and functioning implementation, such changes will be permitted without further governance requirements so long as the spirit of the proposal is maintained.

Voting Process

The voting process will proceed as follows:

Discussion period: Validators are encouraged to participate in discussions to address any concerns.

Stake weight collection period: Stake weights will be captured and published for voting. Validators will have the opportunity to verify these weights.

Vote token distribution will require validators to utilize the adapted Jito Merkle Distributor tool (available at GitHub - laine-sa/solgov-distributor: A merkle-based token distributor for the Solana network that allows distributing a combination of unlocked and linearly unlocked tokens.) to claim the vote tokens corresponding to their stake weights.

Three token destination accounts will be created for voting choices: Yes, No, and Abstain.

Validators will have a designated period to vote by sending their tokens to the respective addresses.

After the voting period, if the sum of Yes votes is equal to or greater than 2/3 of the total sum of Yes + No votes, the proposal will pass.

The proposal has a quorum threshold of 33%, abstentions count towards the quorum.

All announcements regarding this process will be made in the Governance category of the Solana Developer Forums.

Stake weights and a tally script will be available at solgov-distributor/votes at master ¡ laine-sa/solgov-distributor ¡ GitHub

Timeline

Epoch 747 - 751: Discussion period

Epoch 752: Stake weights captured and published, discussion/confirmation of stake weights

Epochs 753 - 755: Voting tokens available to claim, voting completes at the end of epoch 755

Discussion

Active participation in discussions about this proposal is crucial. Discussions may also take place on the Solana Developer Forums or on Discord Governance channel. It’s encouraged to consolidate discussions to ensure broad participation and minimize redundancy.

References

1 Like
3

This change will affect small validators greatly. They will be ineviteably forced by the stake pools to set their share of block rewards to 0 level. The only thing that will be left - side deals like sandwiching.

At the same time this change does not affect big private validators. They even still charge commission for inflation rewards with no outflow of stake noticed.

So the outcome for the network will be net bad:

  • Stakers possibly get +1% APY max. Which IMO does not matter considering the volatility of an asset.
  • No additional competition between stake pools as they will all have the same “selling point”. Nothing special to drive a lot of retail stake there really.
  • No effect on big private validators as they have no incentive to share block rewards
  • Great decrease in earnings for the validators depending on stake pools. This will cause decrease of number of those validators and their qualuity.
6 Likes
4

This proposal will no doubtably deter the casual developers / independent technologists / students / enthusiasts etc. from making the jump into Solana Validation (which has a fairly high bar as it stands) and becoming part of the active independent group of validators that run Solana. It will also suffocate existing validators and reduce the validator group to small subset of what it is.

Validator earnings for an independent who is trying to compete for stake through offering a competitive APY will have no sustainable way of surviving if they are forced to give away even their block rewards from the small amount of stake they obtain. (This leaves no revenue stream other than offering their mempool out to sandwiches)

New / current Validators already have large running costs. And so making block rewards yet another race to zero competitive game will strangle the network and deter interested small participants who will simply invest their time and money into alternative networks. With them go their social networks too.

I believe we need every validator we can get, so VOTE NO to this proposal, and so keep and encourage the vitality of Solana!

8 Likes
5

The only goal of this proposal is to make some validators happy with legal implications of holding rewards of stakers for a moment before sending them after every epoch. They never had issues before while holding 50% of block rewards in the past though.

But the consequences of it will be the end of hundreds or even thousands of small validators as they will lose the last source of income they currently have.

Stake continues going to whales instead of small validators or pools and there are just a feel pools that currently support a great number of validators in a fair way. And these require all validators to be running on maximum commission of ZERO. If this proposal gets approved, pools will squeeze validators to the maximum and push them to negative income, while pools still enjoy a healthy 5% fee or more.

This SIMD only came because of SIMD-96 was approved when most validators voted yes to get block rewards that were being burnt! But now, with SIMD-123 we mostly regret this decision as if this gets approved we will not just lose this 50%, but possibly even more.

The approval of this SIMD-123 will cause great loss to the Solana community and even more centralization of stake and this is one of the reasons big validators (the usual influencers) are keen on getting this approved.

Please vote NO to this SIMD and keep us alive, everyone deserves to survive.

8 Likes
6

I do think this would be a nice feature, but also agree that it will completely wipe out the independent validator community. If this goes through, I would bet on <300 total validators in the entire Solana ecosystem come the next bear market. Solana already struggles with a decentralization narrative given the performance requirement of machines, and this will make it worse.

Maybe that’s ok and no one actually cares about decentralization that much, but seems like the risk is pretty high for a pretty small benefit to stakers.

5 Likes
7

Hello everyone!

