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MEV on Layer 2

Georgios Konstantopoulos

Research Partner, Paradigm

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whoami

  • Research partner at Paradigm
  • Engineer, researcher
    • Big fan of Rust
  • Work closely with portfolio companies
    • writing their code, reviewing PRs, auditing, architectural advice etc.
  • Previously:
    • ..same thing but with other companies: Celo, Aragon, Keep Network, Aleo, Ripple, Loom Network, ...
  • Contact:

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MEV on Layer 1

MEV cannot be removed 100%. But it can be minimized.

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Core Questions:

  • Protocol:
    • How are block producers chosen? (predictable? How many?)
    • Do they receive transactions in the clear?
    • How are transactions ordered?
    • How long is finality?
  • Network:
    • If BFT PoS: Can the MEV extraction happen during pre-commit/commit rounds?
  • Application:
    • Can anybody submit MEV-exposing transactions (e.g. liquidations, arbs?)

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Layer 2 / Rollups

  • L2 lets us experiment and innovate without fear of L1 breaking
  • Rollups ~= Layer 1s + mechanism to inherit Ethereum security
    • More programmability → More MEV
  • Maybe reduction of MEV on for Eth1 miners/validators since extraction happens by sequencer
  • We can introduce new rules about:
    • Mempool
    • Block producer election
    • Transaction randomization
    • ..?

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Layer 2 / Rollups (cont.)

  • Approaches seen so far by infrastructure providers:
    • MEV Auction (Optimism): Not great, sequencers will extract as much MEV as possible.
    • Fair Sequencing (Arbitrum): Better, but MEV extraction moved to the pre-consensus layer
  • Other approaches:
    • VDFs?
    • Threshold Decryption?
    • SGX?
    • ...MEV Roast 11

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The mythical 51% attack on Optimistic Rollup

  • Statement: 100% of funds in an OR are MEV
  • Attack: “Miners will censor a fraud proof at 0 cost because they can be counterfactually bribed with the proceeds of a successful attack”

�In a vacuum, true. In practice…false.

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Why is the attack mythical?

2 cases:

  • 51% coordination of hashrate AND orphaning any blocks including the fraud proof. �Response: Miners are long ETH, any kind of long reorg/orphaning attack is a non-starter.
  • 100% coordination of hashrate to censor consistently.�Response: lol, breaks all settlement assurances of Ethereum

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Nuance:

  • Would miners coordinate under certain conditions?
  • if a hacker was withdrawing funds, would they allow an invalid state transition to be posted which removes the hacker’s proceeds, while censoring any fraud proofs for it?

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Cross L2 MEV → Relayer Extractable Value?

https://pdaian.com/blog/mev-wat-do/

https://research.paradigm.xyz/MEV

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Will we be able to keep up with the exponential increase in complexity of MEV extraction?

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Questions?

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E-mail: georgios@paradigm.xyz�

Twitter: @gakonst

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