Framing the Problem
Blockchains and their users are currently facing a seemingly disparate, but ultimately similar problem of how to optimize performance. For blockchains, this is often achieved by improving throughput: serving the most transactions as quickly, accurately, and cheaply as possible. For users, the question is much simpler and less elegant, yet altogether one and the same: how to best allocate capital. So while the starting points and motivations are much different, the goal is a common one.
To address the throughput problem, blockchains must make a variety of decisions and carefully weigh different tradeoffs to increase network performance. This typically involves maximizing transaction speeds without compromising decentralization and trust. So beyond the classic “trilemma,” there are fundamental design choices that all developers must make and iterate through, which often receive relatively less attention. One such area that is currently a focal point within the Solana[1] ecosystem is around transaction scheduling and block-packing. Scheduler bottlenecks and the frequency of conflicting transactions, for instance, have resulted in significant inefficiencies, especially with dropped transactions. This affects the surface layer of the network as well as the underlying nodes that support it. The end user on the consumer side trying to use the network as well as the end user on the staking side trying to maximize their return on capital are impacted by the consequences of a sub-optimal system.
On the other end of the spectrum, users are becoming more sophisticated with how they allocate their capital and are increasingly more sensitive to opportunity costs. Staking as a primitive has served as a cornerstone of investment strategy since the introduction of Proof-of-Stake (PoS) consensus mechanisms. However, as yields compress, in both the traditional macro and crypto markets, this sector is becoming increasingly competitive. Users demand optimal returns on capital and can quickly rotate between different staking providers and PoS networks. Moreover, the use of the proceeds from staking rewards is currently an underexplored area. The typical staking journey starts and ends with the same action, as all proceeds are automatically reinvested back into the original staking position.
Advancements within the validator stack, however, are beginning to solve for these limitations. One particularly impactful instance is Rakurai[2] and its ultra-performant staking infrastructure. At a high level, Rakurai enables validators to service more traffic and earn more block rewards, which translates into higher staking rewards for end users. This fundamentally impacts the blockchain network itself, the users that navigate it, and the users who reinforce it with their staked capital. Moreover, users are now in a unique position to earn boosted yield on top of their original staking rewards. This pushes the entire space towards the programmatic staking layer, where boosted yield can be put to further use beyond simple staking. This includes a variety of powerful primitives and applications, including autonomous execution engines, yield optimizers, portfolio rebalancing tools, and Buy Now, Pay Never programs. The future of staking is at the precipice of a decidedly transformative era. The Programmatic Staking Layer is now upon us.
A Brief Overview of Solana Transactions
In order to better understand the programmatic staking layer and the power of high-performance custom nodes, it’s useful to quickly explore how the transaction pipeline currently operates on Solana. The block-building process begins with a node being chosen as a leader. As such, this node then becomes responsible for generating a Proof-of-History sequence. Part of this process involves the leader node sequencing messages and packing the block to achieve maximum efficiency and throughput on the network. This ordered output is packed into a block and then sent to validators on the network for verification. These validators vote on the timestamps of different blocks on the chain, staking SOL as collateral for acting honestly to maintain consensus.
Currently, however, leader nodes struggle to sequence messages efficiently, especially during intervals of heavy traffic. This is primarily due to the frequency of spam transactions occurring on the network. One particularly problematic instantiation here comes from onchain traders and automated trading bots. These agents often send the same transactions multiple times to execute a specific trade. These transactions are often conflicting with each other leading to the node leader canceling these transactions. Due to time constraints, however, node leaders typically cannot wait for more transactions to land. Therefore, the ordered output that ultimately gets packed and sent to other validators is inefficiently packed with a high number of conflicting transactions.
Rakurai: Supercharged Nodes
Rakurai is developing low-latency, high-throughput nodes that optimize the transaction pipeline, starting directly with resolving block-packing inefficiencies on Solana. From a network perspective, this enables node providers on Solana to service transactions more reliably, pack blocks more optimally, and in the end, earn more fees. From an end user perspective, this increased traffic leads to higher yield on staked capital, since the nodes they are delegating stake to are earning more fees.
Returning to the performance issues outlined above, one of the fundamental problems facing all blockchains in production right now is around low throughput. In general, low transactions per second (TPS) and bottlenecks in the transaction pipeline lead to slow execution, while low capacity-to-service transactions lead to fee spikes that can throttle demand. The end result is a compounding chain reaction, quite literally. That is, as missed transactions rise due to insufficient capacity and inefficient block-packing, this leads to lost onchain business, which then leads to lost fees and ultimately lower staking yields for node operators. If unchecked, this can become especially pronounced on a high-performance network like Solana, which handles upwards of 40M transactions per day. There is a cascading effect within the transaction pipeline and node infrastructure.
Moreover, transaction landing is increasingly becoming a pain point throughout the broader ecosystem and especially for DEXs, payment networks, and oracles. All of which need to have the ability to deliver reliable transaction landing to their users. Again, without which, onchain business is lost.
Rakurai’s staking infrastructure aims to facilitate high TPS and high yield through customized nodes, including a proprietary transaction scheduler to enable faster parallel execution and reduced transaction dropping during times of heavy traffic, pipeline optimization to sort through transactions for execution, and network processing optimization to further push performance. Collectively, this architecture can help reduce the frequency of conflicting transactions and scheduler bottlenecks that have resulted in inefficiencies in block-packing [3].
By increasing capacity, more transactions are handled and more block rewards can be earned. Ultimately, this stack can boost staking rewards by 30%, pushing vanilla staking from roughly 7.5% to 10%, powered by block rewards that are more than 5 times greater than vanilla blocks. Of particular note is that these yields are sustainable. By unlocking network throughput, Rakurai-powered nodes should be able to service more traffic than competing nodes, and thus earn more block rewards, benefitting both sides of the user market – that is, both the consumer end users and the staking end users.
