Jito Foundation contributor proposes new JTO tokenomics model, including potential buybacks

Jito Foundation contributor Andrew Thurman created a mock-up for a new model of JTO tokenomics on Thursday, which includes an idea for potentially buying back tokens. 

Thurman's 12-page proposal aims to spark discussion around expanding the utility of Jito's governance token, a conversation that has already begun to "percolate naturally" in the community. (The document, however, is not an official governance proposal and Thurman notes it does not officially represent the opinions of the Jito Foundation, JitoDAO or other related parties.)

Jito is a liquid staking and MEV platform that sits at the center of the Solana ecosystem. Thurman argues that as the protocol and DAO continue to earn more and more fees as Solana use grows, the community should come to consensus on how to put these revenues best to work rather than simply growing their treasuries. While many protocols face a choice between reinvesting in ecosystem growth — what Thurman calls "recycling" value — or distributing it to participants via rewards, Jito could develop a "recycling & rewards" strategy.

"Jito is in a unique position," he wrote, noting the Jito DAO receives 4% of all JitoSOL staking rewards as a programmatic fee, representing just one form of its revenue. "There are not many examples of DeFi ecosystems which have generated as much real value as quickly as the Jito Network, and most of them are contemporary Solana projects with a limited track record to learn from."

"At the app/infra layer, value recycling (or reinvesting in growing the ecosystem) and value rewards (redistribution or compensation for ecosystem participants) are both still very much new design spaces, and there are open questions about the best way to accomplish either goal," Thurman said.

Rewarding value: Buybacks and Fee Switches

When it comes to "recycling" value, there are essentially two options: "buybacks" or flipping a "fee switch," both of which aim to return value to users in a relatively direct way. 

Fee switches — while sometimes contentious, like in the case of the Uniswap community, which has long debated the idea of giving a portion of protocol fees directly to UNI token holders — are a simple mechanism to reward value to token holders. Thurman points out a few working examples like GMX and Synthetix, but argues there are "fewer examples of successful crypto projects redistributing value via a fee switch."

By comparison, there are more examples of "successful" buybacks in crypto, including from prominent protocols like MakerDAO, Raydium, Jupiter and Hyperliquid.

"Buybacks have emerged as a popular method for rewarding ecosystem participants, perhaps in part modeled on the success of buybacks as a mechanism in traditional markets," Thurman wrote.

That said, there isn't yet a risk-free model or "unambiguously successful blueprint" for rewarding the community through buybacks. Thurman does put forward two possible "novel reinvestment" models: "Buyback and Barter" and "Real Yield Gauges."

Under the buyback-and-barter model, the Jito DAO would use a certain percentage of the fees it earns to “barter” with another project’s DAO for "favorable terms" and lead to long-term alignment through "an industry-altering handshake." This proposal offers the benefit of removing JTO from public markets and "soft-locking" the tokens rather potentially inflating the circulating supply by using tokens from the Jito DAO treasury. The downside is counterparty risk, he noted. 

Meanwhile, the "real yield gauges" idea is borrowed from Curve , an Ethereum-based decentralized exchange. Curve locks CRV governance tokens in an escrow contract that earns CRV emissions, which are then deployed in various liquidity pools to earn extra yield. Under Thurman's model, users would instead stake funds in a JitoSOL or JTO-paired pool and vote on where to invest "the DAO’s fee stream."

"The Jito Network’s take on gauges would not be getting the Network into the DEX business," Thurman said. "It could create a new form of utility for JTO, build momentum for JTO and JitoSOL-pair standards. More than that, it would be close to a novelty in terms of DeFi. There’s plenty of gauge systems, but only a handful utilize real yield."

A Jito Foundation contributor who goes by drnick responded to Thurman's tokenomics proposal, stating the foundation could switch between buybacks in bear markets and yield boosting when it prioritizes growth and liquidity incentives.

Recycling models

In comparison to trying to "reward" value to token holders fairly and consistently using tokenomic schemes, "recycling" value in protocol and community development is a rather "standard play," Thurman noted. Perhaps the most straightforward methods are simply diversifying a DAO's treasury, either by holding relatively uncorrelated speculative assets or stablecoins or by spending it down to pay for grants, hackathons and other community-building efforts.

However, Thurman does propose more crypto-native solutions, including building up a reserve of "protocol-owned liquidity" that would essentially turn the Jito DAO into a liquidity provider of last resort. He also proposed subsidizing stalking and restaking yields, boosting JitoSOL adoption and its restaking protocol. 

"Multiple community members have voiced in various forums that current JTO restaking rewards are too low," Thurman wrote. "Increasing JTO restaking fees from .15% to .2% or .25% or any other number could be something the DAO may want to consider."

It's worth noting that some of these reinvestment schemes would likely pay for themselves. JitoSOL fees, at the time of writing, are generating approximately $10 million in revenue per year. And while the protocol, which is stitched together from many constituent parts, is currently dominating many sectors in Solana, Thurman notes that there is fast-growing competition.  

In the end, Thurman is throwing ideas out on paper for the rest of the community to discuss. It's possible that some, all or none of these methods of "blitz-scaling" or providing community kickbacks are taken up. However, Jito is in uncharted territory regarding protocol growth, and Thurman noted that more now than ever, "no one knows what they’re doing."

"I hope this thread can serve as a public forum for discussing tokenomics, which has already begun to percolate naturally, and look forward to seeing how the community believes the DAO should proceed," Thurman, a longtime DeFi user and respected member of the Ethereum and Solana communities, said.

JTO traded at $2.55 as of 2:51 p.m. ET (19:51 UTC) on March 6 after falling 5.25% in the past 24 hours, The Block Prices for Jito showed.