Solana Validator Business: Top Validator Earns $14 Million
Recently, Solana has led in various data metrics. Validators behind Solana remain somewhat mysterious. How much can one earn as a Solana validator? What level of investment is required?
Solana combines Proof of History (PoH) and Proof of Stake (PoS) consensus mechanisms. Token holders can stake their tokens to their chosen validators. The more tokens staked, the higher the validator’s block generation ratio, and stakers earn proportional block rewards.
Validators typically charge 8-10% staking commissions. Those who charge no fees and maintain stable networks are favored by stakers.
Solana has two types of nodes: validator nodes for voting and ledger, and RPC nodes for data access. RPC nodes don’t participate in network validation and don’t earn block rewards. Validator nodes require high bandwidth, memory, and storage, typically housed in global data centers, making it an inaccessible business for ordinary users.
Minimum Cost: $60,000 Annually
Validator costs include:
Hardware:
Hardware costs are one of the largest expenses for becoming a Solana validator. Solana’s recommended configuration includes a 12-core/24-thread CPU, 256GB/512GB of memory, and over 1TB of disk space. This setup far exceeds typical home computer specs, especially in terms of memory, which alone can cost over $10,000.
Additionally, a stable 1GB bandwidth is required. Therefore, most validators opt to rent servers. According to Helius, rental costs range from $370 to $470 per month, amounting to approximately $4,500 to $5,600 annually.
Bandwidth costs also vary based on staking amount, with higher leadership block counts incurring higher bandwidth fees.
On-Chain Voting:
Solana validators must participate in on-chain voting to reach consensus, incurring fees similar to other network transactions. Each epoch (432,000 slots) requires validators to vote, with each vote transaction costing 0.000005 SOL.
This equates to about 2-3 SOL per epoch. Given an epoch spans approximately 2 to 3 days, the annual voting transaction cost is around 300-350 SOL, or roughly 1 SOL per day. At $182 per SOL, this amounts to $54,600 to $63,700 annually. When SOL prices are high, this becomes one of the largest costs.
Overall Costs:
In total, annual costs for running a Solana validator are at least around $60,000. This significant investment is beyond the reach of ordinary users and doesn’t include labor costs for server maintenance.
Potential Losses
Despite the significant investment, what are the returns for a validator?
Solana validators earn income from several sources: inflation rewards, block rewards, and MEV.
Inflation Rewards:
Inflation rewards are SOL token incentives for participating validators. The initial inflation rate for SOL was set at 8%, with a 15% annual reduction. Validator inflation rewards are also influenced by the overall staking ratio—the lower the total staking ratio, the higher the validator’s staking yield.
Currently, the combined inflation yield is 5.52%. Assuming a standard validator commission rate of 8%, a validator with 10,000 SOL staked would earn approximately $8,000 per year from staking rewards.
Block Rewards:
Each validator has a chance to become a block leader, and the frequency of selection depends on the amount of SOL staked. For example, with 10,000 SOL staked, a validator would be selected as a block leader about 11 times per epoch (typically 2 days).
The annual earnings from this would be about 52 SOL (with an average block reward of 0.0332 SOL), translating to approximately $9,400.
MEV Rewards:
Maximum Extractable Value (MEV) refers to the profit validators can earn by selectively including, excluding, or reordering transactions within the blocks they generate. On Solana, designated block leaders have full control over block packaging and scheduling.
Searchers can send bundles to leaders via an off-chain auction mechanism, paying a tip for inclusion in the block. Validators using the Jito-Solana client can capture these profits, though the rewards depend on how often they are selected as leaders.
The average MEV reward per block is about 0.0427 SOL. In the Jito client, these rewards are generally shared with stakers, with validators taking an 8% commission. This results in approximately $970 in annual MEV earnings for a validator with 10,000 SOL staked.
Calculating Profitability
With a staking amount of only 10,000 SOL, the annual costs for a validator are at least $60,000, while the total income is around $18,370, resulting in a loss of $41,630. This appears to be an unprofitable venture.
The primary reason for such losses is insufficient staking volume. Increasing the staked amount to over 32,300 SOL would enable profitability. Currently, Solana has 2,724 validator nodes, with 857 validators having over 32,300 SOL staked, implying that more than a thousand validators are operating at a loss.
The Solana Foundation has a support program, the Delegation Program, which matches staking up to 100,000 SOL for new validators. Nonetheless, validators still need to secure at least 15,000 SOL, which equates to an investment of over $2.73 million if self-staked.
The Highest Validator Earnings Reach $14 Million
For established validators, the income can be quite profitable. Take Helius, the largest validator, for example. Currently, Helius has 13 million SOL tokens staked by users. Helius does not charge any inflation or MEV commissions, passing all these rewards back to stakers.
In this scenario, Helius’s annual block rewards amount to $14.05 million. If Helius charged an 8% commission, the revenue would increase by an additional $1.4 million. However, it is likely that by forgoing this income, Helius has attracted more users to stake their tokens with them.
Additionally, large validators like Helius do not rely solely on block rewards. Helius also generates revenue by providing RPC node services and API access, with subscription fees ranging from $49 to $999 per month. Helius has become one of the main RPC service providers in the Solana ecosystem.
Staking Alone May Not Be Profitable
For users staking with such validators, the annual yield is typically between 6% and 8%. However, this is not a guaranteed stable income. There are risks such as the potential decline in SOL token prices, penalties for validator server instability, and unscrupulous validators who might secretly increase commission rates to 100%.
Despite these risks, data shows that currently, around 65.7% of SOL tokens are staked, leading the way among public blockchains. It appears that staking has become a collective choice for major SOL holders. However, this investment strategy only works in a market where SOL token prices are expected to rise. If the holding cost of SOL tokens is too high, all gains can easily be wiped out in a downturn, resulting in losses.
Overall, becoming a validator on Solana comes with significant financial and technical barriers. However, for entities with influence within the ecosystem and sufficient financial strength, becoming a validator can offer relatively stable returns.
Yet, these high barriers to entry also lead to concerns about increasing centralization or monopolization by a small group. For ordinary users, relying solely on staking and MEV reward sharing is not a feasible way to hedge against asset volatility risks.