The Rise of the Crypto Demigods
Guardians of the Network...
The Rise of Crypto Demigods
In any consensus protocol, whether it's Proof-of-Work (PoW) or Proof-of-Stake (PoS), the miners (or validators) have god-like powers which derive from the fact that they sequence transactions and package those transactions into blocks on the network’s ledger. In other words, validators maintain and update the state of the network.
Users of the network compete with each other to get their transactions into the current blockspace at any given moment, and one of the ways they compete is by paying the validators for access to block space. This dynamic has led to the concept of MEV.
What is MEV?
Maximal Extractable Value or MEV refers to the revenues extracted from the blockchain by validators by including one transaction before another in the distributed ledger (or from excluding a transaction altogether).
To those new to blockchain, this may sound jarring, however, not all MEV is built the same. Some MEV methods are unambiguously harmful to users on the network, including “sandwich attacks” which are akin to front-running in traditional markets.
However there are other methods of MEV that are beneficial to the DeFi ecosystem such as arbitrage which keeps market prices in-line or liquidations which keeps the on-chain lending market functioning properly.
There are software groups such as Ethereum’s Flashbots and Solana’s Jito Labs who are conducting cutting-edge research to solve the negative externalities of MEV while preserving the positive outcomes.
How do Validators Generate Revenue?
The complete economics of running a validator are beyond the scope of this brief research note. However, at a high level PoS Validators generate revenue in three main ways:
MEV: DeFi traders pay validators to include their transaction in a specific order within a block. This process is largely external to the protocol itself.
Network Inflation/Rewards: the network protocol pays validators for providing the service of securing and maintaining the network. The protocol usually pays the validator through token inflation after their turn producing the blocks of transactions.
User transaction fee: many blockchains such as Solana allow users to “tip” validators so that they can prioritize their transaction to be processed at the protocol level and increase their chances of getting their transaction included into the current block.
Crypto Demigods: Guardians of the Network
On a blockchain network, validators hold the greatest authority. They can determine the blockchain's state by controlling the transaction order. Validators function similarly to Internet Service Providers (ISPs), both acting as guardians of their respective networks. Just as ISPs, validators play a vital role in network maintenance and security, establishing a parallel between their essential functions. In addition to these god-like powers, comes huge responsibility in maintaining the integrity of the network.
In order for blockchains to fulfill their promise to on-chain real-world assets (RWA) then cryptonetwork must become much faster. Solana, which is leading the way in blockchain innovation, will release the Alpenglow consensus algorithm in 2026. Alpenglow will feature innovations such as concurrent lead validators processing transactions, leading to faster transaction time and finality. One of the benefits hoped for by Alpenglow is that the upgrade will increase validator decentralization on Solana which has been a criticism of the network due to the high cost of managing a validator node.
The DeFi ecosystem is rapidly evolving with entirely new financial primitives and technologies being created. In PoS systems the validator plays an important role in the execution process. The lead validator essentially is the matching engine; as a result, the consequences are far-reaching.
One of the innovations of blockchain technology is its trustless properties, meaning specifically that the network does not need to trust any 3rd party intermediaries to safely transact on the network. If MEV is not handled properly, validators run the risk of “breaking the fourth wall” so to speak and violating the assumptions of trust inherent to their protocols.
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