Five years after the Flashboys 2.0 paper defined the MEV concept, what is the state of MEV in 2024? On March 12th, MEV.market hosted by Flashbots and Nethermind was held in London. MEV.market is a conference event about MEV, focusing on the evolution and current situation of MEV over the past five years. MEV affects the security of the blockchain and the fairness of transactions.
The event featured talks and panel discussions on MEV, order flow, PBS, SUAVE and more. Among the many participants, presentations by Vitalik Buterin, teams from Flashbots, Espresso, Anoma and others were informative and provided deep insights. The following summarizes the highlights of these speeches:
Vitalik discussed the expansion path of blockchain technology and its A deep dive into the implications of decentralization and censorship resistance. He recalled an article titled "Endgame" published three years ago, in which he analyzed different blockchain expansion paths (including one- and two-layer expansion solutions) and pointed out that these paths will converge at the limit. Based on a similar structure: centralized block production, decentralized verification, and strong anti-censorship protection.
He emphasized that while similar scaling effects are theoretically possible, in practice the implementation of these technical solutions will have significant differences depending on who is building them. This is not only a technical issue, but also an industrial organization issue. The possible impact of these choices on the practice and architecture of blockchain systems is then further explored.
Specifically, he talked about technical issues such as state transition functions (rules for processing transactions), transaction ordering, proof aggregation, and account abstraction. For example, different teams may have different profit drivers and security considerations, so the design and implementation of their state transition functions will also be different. Another example is the solution where Proof Aggregation is large and has high gas costs. In the Ethereum ecosystem, by aggregating multiple rollup proofs into one solution, gas costs can be saved, but some standardization is required. Solutions that implement aggregation within a specific ecosystem, such as Starknet's internal aggregation, are good for large ecosystems, but bad for small ecosystems, increasing the dependence on trusting the code.
Flashbots member Tomasz K. Stańczak discusses blockchain technology How it evolved from an idealistic starting point to the market structure that is widely discussed today.
Market structures have changed significantly from the beginning of electronic trading in 1971 to 2000, which provides a historical perspective for understanding the potential development of blockchain. He compared the evolution of traditional financial markets with the development of the blockchain market, especially from the traditional market concepts mentioned in the book Flash Boys to the discussion of MEV in the blockchain market. Traditional markets and blockchain markets are increasingly converging in terms of transaction language and problem solving, suggesting that the two markets may eventually converge. For example, existing on-chain transactions already cover a wide range of topics from stablecoins to DeFi.
Tomas mentioned that the TEE market and SWAV (Shared Workload Allocation Virtual Environment) may be an important part of the future market. A TEE is a hardware-isolated environment that enables safe code execution without external interference. He pointed out that the TEE market can ensure the privacy and security of transactions and provide certification of algorithms and systems. This technology can be used in both traditional and blockchain markets to ensure transactions are conducted in a trusted environment. He repeatedly mentioned SWAV, an environment that enhances market transactions through shared workload distribution, providing a secure and efficient execution platform for complex transactions.
Then the role of AI in the future market was further discussed. He offered a thought on how the future market might serve AI. For example, AI can leverage blockchain technology for transactions and verification in decentralized markets. This market structure can provide a trustless trading platform for AI, ensuring transparency and security of transactions. The possibility of AI autonomously building a market was also explored. He envisions AI using blockchain and TEE technology to create and manage markets for self-regulation and optimization. This kind of market will be able to automatically respond to complex transactions and market changes, providing an efficient and reliable trading environment.
Anoma member Apriori reviewed the historical starting point of MEV. The Flashboys 2.0 paper was the first academic paper to systematically study MEV and was released in 2019. The paper experimentally verifies the existence of MEV and specifically discusses key concepts such as priority gas auction (PGA). In these auctions, bots compete to increase transaction fees in order to gain priority for exchange arbitrage trades. PGA will bring some negative externalities, such as increasing the burden on the peer-to-peer network, inefficient coordination between miners and searchers, and failed bids being rolled back on the chain resulting in poor user experience.
In addressing the MEV issue, Apriori noted that the technical community has developed multiple solutions:
MEV Geth: A modified version of the Ethereum client developed by the Flashbots team to provide A new trading market mechanism to handle the Priority Gas Auction (PGA). This mechanism allows miners and traders to trade transaction priority directly in a dedicated market (Flashbots auction) rather than in a public transaction pool.
MEV Boost: is another modification to the Ethereum client that aims to isolate validators (miners in Proof-of-Stake) from MEV complexity through the Proposer/Builder Separation (PBS) model. In this model, independent builders are responsible for assembling transaction blocks and providing complete block proposals to proposers (validators).
Reconstruction or separation solution: refers to the redesign of the structure or components of the blockchain to more effectively handle or mitigate the impact of MEV. These schemes often involve deeper protocol or architectural changes, such as changing the process of transaction selection and block construction.
Nathan Worsley, an engineer specializing in the MEV field, discussed in detail the impact of MEV in different blockchain verticals and how Be aware of the importance of MEV in protocol design. He emphasized that MEV is a basic attribute of the blockchain and cannot be eliminated, but can only be democratized, distributed or internalized. MEV is a neutral incentive mechanism, the most important incentive when designing a decentralized protocol, because the blockchain is just a game, and MEV is a scoring tool.
The embodiment of MEV in many fields of blockchain:
Blockchain and L1: MEV is extracted by miners or validators through block rewards and transaction fees award.
Trading: Teams use different strategies (e.g. arbitrage, sandwich attacks) to capture value in each block.
Builders and Relays: Builders operate by sourcing pan-order flow and implementing MEV strategies, while Relays are the marketplace for block space.
Decentralized Exchange (DEX): DEX is the main source of MEV withdrawals because price discovery often occurs off-chain.
Bridging and interoperability protocols: There are numerous MEV-related considerations when reaching consensus between multiple domains.
Wallet and RPC provider: Control user transactions, which are the main source of MEV creation
##Espresso Software Engineer Ellie Davidson discusses redistributing MEV in a shared sequencer. Shared Sequencing is a new sorting method, also called Base Sequencing. In the shared sequencer, users submit transactions to the Ethereum main chain, and Ethereum acts as a shared sequencer, responsible for sorting transactions. Each L2 can then fetch data from the main chain and execute its own transactions. The advantage of this approach is that it improves interoperability and enables atomic transactions between different chains. In addition, the shared sequencer can also provide higher security and reliability because it is built on the Ethereum main chain, taking advantage of the decentralization and trustworthiness of the main chain. In order to reallocate MEV in the shared sequencer, Ellie Davidson described a mechanism that determines the ordering rights of blocks through auctions or execution tickets. Specifically, participants can bid for the right to sort a specific block, and the winner of the auction or execution ticket will receive the right to sort that block. The advantage of this is that it can achieve a fairer distribution of MEV, allowing different participants to share the benefits according to their contribution. At the same time, this mechanism can also improve competition and transparency among blockchain projects. Implementing this mechanism also faces some challenges, including how to operate the auction or execution ticket system, how to ensure the fairness and transparency of the auction, integration with the consensus mechanism, and censorship resistance, etc.
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