Author: 0XNATALIE, Source: Author's Blog
Five years after the Flashboys 2.0 paper defined the MEV concept, what is the state of MEV in 2024? On March 12, MEV.market, hosted by Flashbots and Nethermind, was held in London. MEV.market is a conference event about MEV, focusing on the evolution and status of MEV in the past five years. MEV affects the security of blockchain and the fairness of transactions.
The event held talks and panel discussions on MEV, order flow, PBS, SUAVE and other issues. Among the many participants, Vitalik Buterin, teams from Flashbots, Espresso, Anoma and others gave rich speeches and provided deep insights. The following is a summary of the key points of these speeches:
Vitalik delves into the scaling paths of blockchain technology and its impact on decentralization and censorship resistance. He reviewed an article published three years ago titled "Endgame", in which he analyzed different blockchain scaling paths (including layer 1 and layer 2 scaling solutions) and pointed out that these paths tend to have similar structures in the extreme state: centralized block production, decentralized verification, and strong anti-censorship protection.
He emphasized that while similar scaling effects may be achieved in theory, in practice, the implementation of these technical solutions will produce significant differences depending on who is building them. This is not only a technical issue, but also an industrial organization issue. Then he further explored the impact these choices may have on the practice and architecture of blockchain systems.
Specifically, he talked about technical issues such as state transition functions (rules for processing transactions), transaction ordering, proof aggregation, and account abstraction. For example, different teams may have different interest drivers and security considerations, so the design and implementation of their state transition functions will also be different. For example, in the solution of large volume and high gas cost of Proof Aggregation, the solution of aggregating multiple rollup proofs into one within the Ethereum ecosystem saves gas costs, but some standardization is needed. The solution of aggregation within a specific ecosystem, such as Starknet's internal aggregation, is beneficial to large ecosystems, but not to small ecosystems, and increases the reliance on trust code.
Flashbots member Tomasz K. Stańczak discusses how blockchain technology has evolved from an idealistic starting point to the market structure that is widely discussed today.
Market structures have changed significantly from the beginning of electronic trading in 1971 to 2000, which provides a historical perspective for understanding the potential development of blockchain. He compares the evolution of traditional financial markets with the development of blockchain markets, especially from the traditional market concept mentioned in the book Flash Boys to the discussion of MEV in blockchain markets. Traditional and blockchain markets are increasingly converging in terms of trading language and problem solving, suggesting that the two markets may eventually merge. For example, existing on-chain transactions already cover a wide range of topics from stablecoins to DeFi.
Tomas mentioned that the TEE market and SWAV (Shared Workload Allocation Virtual Environment) may be important components of the future market. TEE is a hardware-isolated environment that can execute code securely without external interference. He pointed out that the TEE market can ensure the privacy and security of transactions and provide authentication of algorithms and systems. This technology can be used in traditional markets and blockchain markets to ensure that transactions are conducted in a trusted environment. He mentioned SWAV several times, which is an environment that enhances market transactions through shared workload allocation and can provide a secure and efficient execution platform for complex transactions.
The role of AI in the future market was then further explored. He proposed a thought that the future market may serve AI. For example, AI can use blockchain technology to trade and verify in a decentralized market. This market structure can provide AI with a trustless trading platform that ensures transparency and security of transactions. The possibility of AI building a market autonomously was also explored. He envisioned that AI can use blockchain and TEE technology to create and manage markets, self-regulate and optimize. This market will be able to automatically respond to complex transactions and market changes, providing an efficient and reliable trading environment.
Anoma member Apriori reviewed the historical starting point of MEV. The Flashboys 2.0 paper was the first academic paper to systematically study MEV, published in 2019. The paper experimentally verified the existence of MEV and specifically discussed key concepts such as priority gas auctions (PGA). In these auctions, robots competitively increase transaction fees in order to obtain priority ranking for exchange arbitrage transactions. PGA will bring some negative externalities, such as increased burden on peer-to-peer networks, inefficient coordination between miners and searchers, and failed bids will be rolled back on the chain, resulting in a poor user experience.
When it comes to dealing with the MEV problem, Apriori notes that the technical community has developed a variety of solutions:
MEV Geth:An Ethereum client modification developed by the Flashbots team that aims to provide a new transaction market mechanism to handle priority gas auctions (PGA). This mechanism allows miners and traders to trade transaction priority directly in a dedicated market (Flashbots auction) rather than in a public transaction pool.
MEV Boost:Another modification to the Ethereum client that aims to isolate validators (miners in proof-of-stake) from MEV complexity through a proposer/builder separation (PBS) model. In this model, independent builders are responsible for assembling blocks of transactions and providing complete block proposals to proposers (validators).
Reconstruction or separation schemes:Refine the structure or components of a blockchain to more efficiently handle or mitigate the impact of MEV. These schemes typically involve deeper protocol or architectural changes, such as changing the process of transaction selection and block construction.
Nathan Worsley, an engineer specializing in the field of MEV, discussed in detail the impact of MEV in different blockchain verticals and how to realize the importance of MEV in protocol design. He emphasized that MEV is a fundamental attribute of blockchain and cannot be eliminated, but can only be democratized, distributed or internalized. MEV is a neutral incentive mechanism, the most important incentive when designing decentralized protocols, because blockchain is just a game and MEV is a tool for scoring.
MEV is reflected in many areas of blockchain:
Blockchain and L1: MEV is a reward extracted by miners or validators through block rewards and transaction fees.
Transactions: Teams use different strategies (such as arbitrage, sandwich attacks) to capture value in each block.
Builders and Relays: Builders operate by sourcing pan-order flow and implementing MEV strategies, while relayers are markets in block space.
Decentralized Exchanges (DEXs): DEXs are the primary source of MEV extraction, as price discovery often occurs off-chain.
Bridges and Interoperability Protocols: There are numerous MEV-related considerations when reaching consensus between multiple domains.
Wallets and RPC providers: control user transactions, which are the main source of MEV creation
Espresso Software Engineer Ellie Davidson discusses the issue of redistributing MEV in a shared sorter. Shared Sequencing is a new type of sorting method, also known as Base Sequencing. In a shared sorter, users submit transactions to the Ethereum main chain, and Ethereum acts as a shared sorter, responsible for sorting transactions. Then, each L2 can get data from the main chain and execute its own transactions. The advantage of this approach is that it improves interoperability and enables atomic transactions between different chains. In addition, the shared sorter can also provide higher security and reliability because it is built on the Ethereum main chain and takes advantage of the decentralization and credibility of the main chain.
In order to redistribute MEV in the shared sorter, Ellie Davidson described a mechanism that determines the sorting rights of blocks through auctions or execution tickets. Specifically, participants can bid for the sorting rights of a specific block, and the winner of the auction or execution ticket will obtain the sorting rights of the block. The benefit of this is that it can achieve a fairer distribution of MEV, allowing different participants to share the benefits according to their contributions. At the same time, this mechanism can also improve competitiveness and transparency among blockchain projects.
The implementation of this mechanism also faces some challenges, including how to operate the auction or execution ticket system, how to ensure the fairness and transparency of the auction, integration with the consensus mechanism, and anti-censorship.
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