Looking at the road to decentralization of MEV from FlashBots

This article will take stock of the efforts made by Flashbots for the decentralization of MEV.

Written by: BadBot

MEV (Miner / Maximum Extractable Value) refers to the potential value that miners or verifiers can obtain in blockchain transactions, and is the profit generated by the transaction sequence and packaging selection method. The sources of MEV include Front Running, Back Running, Sandwich Attack, etc. For more information on the concept of MEV, please read "**Analysis of the Development Status and Trends of MEV"****. **

Flashbots has launched a series of solutions on MEV, and is committed to establishing a fair, transparent, and secure trading environment. This article will take stock of Flashbots' efforts to decentralize MEV.

Flashbots Auction - Miner Decentralization

In the PoW era, the main participants in MEV include searchers and miners, among which miners have mining rights and have privileges in transaction ordering, queue jumping and tampering, thus occupying the bulk of 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 more of MEV as rewards to miners.

Obviously, this privileged position poses a threat to the privacy and security of transactions, and brings 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: The searcher packages the transaction into Bundles and submits it to the Flashbots auction system, and specifies a minimum price to show the potential value of the transaction;
• Miner bidding: Miners bid on the Bundle they are interested in in the auction system, specifying the lowest price they are willing to accept;
• Building blocks: Miners select one or more Bundles with the highest bids from the auction system and include them in the block;
• Settlement and Execution: Transactions and Bundles included 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, and do not need to pay for failed transactions, which makes MEV distribution more fair and reasonable, and greatly improves the security and execution efficiency of the Ethereum network .

MEV-Boost - Validator Decentralization

In the PoS era, PoW miners are replaced by verifiers (you can become a verifier by staking 32 ETH on the beacon chain and running the Ethereum client). In each Epoch, a verifier will be randomly selected as a proposer to package the transaction and submit it to the Ethereum Fangzhu.com.

Flashbots Auction launched MEV-Boost, introducing a new role - Builder, responsible for building blocks. Separation of proposers and builders through PBS (Proposer-Builder Separation) promotes validator competition, decentralization and anti-censorship. At the same time, verifiers are connected to MEV-Boost, reducing the threshold for finding the most profitable transactions, which can greatly increase the pledge income.

Image credit: Flashbots

• Searchers look for transactions with arbitrage opportunities through channels such as mempool, package them with their own transactions into bundles, and send them to block builders;
• Builders try to pick the most profitable bundles to package into blocks and send them to Relay;
• Relay actually hosts the block packaged by the builder for the verifier. The relay forwards the block header to MEV-Boost. After the verifier signs the block header to lock the promise of the packaged block, the relay forwards the complete block to the verifier;
• The validator signs a commitment to become a block proposer, responsible for proposing blocks to the network and adding blocks to the chain.

Suave - Builder Decentralization

Although MEV-Boost brings various benefits, it also faces the problem of centralization of builders. Currently, a small number of builders monopolize most of the block construction.

There are two main reasons for the centralization of builders:

• EOF (exclusive order flow), for example, the builder establishes cooperation 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, resulting in more centralization of the entire blockchain network.

To this end, Flashbots launched Suave, a highly specialized plug-and-play independent network that separates mempool and builders from existing chains, and multiple chains share the same ordering layer to ensure decentralization.

Image credit: Flashbots

Suave's architecture revolves around user transaction preferences, which are the expression, execution and settlement of preferences.

• General preference expression: In Suave's mempool, the transactions of all EVM chain users are displayed openly and transparently. Users can express their trading preferences when initiating a transaction;
• The best execution market: the executor monitors the transactions in the mempool, fully competes to propose the best execution price, and the executor will return part of MEV to the user;
• Decentralized block construction: beyond single block builders, a decentralized block construction network is formed, order flow and bundles are shared between the networks, and the block is completed collaboratively without revealing the specific content of the transaction Build; since builders are able to package MEV generated by multiple chains, this also enables builders and validators to earn higher MEV income.

Relay decentralization

At present, in the MEV-Boost ecosystem, the problem of Relay centralization has not been fully resolved, and Relay plays a trusted role in the entire MEV chain. Flashbots, as one of the largest relay operators in the market, provides free access to validators, which leads to a lack of incentive for new relay operators to enter the market. At present, the high concentration of Relays may cause problems such as single point of failure, transaction review, etc. Some Relays will collude with Builders, give priority to forwarding blocks of cooperative Builders, and refuse or delay the processing of certain normal transactions, thereby affecting full competition in the market.

If top Relay operators such as Falshbots continue to provide subsidies, it will be difficult for Relay to form a market size to promote decentralization.

It is worth noting that Flashbots is not currently the largest Relay provider. Ultra Sound is an optimistic relay that is permissionless, neutral and censorship resistant. We're excited to see the increased diversity of Relays, and of course Flashbots is providing open source support for new Relays like Ultra Sound, Agnostic Gnosis, and more.

The Relay of Bloxroute, an IOBC invested project, is also connected to Flashbots and forwards transactions to MEV-Boost. The Bloxroute BDN network has relays distributed around the world, so the success rate and speed of using Bloxroute relays will be higher. In 2022, Bloxroute will cooperate with the Flashbots white hat team to allow Flashbots customers on the BNB Chain to use the BloXroute BDN to achieve a fast and reliable transaction experience.

Image source: mevboost.pic

Where will MEV "roll"?

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 revenue to users through the protocol level, such as Flashbots' MEV-share.

Builder: This part of entrepreneurs mainly focuses on hardware and strategies, providing safe and stable services, which is the basic factor for a builder to be selected, and strategies directly affect MEV profits; some entrepreneurs are also eyeing the cake of cross-domain MEV, after all The value of MEV that can be extracted by a single chain is limited.

Validator: The threshold for validators is continuously lowered, and it has become one of the best ways for retail investors to participate in MEV. Entrepreneurs for Validator mainly pledge the liquidity of ETH, which is the LSDfi track. Currently, the LSDfi track is also relatively crowded.

The future development of MEV still faces some challenges:

1. Cross-domain MEV. With the development of Layer2, more and more transactions flow from Layer1 to Layer2, but Rollup's block generation and sorting are handled by Sequencer, and MEV is exclusively extracted by Sequencer, becoming one of Rollup's important sources of profit. The emergence of shared sorters may solve this problem.

2. MEV profit redistribution. At present, most of MEV is extracted by verifiers, and the unfair interests of all parties will lead to a stronger willingness to do malicious things.

Although the head effect of the MEV track is obvious, it still continues to attract more developers into the dark forest. In fact, MEV still has a lot to explore, such as the capture of MEV in the modular blockchain, the impact of re-pledging on the MEV supply chain, etc., and we look forward to better solutions.