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Commission

This page explains how Lido for Solana (“Solido”) handles validation rewards. If you haven’t done so yet, now is a good time to review how vote accounts work on Solana.

Challenge#

Lido for Solana faced the following challenge:

  • We want many validators to be able to join.
  • These validators may have different validation fees (commissions) for their public vote accounts.
  • We (Lido) want to decide the validation fee percentage, and it should be the same for all validators.

If we would allow validators to join with their public vote account, those would have different commissions, and either some validators would take more commission than the percentage set by Lido, or these validators would not be able to join.

Solido vote accounts#

To level the playing field for validators, we ask them to create a new vote account for use with Solido. We could ask validators to set the commission of those vote accounts to the percentage decided by Lido, but this creates new problems:

  • If we set a lower validation fee percentage than the commissions of existing public vote accounts, users might flock away from the existing vote accounts, and delegate to the Solido vote accounts directly. Users who do this would not benefit from Solido’s advantages (a liquid token, and spreading risk), but it would still undermine the validator’s public vote accounts.

  • Changing the validation fee percentage requires action from all validators.

To address this, we require validators to set the commission to 100%, but set the withdraw authority of the vote account to an address controlled by Solido. This has the following consequences:

  • It is no longer interesting for users to delegate directly to this vote account, because they would not gain any rewards.

  • Only the Solido program has access to validation rewards. This means that Soldio can distribute the validation fees, and should the percentage need to change, it can be done in a single place.

An additional advantage of Solido distributing validation fees, is that it can distribute them in the form of stSOL. This means that validators automatically get compounding rewards, and it aligns the interests of validators with those of stSOL holders.

Validation fee credit#

When Solido observes a reward in a vote account, it splits it into a fee part, and a part that goes to stSOL appreciation. The fee part is further split into the treasury fee, the developer fee, and the validation fee. The treasury and developer fee get paid directly into their stSOL accounts, but for technical reasons, the validation fee involves a separate step. Solido stores the amount in the validator list in the Solido instance, and when a validator claims it, Solido mints the stSOL into the validator’s fee account, and resets the unclaimed amount stored in the Solido instance back to zero.

The reason for the separate claiming step, is that Solana transactions have a fairly low upper bound on the number of accounts they can reference. With many validators, we couldn’t possibly pay all of them in a single transaction; the “push-based” approach no longer works. To work around this, we instead store the stSOL credit of each validator in the Solido instance (which is only one account), and we have an instruction to pay out this credit for a single validator. With this “pull-based” approach, the number of validators is no longer limited by the Solana account limit.

The maintenance bot will perform this claiming step for all validators.