SIMD-0096 goes lives tomorrow on Solana. TL;DR (super high level) Right now, when a user submits a tx with a priority fee, 50% goes to the validator and the other 50% gets burned. After SIMD-0096, 100% will go to the validator. Once SIMD-0096 goes live, you will hear about "validators sharing block rewards via LSTs." It is something I do not believe is good for the network. Why? Right now, in terms of reward payouts, stakers do not need to trust validators. - Inflation rewards are paid to stakers automatically by the network. - Jito handles MEV payouts. In order to share more profits with stakers, a validator can create an LST and distribute block rewards into the stake pool to "pump" the APY of the LST. The flow typically goes like this: - Validator promises on social media to distribute X% of block rewards. - Validator transfers X SOL from their wallet to the stake pool backing their LST. - The stake pool stakes the assets without minting more tokens. --- Optional for nerds: Primer on LST APY. An LST's APY can be defined as basically the rate of change of `total stake in pool / total tokens minted`. When you hold an LST, in terms of network rewards, you hold a receipt token which represents your ownership share in the stake pool. As a result, you are entitled to a portion of the staking rewards the pool earns. If any user deposits more SOL into the pool without minting more tokens, this makes the numerator in the above equation go up, thus giving any LST holder a higher APY. Think of it as a "free APY boost." --- While I have nothing against validators following this method (in fact many that I respect a lot do), I do not believe this is a good solution for the network because: 1. This now introduces a new trust assumption for stakers. As a staker, you must now trust that the validator distributes X% of block rewards that they stated they would distribute on social media. 2. It is extremely difficult for a staker to verify that a validator is distributing the percentage of block rewards they said they would. I'n fact, I'm not aware of a single place where a staker can verify this today. 3. Because there's no guarantees from the network itself that a validator will pay the percentage of block rewards they said they would, this makes for a prime opportunity to "rug." I am not saying that I think validators WILL rug. I am simply stating that this is a real possibility. 4. It makes for an extremely bad UX for stakers. It's relatively easy today to see how much in rewards you made as a staker between inflation and MEV. With block reward sharing via LSTs, this is much more complex. What are the solutions? In my opinion, there two good solutions, both short term and long term. 1 (short term): @jito is going to allow validators to distribute block rewards via their tip router in a few weeks. All this data will be viewable on chain where less trust assumptions are needed between a staker and a validator. 2 (long term): SIMD-0123 will allow validators to distribute a portion of their block rewards inside the protocol itself, just like inflation rewards work today. I strongly believe this is the best solution. My stance I absolutely hate "trust me bro" situations, and based on my points above, I believe the LST method is confusing, a bad UX, and opens the door for potential rugs. I've also been consistent in making sure I've been as transparent as possible over the years. Proof: 1. I voted no on SIMD-0096 because I wanted it to go out with SIMD-0123 (decrypt.co/232652/solana-val…) 2. @orangefincrypto is the only validator I am aware of that has a near realtime dashboard displaying all the revenue it makes (insights.orangefin.ventures/…). 3. Orangefin / Sol Strategies has an entire trust page dedicated to transparent compliance where anyone request access to our ISO 27001 certificate & associated policies (trust.orangefin.ventures/). Participating in something like block reward sharing via LSTs feels like a step backwards due to it's lack of transparency, and I don't think it fits the brand. I am a strong supporter of SIMD-0123 which I have publicly stated many times. In addition, I am excited to see how Jito's tip router can act as a stop gap solution until SIMD-0123 is ready. I'd like to end by saying that there are many reputable validators out there that will and are doing block reward sharing via LSTs. Some of these validators have been doing this for years and I don't want to take anything away from their integrity. At the same time, I also think it's important to do what's best overall for the Solana network. And I think a world where "block reward sharing via LSTs" becomes the norm ruins the staking experience of Solana which is objectively much better than it's competitors. If you made it this far, thanks for listening to my rant. ♥️you all.