Solanavalidators Business Guide: The largest validators' revenue reached $14 million, and there are also thousands of Node operating at a loss.

Author: Frank, PANews

Solana has recently led in comprehensive data in various dimensions. Previously, PANews introduced the rapid development and pattern of its ecological liquid staking track. In addition to these front-end projects, validators behind Solana seem to have always been relatively mysterious. How much can validators earn by working on Solana? What is the level of investment? PANews has done some research on this business.

The Consensus Mechanism adopted by Solana is a combination of Proof of History (PoH) and Proof of Stake (PoS). Token holders can stake their tokens with validators of their choice, and the higher the stake and duration, the higher the proportion of blocks the validators lead to. Participants in staking also receive block rewards proportionally.

Usually, validators can decide to charge stake holders a stake commission of 8% to 10% on their own, and those validators who choose not to charge a commission and have a more stable network are more popular among stake users.

Solana’s validatorsNode has two types, one is validatorsNode that participates in voting and accounting, and the other is RPCNode. RPCNode can provide data access interface for developers and applications, and the configuration requirements are also lower. But RPCNode does not directly participate in network validation, so it cannot receive Block Rewards.

Compared to validators, Node has higher requirements for hardware bandwidth, memory, storage, etc. Therefore, it is generally deployed in data centers around the world and is beyond the reach of ordinary users.

Costing at least $60,000 per year

Specifically, validators have the following main costs.

Hardware:

Hardware costs are one of the biggest costs for Solana validators. The recommended configuration by Solana officials includes a 12-core/24-thread CPU, 256GB/512GB of memory, and a disk of over 1TB. This configuration far exceeds that of a typical home computer, especially in terms of memory, with the price of this item alone generally exceeding tens of thousands of RMB. In addition, a stable 1GB transfer bandwidth is required. Therefore, most validators choose to rent servers. According to Helius’s article, the rental cost is between 370-470 US dollars. The annual cost is approximately between 4500-5600 US dollars.

And the cost of bandwidth is often determined by the amount of collateral, the more times leading Block is long, the higher the cost of bandwidth.

on-chain voting:

Solana needs to achieve Consensus through on-chain voting, and the transaction fees generated by these voting transactions are the same as other transactions on the network. In each epoch (432,000 slots), validators need to vote, and the price of each voting transaction is 0.000005 SOL (voting is a privilege and there is no related priority fee). This is equivalent to a total fee of about 2-3 SOL per epoch. Given that an epoch usually spans 2 to 3 days (usually close to 2 days), the annual cost of voting transactions is about 300-350 SOL, or about 1 SOL per day. Converted at a price of $182, this cost is approximately $54,600 to $63,700. When the SOL price is high, this cost usually becomes one of the largest costs.

Overall, the minimum annual cost on Solana is about $60,000. This level of investment is not insignificant for ordinary users, and it does not include the cost of operating and maintaining servers.

The yield may be negative

Although the investment is not small, what about the income as validators?

Solana validators’ earnings come from several parts, including inflation rewards, block rewards, and MEV.

Inflation Rewards: Inflation rewards are SOL token rewards earned by participating validators. The initial inflation rate for SOL tokens is set at 8%, which is then reduced by 15% each year. The inflation rewards for validators are also influenced by the proportion of total stake in the network. The lower the proportion of total stake, the higher the stake rewards for validators. The current comprehensive inflation rewards rate is 5.52%. Based on the general 8% commission charged by validators, with a stake of 10,000 SOL tokens, the current annual stake rewards amount to approximately $8,000.

Block Reward: Each validator has a certain chance of becoming the Block leader, and the number of times elected also depends on the amount of stake SOL. Taking stake 10,000 SOL as an example, the number of times elected per epoch (usually 2 days) is about 11 times. The annual income from this part is about 52 SOL (the current average Block reward is about 0.0332 SOL), which is about $9,400.

MEV Rewards: The “Maximum Extractable Value” refers to the profit that validators can obtain by including, excluding, or reordering transactions in the Blocks they generate. On Solana, validators designated as leaders have complete control over block packaging and scheduling. Searchers can send bundled packages to the leader through an off-chain auction mechanism to be included in the Block, while also paying a certain fee. If validators are running the Jito-Solana client, they can receive this portion of the profit, but this income also depends on whether they can be elected as leaders multiple times. Currently, the average MEV reward per Block is about 0.0427 SOL, and in the Jito client, this profit is generally shared with stake users. Validators charge an 8% commission, so based on this calculation, the annual profit for staking 10000 SOL is approximately $970.

Based on this ratio, if the amount of staking is only 10,000 SOL, the annual comprehensive cost is at least $60,000, while the income is about $18,370, resulting in a loss of $41,630. It seems to be a deal that only loses without gains.

However, the main reason for this loss is due to the insufficient stake of SOL. If the amount of SOL tokens staked is increased to more than 32,300, the loss can be turned into a profit.

There are currently 2724 validation Nodes on Solana, with 857 validators’ stake reaching 32300 coins. Based on this calculation, the remaining thousand validators are in a state of loss. However, the Solana Foundation also has a support plan for new validators. For validators entering the Delegation Program, if the total stake is less than 100,000 coins, the stake will be matched 1:1 with SOL. However, based on this, validators still need to strive for a minimum stake of 15,000 SOL. If they are staking from their own pockets, the investment would be no less than 2.73 million dollars.

The maximum validators’ income reaches 14 million US dollars

For mature validators, the income from validators is already sufficient profit. Take Helius, which has just become the largest validators, for example. Currently, its stakeToken entrusted has 13 million SOL. Helius does not charge any inflation commission or MEV commission, and this part of the income is fully feedback to stake users. In this case, Helius’s Block Reward will reach 14.05 million USD per year. If Helius also charges an 8% commission, the income will increase by another 14 million USD, but perhaps it is by giving up this part of the income that it gains more long-term stake user choices to stake the Token to Helius.

And large validators like Helius do not rely solely on block income for their operating routes. Helius also earns revenue by providing RPC node services and API access. Currently, the subscription standards range from $49 to $999 per month, and Helius has become one of the main RPC service providers in the Solana ecosystem.

Only relying on stake may be difficult to profit

For users who stake their tokens to these validators, they can generally receive an annualized return of between 6% and 8%. However, this stable income is not guaranteed, as there is always the risk of a drop in the value of SOL tokens, penalties for unstable validators servers, and the risk of some bad validators quietly increasing their commission rates to 100%. However, data shows that the current stake ratio on the Solana chain is about 65.7%, which is leading among public chains. It seems that participating in staking has become a collective choice for SOL holders who are Large Investors. However, this investment strategy is only viable in the face of SOL token pump expectations. If the cost of holding SOL tokens is too high, it is easy to wipe out all profits and turn them into losses during a downturn.

Overall, whether in terms of financial reserves or technical complexity, there is a certain threshold for Solana’s validators’ income. However, for those with a certain appeal and financial strength within the ecosystem, becoming a validator does indeed offer a relatively stable income. However, the high threshold also raises questions about the increasing centralization of Solana or its monopolization by a small group. For ordinary users, relying solely on stake and MEV reward sharing is also a difficult means of defending against asset Fluctuation risk.