Quantification of MEV Sharing Design (OFAs)

Danning Sui

0x Labs

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2023/03

@ETHGlobal

@MEVconomics 2023

Agenda

• How does MEV sharing workflow look like?
• The funnel of MEV bidding markets
• How is MEV revenue split across each role of today?
• Searchers
• Builders + Validators
• Where in the funnel can we find, quantify and return user kickback?
• Searchers’ onchain profits
• Builders’ bids surplus

Common workflow of OFAs

First let’s look at the flow and roles involved

Who takes what

There are many layers of bidding markets;

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Each has different beneficiaries & objectives;

Defining all the value (past -> present -> future)

*The Orderflow Auction Design Space (Frontier Research)

The Funnel of MEV Market

…or layers of bidding markets

…so how big are these bars today?

Quick revisit:

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MEV revenue split

of today’s roles

Let’s try to put a number on each layer of this funnel…

Caveat: searchers’ total revenue are unknown

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CEX-CEX

• Not relevant to this discussion since it’s not originated by DEX users

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DEX-DEX ✅

• For quantifying searchers’ profits, we will narrow down to onchain DEX-DEX MEV’s profits (whose data is accessible) in this discussion.

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CEX-DEX ❌

• Hard (or nearly impossible) to estimate revenue (and PnL) made from CEX-DEX;
• Which, anecdotally, is the majority type of arbitrage;

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* certain MEV simulation can estimate historical opportunity, including CEX-DEX

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⚠️

Calling back to Elaine Hu’s prev talk 👇

Searchers onchain profits - Total by MEV Type

Oct-Dec

Daily ~$50k - $100k

(likely under-indexed)

Builders’ behavior pattern

Split revenue across builder and proposer is a bit tricky;

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There are different patterns of behavior from builders.

Proposer revenue over time

Oct-Dec

Daily ~$600k

Jan-Mar

Daily ~$1m

Proposer revenue over time

Oct-Dec

Daily ~$600k

Jan-Mar

Daily ~$1m

pass cross check 👍

(Accountable) MEV Split % Across Roles

Oct-Dec

Searcher: 70%

Proposer: 30%

Jan-Mar

Searcher: 30%

Proposer: 70%

Big & Important Question:

where can the user kickback come from? 🤔

70%

30%

30%

70%

Now, where in the funnel can we extract & return

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user kickback?

Look Again: The Funnel of MEV Market

…or layers of bidding markets

*The Orderflow Auction Design Space (Frontier Research)

searcher onchain profits reshare thru OFA bundle submission (1st bidding layer)

builder/proposer MEV revenue reshare thru mev-boost block submission (2nd bidding layer)

Look Again: The Funnel of MEV Market

…or layers of bidding markets

1 Searcher onchain profits - EigenPhi Data

Caveats: likely under-indexed

1 Searcher onchain profits - EigenPhi Data

Oct-Dec

1 Searcher onchain profits - EigenPhi Data

This means,

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On a monthly basis of $212.5m volume,

user can expect total of

~$106.2k (~5bps)

~$2.1m (~100bps - higher percentile upperbound)

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On a monthly basis of $1.2b volume,

user can expect total of

$607k (~5bps)

$12.1m (~100bps - higher percentile upperbound)

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from searchers’ onchain profits portion of MEV revenue

1 Searcher onchain profits - EigenPhi Data

This means,

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On a monthly basis of $212.5m volume,

user can expect total of

~$106.2k (~5bps)

~$2.1m (~100bps - higher percentile upperbound)

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On a monthly basis of $1.2b volume,

user can expect total of

$607k (~5bps)

$12.1m (~100bps - higher percentile upperbound)

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from searchers’ onchain profits portion of MEV revenue

Caveat:

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This is an upperbound

Not all trades flow have mev extractable value

2 The Block Bidding “Surplus”

Methodology:

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1. For each slot/block_number, take freshest bid per builder
2. take highest 2 bids per slot/block_number
1. the difference is estimate surplus, thus user kickback

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• bidding_surplus/highest_bid = reshare %
• bidding_surplus/highest_bid*10000 = bidder margin

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Caveats:

• It’s a lower-bound (why not larger % of all payouts?)
• It’s the enforceable portion thru mev-boost

2 The Block Bidding “Surplus”

MEV Reshare Estimate: ~2ETH per 1k blocks 👆

~$25k per day

Reshare Estimate per block 👉

(~12s)

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Avg ~0.003 ETH

~$5 (price today)

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Median [0.0004 ETH,0.0006 ETH]

[$0.68, $1.02] (price today)

2 The Block Bidding “Surplus”

2%~5%

Surplus split % from highest bid (= proposer+builder revenue) 👇

2%~4%

1%~5%

Bidding Surplus margin (of builders’ bids) 👆

95th percentile: ~1000bps�Median: ~150bps

Avg: 200~400bps

95th percentile: ~1000bps�Median: ~100bps

Avg: 200~400bps

95th percentile: ~1000bps�Median: ~100bps

Avg: 150~500bps

2 The Block Bidding “Surplus”

This means,

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Monthly total bid surplus is ~$750k;

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5% of DEX market share gets ~$37.5k

10% of DEX market share gets ~$75k

50% of DEX market share gets ~$375k

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Caveat:

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This is a lowerbound

Enforceable from block bidding layer

Full picture

daily estimate monthly

*using split % from mev-inspect + payouts from relay data

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builder/proposer revenue ~$975k (x%?) ~$29.3m (x%?)

after surplus

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bidding surplus ~$25k ~$750k

(lower bound) (lower bound)

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searcher onchain profits ~$400k (x%) ~$12m (x%)

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(onchain visible mev revenue) ~$1.4m ~$42m

(upper bound) (upper bound)

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searcher offchain profits ?? ??

THANKS to 🥳

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EigenPhi’s 2022 MEV Data;

Flashbots Relay Data & mev-inspect data;

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Tina, Elaine, Sarah, Xinyuan for help and guide;

Robert Paluba for reviews &

Tom Zhao for discussions & feedback!