MEV on Solana: Unveiling the Profitable Game in the Dark Forest of Blockchain

In the past year, the Memecoin craze has made Solana a popular choice for traders. Many have chased the wildly fluctuating Meme coins, trying to gain an edge through trading bots. However, the truly stable and high-profit opportunities do not appear on price charts but are hidden deep within the Blockchain. This is known as MEV (Maximum Extractable Value).

Compared to publicly visible robot profits, the profits from MEV are often hidden in the mechanisms of block construction and sorting, usually held by the behind-the-scenes forces that control on-chain power and infrastructure. Many people are unaware of this because the operational threshold of this system is high, information is extremely asymmetrical, and control is highly centralized.

When ordinary users are trying to front-run or avoid getting trapped through bots, MEV capture agents are manipulating the transaction order behind the scenes, precisely seizing arbitrage opportunities. While retail investors compete on speed and strategy, large institutions with staking advantages and node permissions have already secured a position at the top of the profit pyramid thanks to their structural advantages.

In the Solana ecosystem, MEV is not just a trading opportunity, but also a power at the infrastructure level. It is controlled by a very small number of people, forming a high-threshold, highly monopolistic, and profitable capital game. Let's delve into this huge business opportunity of MEV on Solana.

1. Definition of MEV

MEV refers to the ability of block producers to maximize additional profits by including, excluding, or reordering transactions when packaging them. Due to the craze for Memecoins and the active DeFi activities, the scale of MEV has become enormous.

From a business perspective, MEV mainly includes the following types:

Liquidation: When a borrower fails to maintain the required collateral ratio, the liquidator may repay part or all of the debt in exchange for a portion of the collateral as a reward.

Arbitrage: Buying and selling based on price differences between different trading platforms to profit from the spread.

Sandwich Attack: Buy before the target transaction and sell after to profit.

In terms of behavior, MEV is usually divided into front-running and back-running transactions:

Front-running: Execute the same orders before other traders to profit.

Post-trade: Profiting from temporary price imbalances caused by other trades.

2. The Market Size of MEV

According to some unverified data, trading bots earned $1.1 billion last year, pump operations made $500 million, MEV earned $1.5 billion, automated market makers earned $1 billion, and certain celebrities related parties made $500 million, totaling about $5 billion flowing to the over-the-counter market.

On the Solana network, with the increase in activity and the arrival of the Memecoin boom in 2024, MEV profits have also surged significantly. According to a report from a data platform, 90.44 million successful arbitrage trades were identified in the past year. The average profit per arbitrage trade was $1.58, with the highest single arbitrage profit reaching $3.7 million. These arbitrages generated a total profit of $142.8 million, of which 88.7% was denominated in SOL.

3. MEV Characteristics and Main Participants on Solana

MEV on Solana is more intense and centralized compared to Ethereum, which stems from the differences in their underlying design.

Solana is known for its high performance, with a block time of only 400 milliseconds, but its design sacrifices some decentralization, leading to a high concentration of power. Since Solana does not have a memory pool, other nodes must connect to the current block-producing validator nodes to obtain block data and submit transactions. This design grants block-producing validators immense power, and the lack of checks and balances makes the MEV issue on Solana even more severe, with profits becoming more concentrated.

A certain protocol is the MEV leader on Solana. Since the launch of the client in August 2022, its adoption rate has remained below 10% in the first nine months. Starting at the end of 2023, the adoption rate significantly increased, reaching 50% by January 2024. By the end of 2024, over 94% of Solana validators (weighted by stake) will be using this client, forming an absolute dominant position.

How the protocol works:

1. Bundled Services: Allow traders to prioritize and execute key trades by paying a tip.

2. Staking mechanism: Allows users to stake SOL on nodes, sharing a portion of the node's staking rewards and MEV rewards.

The three key characteristics of MEV: informational advantage, monopoly effect, and capital barrier.

1. MEV is an information war, and the winner takes all.
2. The bundle service has a monopoly.
3. MEV on Solana is a capital game

4. MEV Revenue Flow on Solana

MEV profits mainly flow to three core stakeholders:

1. The protocol itself: as a beneficiary of the infrastructure

2. High-Staking Nodes: On-Chain Privileged Class

3. Block space sales intermediary: intermediaries for on-chain transactions

In general, Solana has exhibited a phenomenon of highly centralized power, with the vast majority of MEV profits being captured by protocols, large validator nodes, and block space sales intermediaries.

5. The Client Competition Landscape of Solana

Solana currently has over 1,300 validator nodes, with more than 94% running a certain protocol node. The main clients include:

1. Official Node: Basic client, does not include MEV optimization mechanism.
2. Certain protocol node: supports bundled transactions and tip collection
3. Improved Node: Optimized based on a certain protocol, providing a fairer transaction prioritization mechanism for on-chain.
4. High-performance nodes: Developed by a certain cryptocurrency exchange company, aimed at improving network throughput.

The competitive logic of these clients:

• Fairness Contention: Improved Nodes VS Certain Protocol Nodes
• Performance Upgrade: High-Performance Node VS Other Clients

Overall, a certain protocol has become part of the Solana infrastructure. Future mainnet may see iterative upgrades in client performance, shifting from "running a certain protocol can earn more money" to "only running a high-performance certain protocol can avoid being eliminated."

6. How Large Institutions Become Stakeholders on Solana

Taking a certain investment company as an example, its path to becoming a Solana profit operator:

1. Expand market share and ecological dominance by acquiring nodes.
2. Attempt to promote inflation rate adjustment proposals to consolidate power (unsuccessful)
3. Promote the listing of Solana ETFs, participate in the institutionalization of crypto assets, and become an ETF staking provider.

Summary:

1. MEV is a lucrative field, especially prominent on Solana.
2. A certain MEV protocol has a strong monopolistic and head effect.
3. The power is highly concentrated on Solana, and MEV profits are mainly captured by protocols, high-staking nodes, and block space sales intermediaries.
4. There are various clients on the Solana network, with a certain protocol client currently dominating the mainnet, and high-performance clients supporting this protocol may become the upgraded version in the future.
5. The Solana ecosystem is very suitable for institutional leadership, and the actions of an investment company demonstrate how institutions are fully penetrating Solana, competing for the sovereignty of Blockchain governance.