We would like to emphasize our support for the concerns surrounding this proposal, particularly its potential impact on the validator ecosystem. Implementing this proposal could result in the reduction of many small validators, significantly decreasing the total number of active validators on the network.

This reduction could, in turn, result in a higher degree of centralization. Such an outcome would contradict Solana’s broader vision of fostering a decentralized and resilient blockchain ecosystem.

Decentralization is a fundamental principle that ensures the security, censorship resistance, and long-term sustainability of the network. We believe it is crucial to carefully consider the implications of this proposal to avoid unintended consequences that may hinder Solana’s growth and decentralization efforts.

7 Likes
8

We will vote NO!

As most of other validators already commented this is not going to help the small validators. Currently only 150/1400 validators have more than 300k stake, which means that around 90% are small validators relying on stake pools and SFDP and they will be impacted negatively by this proposal if it goes live.

It is already hard to survive, very competive stake pools and more and more expensive the hardware.

4 Likes
9

While the intent of this SIMD is good, it would be naĂŻve to overlook the potential side effects.

Several features of this SIMD align with practices I already follow manually, and I support the automation and transparency of that portion. The ability to programmatically direct 5% of block rewards to a collector account would greatly improve our transparency. We donate to animal welfare every month, and this is a manual process that could be improved with this SIMD. Additionally, there’s currently little traceability regarding where the funds ultimately go. This SIMD would allow us to build a front-end to display this in a provable and transparent way.

There are other pros mentioned that I won’t dive into for the sake of brevity, but I want to emphasize that I understand and appreciate the motives behind this feature.

Now for the downside. As others have pointed out, this change gives sandwichers and large validators a clear advantage. It also enables a framework for stake pools to squeeze validators harder. While I agree that relying on stake pools is not a sustainable business model, they nonetheless do exist, and we must acknowledge the impact on small/medium-sized validators. I also anticipate that the barrier to entry will rise with this change. It can be tough to break even already without putting block rewards on the table. I guess break even has changed drastically since I last looked so forget that point.

2 Likes
10

I oppose this proposal.
Currently, many small-scale validators are operating their validator servers at the break-even point and are struggling to cover monthly server costs.

If SIMD-123 is passed, as was the case with JITO MEV, it will inevitably be added to the SFDP requirements. In that scenario, I believe that any validators other than the major ones will not be able to survive.

Furthermore, since the same functionality can be achieved with sanctum LST and the Jito tip router, there are no benefits other than from a legal standpoint. Wouldn’t the side effects of SIMD-123 be too great?

11

It is obvious to all validators that this proposal is directed against small and medium-sized validators. The strategies for delegating stakes pools now look like this, so that a stakes gender-dependent validator earns as little as possible with a 0% commission. And they want to take away this earnings from him in the form of priority fees. And it doesn’t seem to matter at all how small and medium-sized validators vote for this proposal, as long as the interest of large validators is obvious. Here are statistics on the number of validators and their total steak in this range.

100 - 100 000 SOL - 903 validators, total stake - 28 073 960 SOL
100 001 - 300 000 SOL - 288 validators, total stake - 53 675 219 SOL
300 001 - 1 000 000 SOL - 67 validators, total stake - 35 556 740 SOL
1 000 000+ SOL - 84 validators, total stake - 266 573 515 SOL

If the sum of Yes votes is equal to or greater than 2/3 of the total sum of Yes + No votes, the proposal will pass.
Let’s assume that small and medium-sized validators reasonably vote against according to the size of their stake. That is, 1191 validators disagree with this proposal. But their total stake is less than 82 million SOL. While 151 validators have a total stake of over 300 million SOL. There is no scenario where small and medium validators could reject this proposal if a group of large validators disagrees with their opinion.

1 Like
12

The proposal may seem appealing on the surface, but in reality, it poses a serious threat to the sustainability of smaller validators and the health of Solana’s validator ecosystem.

Right now, validators already face pressure to lower commission rates to attract stake. Many small validators set their commissions to 0% to stay competitive. If this proposal passes, it will push them to give up 100% of their block production rewards as well, making it impossible to sustain operations.

key risks:

  • Race to 0% commission on all income – Small validators will have no choice but to forgo earnings from block production just to compete, worsening centralization risks.
  • Unfair advantage for larger validators – Those with deep pockets can afford to operate at lower margins, further concentrating stake among the biggest players.
  • Long-term validator instability – Without sustainable rewards, many small validators will shut down, reducing network resilience.
  • While the proposal brings interesting composability and functionality, the cost is too high.

Solana needs a robust, decentralized validator set – not an incentive structure that forces validators to operate at unsustainable margins.

Vote NO on this proposal and protect the future of decentralization on Solana.

2 Likes