Jito and JTO Tokenomics Explained

Imagine a cryptocurrency that helps you maximize your profits on the Solana Network while also keeping your assets liquid and ready for DeFi opportunities. This is where Jito comes into play!

Jito is a staking protocol and MEV-based application built on the Solana network.

At its core, Jito offers the ability to earn extra rewards on your staked assets by allowing you to use the profits from staked collateral to further increase profits.

As you can imagine, anything that claims to help increase your profits will get attention. This leads us to the question, how does Jito achieve this and is it worth the hype?

Today, we find out.

What is Jito?

Jito was founded by Lucas and Zanyar back in 2021, with Lucas acting as their CEO, and the platform itself going live in 2022.

Fundamentally, Jito is a liquid staking protocol on the Solana blockchain that operates on a stake pool model.

To keep it simple, a stake pool is a collection of validator nodes that are responsible for verifying network transactions.

Through Jito users can exchange their SOL for JitoSOL tokens, and in return holders maintain SOL’s liquidity and DeFi opportunities while earning yield from being staked.

As such, JitoSOL provides its holders with additional rewards from transaction revenue associated with MEV extraction on Solana.

To explain, MEV stands for Maximum Extractable Value and describes profit opportunities that can be unlocked when utilising a specific order for executing your transactions through DeFi.

But how exactly does this all work?

How does Jito work?

Jito is a Proof-of-Stake based platform on the Solana blockchain. This means it is a layer-2 application that utilises Solana for most of its backend operations while focusing its efforts on the application itself.

To put it simply, Jito works by playing with the mechanisms involved with DeFi trading and staking.

With staking, it is simple. You give Jito your SOL in exchange for JitoSOL, Jito then stakes your SOL and gives you access to the money it will generate from being staked immediately.

With DeFi trading, however, the process is a bit more complex and to understand how Jito benefits from it, it’s important to look at how Jito Solana MEV bots operate.

Jito leverages these advanced tools to exploit trading opportunities within the DeFi space. Essentially, Jito MEV bots monitor the transaction pool for significant price imbalances that occur when large trades are executed.

When a big buy or sell order affects the price of an asset on a decentralized exchange, it can create a price difference between multiple exchanges. For example, if a large purchase drops the price of an asset from $10 to $9.5 on one exchange while it stays at $10 on another, this discrepancy creates an arbitrage opportunity. Jito MEV bots are designed to detect such imbalances quickly and act on them.

These bots identify the price difference and execute trades to exploit it. They use sophisticated algorithms to prioritize transactions and ensure that they capture the Maximal Extractable Value or MEV. By buying the asset at the lower price and selling it at the higher price, Jito MEV bots can secure profits. The gains from these trades are then distributed among the bot operators, validators, and other stakeholders involved.

In this way, Jito not only enhances profitability for traders but also improves overall market efficiency by correcting price imbalances across exchanges. The automated nature of these trades ensures that opportunities are seized with exceptional speed and accuracy, benefiting both liquidity and market stability.

To ensure smooth operations of the platform the Jito Foundation was created to minimise any negative impacts of MEV, as well as to distribute the profits and increase the platform’s transparency with its users.

As I mentioned in the beginning, Jito is a platform that helps people earn more from their staked assets by leveraging the Solana blockchain. To make this happen, Jito has developed a special tool called a validator client.

This validator client is like a program that helps manage the blockchain network. Its main job is to create a competitive market where different participants can bid for the chance to capture the available MEV within each block.

This approach keeps the process competitive and allows those with the best strategies to succeed.

What makes Jito unique?

Admittedly, Jito is not necessarily the most unique product as it’s similar in concept to what Lido Finance does on Ethereum.

However, where its unique value proposition comes in is by being the first on the Solana platform, giving it a massive first-mover advantage should the Solana blockchain continue to increase in popularity.

Though, one key difference is how Jito is validated on the Solana network.

Currently, Jito’s stake pool comprises 163 validator nodes, and Jito selects these validators on a set of criteria which requires the validator to adhere to strict rules for its operators.

This includes things like maximum commission rates, percentage of blocks worked, validator uptime, etc. It generally ensures the validators are actually validating and not just taking up a validator slot someone else could be fulfilling.

From the user end, the only requirement is to stake to only one of these 163 validators at a time.

Naturally, if there’s a lower commission on one validator and they complete more blocks, they’ll do better than a validator with a high commission who skips a few blocks every now and then.

JTO tokenomics

In total, there will only ever be 1 billion JTO tokens, all of which have been created and are being released as per their vesting schedules.

As is typical for Proof-of-Stake platforms, the JTO tokens can be used for the classics of payments, staking, or governance.

By the time these vesting schedules are complete the initial token distribution will look as follows:

Ecosystem Development will receive 25%, while Core Contributors will get 24.5%.

Additionally, Community Growth will have been allocated 24.3%, Investors will receive 16.2%, and finally, 10% was given away during the Airdrop.

Although a good portion of the tokens are unlocked, those allocated to Core Contributors and Investors are locked and will be released between now and 2026.

Is Jito worth it?

Sometimes you don’t need to reinvent the wheel, you just need to bring the wheel to where they currently don’t have access to it – and that is the unique use case that Jito provides.

Jito finally provides those on the Solana ecosystem the same MEV-capturing possibilities as they would have if they were on Ethereum.

Given that there is always a market for those who can help investors increase their profits, it seems likely that Jito’s first-mover advantage on Solana will sustain interest in the platform, as long as it continues to deliver on its promise of increasing potential profits.

Naturally, it will require expert management from the top to avoid any potential missteps and to ensure they capitalize on their first-mover advantage.

However, assuming that they can do so, it currently seems likely that there are still more green days ahead to come.

Though, as we know, nothing is ever guaranteed in crypto, of course.

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