Researcher: Unassigned
Summary
This research aims to develop a better understanding of the fee markets on Solana and their implications. In particular, we are interested in exploring the relationship between the fee markets on Solana and the current congestion facing the network. Once the shortcomings of the Solana fee markets are better understood, in future research, it will be possible to design improved fee mechanisms for the Solana ecosystem that may reduce congestion and even facilitate layer 3 chains atop Solana layer 2 chains (such as the MANTIS Solana Virtual Machine rollup).
Background & Problem Statement
Background
Core background concepts/definitions are as follows:
The Solana Blockchain:
Solana is a blockchain network that has seen significant growth and attention recently. Its core strength is its significant scalability. Thus, Solana is quite a massive ecosystem in terms of usership as well as in terms of value. As of May 9, 2024, the total value locked (TVL) in Solana DeFi protocols is $3.94 billion. This means Solana is the 4th largest blockchain in terms of TVL. The market cap of the network’s native SOL token was approximately $64.5 billion as of the same day. This puts SOL as the 5th largest token in terms of total market capitalization.
Solana Fee Markets & Congestion
The Solana Virtual Machine (SVM) is structured to have fees that are typically very low compared to other blockchains like Ethereum. This is due to both the parallel processing power of Solana (which means transactions are cheap and fast), as well as the fee structures that enable users to benefit from these low costs. Specifically, Solana has a static base fee per signature, currently 5000 lamports (where 1 lamport = 0.000000001 SOL). Solana also has a priority fee per compute unit requested, in the order of micro-lamports, which is the only fee on the network that scales with demand.
While this fee structure results in affordability for users, it also makes it cheaper for spam messages to flood the network. To prevent this, Solana has set up localized fee markets, with isolated states. Notably, Jito introduced a product for validators giving them access to a pseudo-mempool and schedulers that algorithmically price transaction fees above average for more in-demand states. In fact, Solana has a built-in scheduler to accomplish this natively on a first-in-first-out basis. Variation in processing times between validators (called “jitter”) results in non-deterministic transaction ordering. This scheduler mechanism plus jitter provides validators with an MEV opportunity.
Solana’s fee structures may result in low costs (an average of 0.000129265 SOL in the last epoch at the time of writing, or approximately 1.9 cents), but they have limitations. For example, spam is still an issue: “Solana lacks a built-in dynamic fee mechanism for accurately pricing blockspace, meaning that as long as the cost of a failed transaction landing (0.000005 SOL) doesn’t exceed the expected profit of the marginal transaction sent, it can make sense for a searcher to spam their trades” (Umbra Research). Moreover, the mempool introduced by Jito was closed in March, possibly because of users being tired of being sandwiched. This has perhaps contributed to the congestion facing Solana currently by making spamming a more appealing mechanism for transaction inclusion. This indicates that the fee mechanisms implemented on Solana alone are insufficient to manage congestion and prevent transaction failures.
Ethereum Fee Markets
Like Solana, Ethereum experienced significant congestion issues when it achieved popularity. These issues were largely resolved via both the creation of layer 2s like rollups as well as the introduction of Flashbots, which created a market for transaction inclusion and kicked off a wave of innovations in maximal extractible value (MEV) extraction mechanisms. Like Solana, Ethereum also implemented a base fee and a priority fee with EIP 1559 in early 2022. Then, in March 2024, EIP 4884 (“Proto-Danksharding”) was released, effectively creating two lanes for fees by implementing a multi-dimensional fee market and blob-carrying transactions, enabling rollup fees to be reduced.
Problem Statement
The problem here is that Solana is incredibly congested and experiencing transaction failures, likely in a large part due to the poor design of the Solana transaction fee mechanism.
Thus, the questions that this research aims to address is as follows:
- How exactly are localized fee markets on Solana currently operating?
- How are these localized fee markets contributing to congestion on the network, and what areas could be improved/expanded to reduce this congestion?
Plan & Deliverables
Expected outputs/deliverables are as follows:
- A qualitative and quantitative description of the current state of fee markets on Solana, including their relationship to congestion and transaction failures on the network
The plan for achieving this output is outlined below:
Experiment 1: Formally Describe the Current State of Solana Fee Markets
The current fee market on Solana will be qualitatively and quantitatively described. These fee markets on Solana can further be compared to those of Ethereum.
Experiment 2: Explore the Relationship Between Solana Fee Markets and Congestion
Once it has been thoroughly described, the relationship between the current fee market on Solana and the network’s congestion will then be explored. Specific areas for improvement will be highlighted.
Future Work
In later research, this information could be used to develop an improved fee market structure for Solana. This could be implemented on Solana layer 2s such as the MANTIS rollup, which would enable support for Solana layer 3s.