Solana: Financials

Blockchain Financials

Network REV (Real Economic Value) is a standardized metric that tracks blockchain value accrual generated by user activity. REV consists of both in-protocol transaction fees and out-of-protocol tips that users pay for transaction execution. Therefore, it also measures the monetary demand to transact on a blockchain.

From the perspective of the token holders, REV is the "top line" metric of a blockchain as it represents the amount of value paid into the system that token holders are ultimately eligible to earn, net of any operating expenses.

The operating expenses, or Operator Payments, consist of the value allocated to the infrastructure providers responsible for running the network, such as miners or validators. The payments aim to cover the real-world costs of maintaining the network plus some margin to incentivize participation.

Therefore, Token Holder Net Income is the remaining value distributed to the token holders and is calculated as REV less any Operator Payments.

SOL Financials

From the perspective of the token holders, REV is the "top line" metric of a blockchain as it represents the amount of value that users pay for transaction execution and the value that token holders are ultimately eligible to earn, net of any operating expenses.

Total Economic Value

Network TEV tracks the exogenous (Network REV) and endogenous (SOL Issuance) value that is allocated between token holders and network operators. It is less useful as a comparative metric since the network controls token issuance, which is just a value transfer from non-stakers to stakers. Token Issuance generally outpaces REV in the early years of a blockchain's lifecycle.

Real Economic Value

Network REV = TEV less Token Issuance. It is a standardized metric that tracks blockchain value capture generated by real income. REV consists of both in-protocol transaction fees and out-of-protocol tips that users pay for transaction execution. Therefore, it is a measure of the users aggregate demand to transact.

Solana transactions are commonly separated into two groups: vote and non-vote. Vote transactions are executed by validators to participate in Solana's consensus and confirm the validity of blocks, while non-vote transactions are typical user transactions. The fees paid for vote transactions are referred to as Vote Fees. Non-vote transactions have two types of fees, the Base Fee which is the minimum fee required to execute the transaction and an optional Priority Fee to improve the ordering of the transaction in the leader's queue. Jito is an out-of-protocol system that enables users to send transactions, or a bundle of transactions, directly to the leader for faster transaction execution, MEV capture, or MEV protection. The payment for using this service is referred to as Jito Tips.

Operator Payments

Payments to operators refer to the portion of a blockchain's Total Economic Value (TEV) that is allocated to the infrastructure providers responsible for running the network, such as miners or validators. These payments generally cover the real-world costs of maintaining the network plus some margin to incentivize participation. These are independent operators with unique setups, so operator payments are not uniform across the operator set. Therefore, Operator Payments are the amount of value that does not flow to token holders.

In this model, inflation is not a cost in its entirety -- only the portion that does not flow to token holders is a cost. The portion that does flow to token holders is simply a value transfer from non-stakers to stakers. So from the perspective of the aggregate token holders (stakers and non-stakers), only the value distributed to Operators are a cost to the token holders.

Solana operators are compensated with either a portion of REV or a commission on new token issuance. Validators capture 50% of transaction fees (the other 50% is returned to token holders via the burn), a variable commission on Jito Tips, and a variable commission on SOL Issuance.

Importantly, we consider large stakers that run their own validators as self-staked operators that have no cost to the network. We consider any validator with >90% commission to be a self-staked operator. LST Providers take a management fee on staking rewards earned by their depositors (e.g. Jito's 4% management fee). To estimate the aggregate LST Management Fee, we apply the stake-weighted average management fee to staking rewards. Jito Labs takes a 5% commission on all Jito Tips.

Token Holder Net Income

Token Holder Net Income = REV - Operator Payments. It measures the value that accrues to the token holders after considering payments to operators.

Importantly, the Token Holders is the aggregate position of both stakers and non-stakers, and these positions have noticeably different return profiles. Stakers receive both token burn and staking payments, while non-stakers only receive token burn. Furthermore, the exact method a staker uses to stake will impact their return profile (e.g. native vs liquid staked).