The Programmatic Staking Layer
The benefits of this approach are obvious for any given network as well as for its consumer base: more network capacity, faster and more reliable transactions at any interval, and more onchain business. Yet the users who support the network with their staked capital also have much to gain here. Yields are compressing across the board. The Fed cut interest rates three times in 2024, by 75 bps in total, and we believe more cuts may be on the way. So the risk-free rate that many in the space have leveraged as the bedrock of their business, especially DeFi and stablecoins, is diminishing. Users cannot simply park their capital in stablecoins or high yield savings accounts and earn upwards of 5% yield anymore.
Within the crypto market, all users, retail and institutional alike, are constantly searching for real, sustainable yield. And often in the wrong places. Onchain yield that outpaces the risk-free rate is often ephemeral, layered with risk, or both. Users who pursue these opportunities face steep uncertainty and perhaps just as importantly, positions that need to be actively managed. So the risk and opportunity costs are both elevated. High-throughput nodes and boosted staking have the potential to fundamentally change the way we think about staking yield. We believe a Rakurai-powered node will outperform competing nodes, ceteris paribus. The yield that users receive in return is both boosted and sustainable; a rare combination. A new primitive has a chance to be created, one in which the user still receives the staking yield from traditional staking, but also has the ability to further utilize the additional staking rewards for other purposes.
Under the current design of virtually every PoS staking system, the yield generated is automatically added to the user’s principal staking balance. While this may be convenient, it begs the question of whether it is optimal. Given that a staker is continuously rewarded with the same underlying asset initially used to stake, user capital remains purely homogenous, exposed to the same risk, but just as importantly, unable to be diversified for further returns.
We believe the advent of optimized nodes, the increase of block rewards, and the boosted staking that comes with it means the potential for double-digit yields for users that should persist over time. As Solana onchain activity continues to grow, more network traffic will need to be serviced, and the potential for staking rewards. This establishes a moneylayer for stakers. Users now have the option of a capital-efficient way of earning yield as well as a way of redirecting that yield to other purposes. Going a step further: what if we take a portion of this boosted yield and deploy it to other pursuits? By utilizing boosted rewards generated by Rakurai, new opportunities to use this extra yield beyond SOL and Solana emerge.
Under the Programmatic Staking Layer design, the boosted staking yield can be applied to many different purposes, converted to tokens beyond SOL and across ecosystems. One way of doing this is through a rebalancing vault which functions like an autonomous execution engine. This enables the user to get access to diversified exposure such as automatically swapping SOL staking rewards for BTC. The core idea here is that nothing from the original user experience of traditional staking is taken away, only an extra feature is added. So the user still earns the same staking rewards they would from traditional staking, but the boosted rewards are now put to further use at the full discretion of the user. And this can be anything from a standard rebalancing swap to more risk-on actions, such as perps (e.g. long SOL), hedging instruments (e.g. covered calls on SOL) and assets further down the risk curve like memecoins.
Digging in further, Glider [4] is one such protocol that can facilitate these features. In short, Glider is an onchain execution engine that enables users to perform a variety of custom swaps and trades, as well as engage in a host of pre-built strategies such as pre-set limit orders (e.g. sell SOL at $250) or buy the top 10 memecoins based on marketcap. These sorts of features allow users to significantly expand the possibilities of their staking rewards, manage their risk, and do so automatically.
The programmatic staking layer also enables powerful core utilities and primitives such as payments and yield-bearing stablecoins to be built on top. For instance, users could opt in to a protocol that automatically converts a portion of their staking rewards into yield-bearing stablecoins, tokenized money market funds, or other RWA products that effectively generate yield simply by holding fiat converted from staking rewards. This all can occur automatically and idly for the user. This can be further extended into the payments space. Users can hold these interest-bearing assets and then use them in a variety of payment protocols like MoonPay[5] to swap for other crypto assets or integrate them with Solana Pay to make in-person purchases. These assets could also be automatically sent to a user-owned wallet for wallet-specific applications like the MetaMask credit card. Ultimately, the programmatic staking layer can enable all end users to transform generic staking into a dynamic set of tools that extend well beyond the realm of staking.
Moreover, the programmatic staking layer can unlock novel applications like Buy Now, Pay Never that transcend the confines of traditional web3. At a high level, users could utilize future yield to make real world purchases today. For instance, if a user generates $1,000 per year through staking rewards, they could agree to lock a given portion of this capital for a predetermined amount of time until the purchase is fully paid off. It could also be extended to streaming payments or subscriptions, such as paying for monthly access to X, Dune, and Glassnode premium accounts. The core idea is that the user would never actually pay anything upfront, but rather would simply forgo a portion of their future yield. And we believe this can be accelerated with boosted staking.
What’s Ahead
The entire space is starved for meaningful utility and innovations that move the needle. We believe that applications that meet users where they are and solve real use cases have the chance to be the most impactful–especially applications that improve user experience and optimize processes, such as boosting staking yield while simultaneously improving network capacity. Reimagining the staking layer is one of many emerging iterations that have the potential to function as new building blocks for things that users want. Rakurai, Glider, and other innovative protocols that support this design have many other applications that allow for even more creativity and utility. The onchain world continues to become increasingly complex, on- and off-chain yield is grinding down, and the so-called “free lunch” enabled by uncharacteristically high risk-free rates is no longer free. Applications that can bridge these gaps will also become paramount for continued adoption.
With the advent of optimized staking, we're building a validator that will utilize technology like Rakurai to handle more traffic and generate more block rewards. Join the journey with our validator here:
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