Flashbots: What will the future market look like for MEV?

By Robert Miller, Flashbots

Smrti Lab

On the Design of MEV Marketplaces

建立一个有效和民主化的 MEV 市场对以太坊甚至整个加密货币生态至关重要，作为以太坊的社区成员和 Flashbots 的支持者，Smrti Lab 翻译了 Flashbots 关于 MEV 市场的最新思考。 Smrti Lab 是一家 crypto native, 由 DeFi degens 建立的研究类型 venture studio。

About the design of MEV market

At the heart of every blockchain is how it allocates space within a block. With the activation of EIP1559, Ethereum will see a historic change in the way block space is allocated, which will directly determine whether a transaction can be included in a block. However, IP-1559 does not affect the miner's ability to reorder, insert, or review transactions, so it does not affect MEV (Maximum Extractable value) to a large extent.  

Flashbots has a long history of designing sustainable incentive systems for all Stakeholders of Ethereum, including users, arbitrage bots, DApps, and the guardians of the Ethereum network (present and future) : miners and validators. Central to this goal is the design of democratic and efficient ordering markets, known as MEV auction rules. To date, Flashbots have successfully accomplished this on Ethereum with our Alpha product.  

Given the major changes in pricing rules for today's Ethereum block space, and the fact that ethereum block producers will evolve from the role of "miner" to "verifier" in the near future, we wanted to share what Flashbots had in mind when designing the MEV exchange market.

The changing role of ethereum block producers

On Ethereum today, mining is all about creating the most profitable blocks, verifying them with a proof-of-work and broadcasting them over the network. Prior to the establishment of a fair and efficient MEV market, the creation of the most profitable blocks was primarily based on the ordering of transactions by gas prices. Miners, on the other hand, have little margin optimization for optimizing transaction sequencing, so they focus on more profitable network level optimization.  

Now that MEV trades, captured by arbitrage or clearing robots and the like, are common on the Ethereum network, the work of miners has changed significantly. In order to produce the most profitable blocks, miners now need to find the optimal order of transactions within the block to package the blocks with the highest total MEV value, in addition to competing at the proof-of-work level. Sorting deals by MEV value is much more complicated than sorting deals by a given gas price, because users are willing to pay a premium for their preferences and miners need to determine which deals to prioritize to maximize their profits. Therefore, a service for users and miners to optimize the sorting to reach a consensus arises. Even before IP-1559, MEV revenues now account for a significant portion of miners' earnings, thanks to the widespread use of the service.  

Crucial to the security of the Ethereum network is ensuring that all miners, large and small, have a fair opportunity to build blocks that maximize their benefits. Otherwise, large miners will be able to utilize their resources more than other miners to optimize their MEV extraction strategy. In turn, more revenue from MEV can be used to grow and further consolidate their dominance of the network.  

Flashbots believes that separating the party that "proposes blocks" from the party that "builds blocks" is an ideal way to build a sustainable, secure blockchain network (since a system where block producers are overly concentrated is clearly unsustainable and requires sufficient competition to maximize profits for block producers). Rather than letting block proposers create their own MEV optimization blocks, they should rely on specialized third parties that build blocks for them in exchange for a fee. The role of the block proposer is to select the block with the highest income, an algorithm that is even simpler than sorting by gas price. Block producers can also participate as both proposers and builders, allowing them to derive value from proposing blocks for themselves and others.

Ideal state of MEV market

Based on the aforementioned market structure, how can we sustainably align the interests of all stakeholders? Flashbots evaluates the MEV market using the following dimensions:

High efficiency:

The system should provide maximum value for block producers, transaction senders, and the entire Ethereum ecosystem *. It should be avoided as chain trading network resource waste caused by the failure, and to avoid the vicious cycle of game in negative and stakeholders, and by doing so, to ensure that producers can obtain the most lucrative the block, particularly with any non open MEV solution compete, because they are not widely available, could impair fair. Fairness and openness are prerequisites for the efficiency of the MEV market.

Avoid value capture:

系统应避免不必要地引入，并最大限度地防止参与者固化的价值捕获机制。 一个内置代币的 MEV 市场就是一个失败于此的解决方案：那些用专门的 token 来分配 MEV 的方案，也就是，比如说 token 数量多就可以决定哪些交易排在前面的方案，是不可接受的。因为价值被这些代币捕获了（而不是从收益的形式直接被打包者获得）。并且这种治理代币 [It's usually risky]. This risk may be tolerable for application, but if you use a scrip governance DAO to control the base layer chain on the threshold of the deal, so to master its powerful economic governance rights participants can use this power to extract value, review transactions, even use their monopoly MEV income to push other miners in hostile soft split ends.

No permission required:

Anyone should be able to participate in the MEV market. Doing so would maximise the income of market participants and make the market most resilient to shocks over the long term. If necessary for anti-spam purposes, an encryption economy model can be considered, but centralized (i.e., DAO-managed) whitelist should be avoided to the maximum extent possible. And within the ethereum system, ether should be the preferred unit of account, as it maximizes the avoidance of putting power in the hands of a small number of people.

Privacy:

MEV 市场应为参与者提供交易隐私的权利，直到他们的交易成功上链。隐私可以帮助激发更有竞争力的交易策略和实现更有效的价格发现。套利机器人可以保证他们的策略不会被抢先运行或受到区块生产者的分拆。反过来，这会保持对无许可创新的激励（比如更多的搜索者策略），并会为搜索者和矿工带来更多的收入。 此外，一个区块生产者在被包含在链上之前无法看到或更改交易的系统，将进一步确保他们作为网络中立参与者的角色。鉴于最近对区块生产者的监管地位的高度关注，这一点至关重要。 我们相信，一个通过密码学来保障市场参与者的隐私的解决方案，如 [MEV-SGX] (https://ethresear.ch/t/mev-sgx-a-sealed-bid-mev-auction-design/9677) [and] (HTTP: / / https://www.youtube.com/watch? V = GzuyOYiuipg) One that guides the separation of block proposers and builders through economic modelsplan] can satisfy all of these attributes. We encourage the community to work with us as we seek to further illustrate how such solutions work in practice and evaluate alternatives that can also achieve these features.

Conclusion & have spent

For these reasons, Flashbots believes that building a democratic and efficient MEV market is critical to the cryptocurrency world. At the same time, we believe that building on an open field can best achieve the above ideal state. That is why we regularly hold public meetings hosted by independent third parties, such as [MEV Roasts] and put our ideas out there in the community. This is why we need feedback from multiple stakeholders as a core part of the development process.

Finally, we believe that caution needs to be exercised against sudden changes in the MEV market without careful consideration and research. We invite all members of the cryptocurrency community to join us in abiding by these standards and encourage all members of the community to participate in existing and new designs to help ethereum achieve an efficient, permit-free, capture-free, and privacy-free future.

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