MEV (Miner / Maximum Extractable Value) refers to the potential value that miners or validators can obtain in blockchain transactions. It is the profit generated by the transaction order and packaging selection method. The sources of MEV include Front Running, Back Running, Sandwich Attack, etc. For more information about the concept of MEV, please read "A Brief Analysis of the Development Status and Trends of MEV".
Flashbots has launched a series of solutions for MEV, committed to building a fair, transparent and secure trading environment. This article will review Flashbots’ efforts to decentralize MEV.
Flashbots Auction — Decentralization of Miners
In the PoW era, the main participants of MEV include searchers and miners, among which miners have the right to mine and have privileges in transaction sorting, queue jumping and tampering, thus occupying the bulk of the profits. At the same time, searchers are willing to pay high Gas fees to ensure that their transactions are included in the block. In some cases, searchers may take out 90% or even more of MEV as rewards to pay miners.
Obviously, this privileged status poses a threat to the privacy and security of transactions, and brings about negative externalities including network congestion and gas competition.
Flashbots Auction provides a private communication channel between Ethereum users and miners to negotiate the execution order and price of transactions in a transparent and fair manner.
Submit auction: Searchers package transactions into bundles and submit them to the Flashbots auction system, while specifying a minimum price to demonstrate the potential value of the transaction;
Miner bidding: Miners bid for the Bundles they are interested in in the auction system, specifying the minimum price they are willing to accept;
Building a block: Miners select one or more bundles with the highest bids from the auction system and include them in the block;
Settlement and Execution: The transactions and bundles contained in the block will be executed in the order and price agreed upon in the auction.
Through Flashbots Auction, searchers no longer need to use Gas War to ensure that their transactions are packaged first, nor do they need to pay fees for failed transactions. This makes MEV distribution more fair and reasonable, greatly improving the security and execution efficiency of the Ethereum network.
MEV-Boost — Validator Decentralization
In the PoS era, PoW miners are replaced by validators (you can become a validator by staking 32 ETH in the beacon chain and running the Ethereum client). In each Epoch, a validator will be randomly selected as the proposer to package the transaction and submit it to the Ethereum mainnet.
Flashbots Auction launches MEV-Boost, introducing a new role - Builder, responsible for building blocks. Proposers and builders are separated through PBS (Proposer-Builder Separation), promoting competition among validators, decentralization, and anti-censorship. At the same time, validators access MEV-Boost, which lowers the threshold for finding the most profitable transactions and can significantly increase staking income.
Searchers look for transactions with arbitrage opportunities through channels such as mempool, package them with their own transactions into a bundle, and send them to block builders;
Builders try to pick the most profitable bundles, package them into blocks, and send them to Relay;
Relay actually hosts the blocks packaged by the builders for the validators. The relay forwards the block header to MEV-Boost. After the validator signs the block header to lock the commitment to package the block, the relay forwards the complete block to the validator.
Validators sign a commitment to become block proposers, responsible for proposing blocks to the network and adding blocks to the chain.
Suave — Decentralization for builders
Although MEV-Boost brings many benefits, it also faces the problem of builder centralization. Currently, a few builders monopolize most of the block construction.
There are two main reasons for builder centralization:
EOF (exclusive order flow), for example, the builder cooperates with wallets, Dapps, etc., and obtains exclusive order flow by modifying the user's default RPC;
Cross-domain MEV, cross-domain builders capture multi-chain transactions, causing the entire blockchain network to be more centralized.
To this end, Flashbots launched Suave, a highly specialized plug-and-play independent network that separates the mempool and builders from existing chains, and multiple chains share the same sorting layer to ensure decentralization.
Suave’s architecture is built around user trading preferences, including expression, execution and settlement of preferences.
Universal preference expression: In Suave’s mempool, all EVM chain users’ transactions are displayed openly and transparently. Users can express their transaction preferences when initiating transactions;
Best execution market: executors monitor transactions in the mempool, fully compete to propose the best execution price, and executors will return part of the MEV to users;
Decentralized block construction: Go beyond single block builders to form a decentralized block construction network, where order flows and bundles are shared between networks, and block construction is completed collaboratively without leaking the specific content of the transaction; since builders can package the MEV generated by multiple chains, this also enables builders and validators to obtain higher MEV income.
Relay Decentralization
Currently in the MEV-Boost ecosystem, there is no complete solution to the problem of Relay centralization, and Relay plays a trusted role in the entire MEV chain. Flashbots, as one of the largest Relay operators in the market, provides free use to validators, which leads to a lack of motivation for new Relay operators to enter the market.
Currently, the high concentration of Relays may cause problems such as single point failure and transaction review. Some Relays will collude with Builders to give priority to forwarding the blocks of cooperative Builders, and refuse or delay processing certain normal transactions, thereby affecting the full competition in the market.
If the leading Relay operators such as Falshbots continue to provide subsidies, it will be difficult for Relay to form a market scale to promote decentralization. It is worth noting that Flashbots is not the largest Relay provider at present. Ultra Sound is an optimistic Relay that is permissionless, neutral and censorship-resistant. We are happy to see the improvement of Relay diversity, of course, this is also inseparable from Flashbots providing open source support for new Relays such as Ultra Sound and Agnostic Gnosis.
The Relay of IOBC's invested project Bloxroute is also connected to Flashbots to forward transactions to MEV-Boost. The Bloxroute BDN network has Relays distributed around the world, so the success rate and speed of using Bloxroute Relay will be higher. In 2022, Bloxroute reached a cooperation with the Flashbots white hat team to allow Flashbots customers on BNB Chain to use BloXroute BDN for a fast and reliable trading experience.
Where will MEV “roll” to?
Mempool: Profitable orders are the starting point of MEV. These entrepreneurs are mainly rolling BD, looking for more wallets, Dapps, etc. to access their own RPC to protect transaction privacy and obtain exclusive order flow. Some projects will also return part of the MEV income to users through the protocol level, such as Flashbots' MEV-share.
Builder: This group of entrepreneurs focuses on hardware and strategies. Providing services safely and stably is a basic factor in being selected as a builder, and strategies directly affect MEV profits. Some of these entrepreneurs are also eyeing the cross-domain MEV pie. After all, the MEV value that can be extracted from a single chain is limited.
Validator: The threshold for validators is constantly lowering, becoming one of the best ways for retail investors to participate in MEV. Entrepreneurs who are interested in Validator mainly pledge the liquidity of ETH, which is the LSDfi track. Currently, the LSDfi track is also quite crowded. The future development of MEV still faces some challenges:
1. Cross-domain MEV. With the development of Layer 2, more and more transactions flow from Layer 1 to Layer 2, but the block generation and sorting of Rollup are handled by Sequencer. MEV is exclusively extracted by Sequencer and becomes one of the important profit sources of Rollup. The emergence of shared sorter may solve this problem.
2. MEV profit redistribution. Currently, most of the MEV is extracted by validators. The unfair interests of all parties will lead to a stronger willingness to do malicious things.
Although the MEV track has an obvious head effect, it continues to attract more developers to enter the dark forest. In fact, there are still many areas of MEV that deserve in-depth discussion, such as the capture of MEV in modular blockchains, the impact of re-pledge on the MEV supply chain, etc., and we also look forward to the emergence of better solutions.
