mev and ethereum

Alex Stokes

@ralexstokes

ethtokyo - 15 April 2023

what is mev?

• A question that only gets more interesting the longer you sit with it

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• “Miner extractable value”, “Maximal extractable value”, “MEV”

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• Ability of block producer to choose how transactions are sequenced on-chain

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example plz: “sandwich”

• Uniswap
• Look at USDC/ETH pool with price at 1656
• “Buy 1 ETH for 1656 USDC plz”
• “I’ll accept slippage of 0.5%”
• 1664.28

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• If we are the first transaction after this snapshot
• Get 1656 USDC 😀

example plz: “sandwich”

• But, time in between snapshot and when we get our trade on-chain
• Block producer has ability to insert, remove, or reorder transactions in their block arbitrarily
• Sandwich “attack”
• Attacker buys up to slippage tolerance of target trade
• “Frontrun”
• Target trade goes through, pushing price up
• Attacker immediately sells tokens they just bought for a profit 🤑
• “Backrun”

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• Need slippage to use DEX productively, but also exposure to MEV

why do we care?

• Most (all?) interactions on-chain expose MEV

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• The question becomes: what do you do about it?

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• “mev-aware protocol design”
• Raw incentives to drive behavior in cryptoeconomic systems
• Powerful, but also space for abuse

mev on ethereum?

Transaction supply chain - @thegostep

Transaction supply chain, tomorrow and beyond

bundler

userOp

ERC-4337

4337 bundles

Transaction supply chain, tomorrow and beyond

ERC-4337

Order flow auctions (OFA)

user

wallet

solvers in OFA

searchers

builders

validators

bundlers

Transaction supply chain, tomorrow and beyond

ERC-4337

Order flow auctions (OFA)

user

wallet

solvers in OFA

searchers

builders

validators

bundlers

Layer 2?�Centralized vs decentralized components

MEV on Ethereum

• MEV is a centralizing force
• Can “firewall” MEV concerns away from core protocol
• Proposer-builder separation (PBS)

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• Large design space, want to be thoughtful about anything we enshrine in the protocol

​

• What can we do in the meantime?
• mev-boost

Transaction supply chain, tomorrow and beyond

ERC-4337

Order flow auctions (OFA)

user

wallet

solvers in OFA

searchers

builders

validators

bundlers

Layer 2?�Centralized vs decentralized components

MEV on Ethereum, future directions

• Open R&D into other parts of the “supply chain”
• Wallet innovations for “MEV capture”
• MEV rebates
• ERC-4337 and MEV
• Application-level design
• MEV minimization
• MEV utilization?
• Protocol-level design
• MEV minimization, capture? MEV burning?
• Decentralized block building, searching
• Flashbots SUAVE
• Rook, CoWSwap, many others!

PBS

mev-boost today

enshrined PBS tomorrow?

What is mev-boost?

• “Off-chain” implementation of proposer-builder separation (PBS)
• Stewarded by Flashbots in collaboration with Ethereum researchers and developers

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• https://boost.flashbots.net

How do we implement PBS?

• Proposers: may want to sell blockspace

​

• Builders: want to buy blockspace

❓

Block builders

Proposers �(validators in Ethereum)

Block builders

Proposers �(validators in Ethereum)

🤨❓

mev-boost

• Network that hosts the marketplace for this exchange
• Has first-price open-bid auction mechanism
• Otherwise, unopinionated

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• Software implementation with supporting specification to handle the communication from builder to proposer
• https://github.com/ethereum/builder-specs
• https://github.com/flashbots/mev-boost

Rendezvous service

Block builders

Proposers �(validators in Ethereum)

mev-boost

❓

So how would it work?

• Each “slot”, a proposer can simply query the builder network for bids
• Proposer can pick the highest bid, and include that execution payload in their own block

​

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But, there’s a catch…

• Ethereum has a decentralized validator set
• Encourage stakers of all sizes

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• Anyone can become a validator and be able to include the contents of built blocks in their own proposals (!)

MEV stealing

• Builders will take a “tip” to compensate them for their work of assembling the built execution payload
• Validators can take built payloads, remove builder payment and collect *all* MEV

0xdeadbeefcafe… (builder)

0xcafe3143… (proposer)

0xdeadbeefcafe… (builder)

0xcafe3143… (proposer)

😇

😈

How to stop MEV stealing?

• Option 1: Only allow trusted validators to access the network
• “They simply won’t steal”
• But, hard to implement
• But, some MEV opportunities can be larger than the “reputation” built up so far
• But, harms decentralization as only a subset of stakers can access profitable opportunities

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• Option 2: Remove the conditions that demand the trust assumption
• how?

Democratization with mev-boost

• Support permissionless access to the builder network

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• Modify the previous mechanism with a “commit-reveal” scheme
• Builders commit to a block, and *this* is what the proposer chooses as part of bid selection

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• Builders must later reveal the full block

builder

proposer

But wait, there’s more

• Want to encourage a permissionless network of block builders, just like validators
• Builders are trusted to reveal the selected block

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• “Availability attack”
• Can grief proposers by not releasing the “purchased” block

Enter the relay

• Builders and proposers do not necessarily trust each other
• Fix the problem with a trusted intermediary: the relay

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• Relays ensure:
• builders only provide good blocks
• the block data is made available
• Relays are trusted to not leak builder work / MEV

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• Can have many competing relays

https://writings.flashbots.net/writings/searching-post-merge

Another relay

Yet �another relay

mev-boost post merge?

https://mevboost.pics/

ok, so we are good?

Relay censorship quickly entered the chat

“sandwich the ripper”

• Proposer exploited behavior of relays to access a block via equivocation
• Could steal MEV in the block
• “Unbundling attack”

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• In this case, targeted a block with many sandwich bundles
• Could drain liquidity of sandwich bots

“sandwich the ripper”

pbs: what’s next?

Longer-term for PBS

• Iterate towards “enshrined” PBS
• Get rid of relays!

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• Vitalik’s “two-slot” PBS: https://ethresear.ch/t/two-slot-proposer-builder-separation/10980
• Put auction in the protocol, use gossip network for bids, blocks

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• Barnabe Monnot’s PEPC: https://ethresear.ch/t/unbundling-pbs-towards-protocol-enforced-proposer-commitments-pepc/13879
• What if instead of an auction, just have programmable commitments?

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• Lots of open questions here! More R&D awaiting…

Near-term for PBS

• Harden mev-boost, relay model today
• Early explorations of a PBS spec
• Latency games in mev-boost

@casparschwa, EF RIG

@mikeneuder

Near-term for PBS

mev-boost.pics

Immediate-term for mev-boost

• “sandwich the ripper” fix, but pushing up against synchrony bounds

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• Shapella (capella + shanghai) happened 🎉
• 4844, other protocol features around the corner 👀

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• Implement out-of-protocol censorship resistance techniques?
• “Inclusion lists”, but hard to enforce off-chain…

• How to contribute?
• https://github.com/flashbots/mev-boost
• https://github.com/flashbots/mev-boost-relay
• https://github.com/ralexstokes/mev-rs
• Alternative implementation
• https://github.com/ethereum/builder-specs
• Specify honest behavior, generate testing
• https://github.com/ethereum/hive
• E2E testing
• https://ethresear.ch
• https://frontier.tech/

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• mev-boost community call #3 coming up soon
• https://collective.flashbots.net/t/mev-boost-community-call-3-20-apr-2023/1596

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• @ralexstokes on twitter