For Solana users, “priority fees” means paying up to skip the line

Doing business on the Solana blockchain is more expensive than ever. For the network and its users, that can be a good thing.

Priority fees, a key feature among major technology upgrades Solana developers pushed last year to combat crippling congestion issues, are becoming mainstream among the ecosystem’s wallets and trading protocols, with heavyweights including exchange aggregator Jupiter and trading pool operator Orca joining.

Users can pay the additional fees to validators on the Solana network to have their transactions prioritized – so they go through faster. That extra boost can make all the difference in high-traffic situations, like a volatile crypto trading arbitrage opportunity or in the battle for a hot NFT coin.

In a recent era (blockchain’s time period for validators), nearly three-quarters of all non-voting transactions had priority fees attached, per data from validator statistics service Solana Compass. This award set a new high-water mark for priority fee adoption, which has grown throughout the year.

The average transaction fee paid by Solana users in that epoch (Epoch 402) was 0.000014641 SOL, a 67% increase over early July prices, but still only fractions of a penny based on the current market price. A total of 963 SOL were spent on priority fees last epoch, or almost $24,000 – a rounding error based on the total value moving across the network.

“Most users can pay 100x the current cost and not care since it’s still under cents,” the pseudonymous 7Layer, which runs the Overclock validator service, said in a Twitter DM.

The prioritization fees help bring order to a network that has seen its share of chaos, most memorably and infamously at the hands of trading bots that in 2021 spammed the network into oblivion. Developers say that such things should not happen under the new technological regime.

Solana’s trade-off between price and speed is not nearly as poignant as on Ethereum, where congestion in one corner of the network makes doing business expensive for everyone. That’s because Solana’s architecture is built to handle many transactions at once, said Austin Federa, chief strategy officer for the Solana Foundation.

For example: If many traders try to exchange BONK tokens for stablecoin USDC on the same exchange at once, they may start paying priority fees to ensure their trades go through at the prices they want. But even during the high traffic, the local fee market for minting an NFT elsewhere on Solana will not become more expensive. On Ethereum it would.

Jonny Platt, CEO of Solana Compass, told CoinDesk priority fees are changing the economics of running their validators on Solana. He said the average block reward is 20% higher year over year.

Half the value of priority fees goes to validators like Platt as a reward for lending their computing power to the network; the other half of the priority fee is burned. Platt said this burning mechanism should inject more value into SOL tokens over time by making the tokens more scarce.

“So many normal everyday users of Solana are happy to see this because it’s a recognition that we’ve improved over last year,” Platt said of priority tolls.

Solana suffered several well-documented (and wiped out) network outages in 2022 and 2021, some of which were driven by bots hitting a corner of the blockchain at the same time. In one such outage, in September 2021, bots flooded a token sale on the Raydium exchange with more transactions than Solana could handle. Solana initially breached and went offline for 17 hours – an eternity in 24/7 cryptocurrency markets.

To solve the spam problem, core developers began a year-long effort to change how Solana handles transactions. It would ditch the “first-come, first-served” transaction execution model for “fee markets” that benefited those who paid for priority.

Solana transaction fees are the sum of a static base fee plus a dynamic calculation fee. With priority fees, users who want faster execution can choose to pay a little extra SOL. Bots that previously spammed the network for dominance won’t win on transaction volume alone, validators said.

“It reduces the incentive because prioritization based on fee matters more rather than just spamming hard to get ahead of the queue,” 7Layer said. “There haven’t been any spam problems anywhere near what they used to be.”

Priority fees haven’t completely solved Solana’s spam problem, said St. Gnu, another pseudonymous validator. The network is extremely cheap to do business on, extra fees or not. He said Solana’s core developers need to build out more fee features that make spamming less economical.

“The problem is that if you just want to ‘spray and pray’ a bunch of transactions, there really isn’t a huge cost to doing that,” he said in a Telegram message.