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How does Flashbots use SUAVE to manage the MEV market across all blockchains?

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SUAVE is a new blockchain designed to be the "memory bank and block builder" for all blockchains.

Original Title: "MEV's new chapter: Beyond Ethereum's borders"

Original Author: Chris Powers, Cryptocurrency Researcher

Translated by: Deep Tide TechFlow

With the acceleration of financial activities on Ethereum in the past few years, those who ensure network security have also had opportunities to profit. When we discussed this topic last July, the MEV arms race was underway, and as Ethereum transitioned to PoS in September, the competition intensified. This behavior has redefined the market structure, shifting it from miner extractable value to maximum extractable value for Ethereum validators (MEV).

Flashbots is a core participant in the MEV industry and has continued to achieve great success. Nearly 90% of Ethereum validators are now running their MEV-boost client, which means they receive additional payments (beyond protocol rewards) for reordering or adding transactions to the blocks they propose.

However, this brings two problems:

1. It concentrates the production of blocks;

2. It requires complete trust in Flashbots to execute economic rules.

Flashbots values decentralization in the industry, so their current mission is to decentralize and minimize MEV. This is reflected in the unveiling of their overall plan, SUAVE: a new blockchain to manage the MEV market on Ethereum (and any other blockchain).

This vision is ambitious. But most notably, it assumes that MEV is a thorny problem that has been integrated into the market structure and can only be minimized and redistributed.

On the other hand, the call to oppose the normalization of MEV is growing louder. The leading project in this camp is CoW Protocol, which uses batch auctions and independent solver networks to protect users from MEV.

As early as May 2021, we referred to MEV as "the biggest threat to decentralization of Ethereum." Now, with the emergence of a new batch of projects, it is becoming increasingly clear that the best solution to the MEV crisis - whether it is CoW, SUAVE, or others - will be an independent, decentralized network that is completely focused on sorting transactions.

Flashbots: Fallen Heroes?

At first, Flashbots was seen as a hero in the MEV story. Prior to Flashbots, the Ethereum network was congested with bots competing for profit opportunities in arbitrage, liquidation, and front-running user orders. To ensure profitable transactions were included in a block, these bots (now called searchers) would set increasingly high gas prices in the so-called Priority Gas Auctions (PGAs), thereby raising the natural gas price for all Ethereum users. Flashbots created a forked version of Geth (MEV-Geth) for miners, allowing them to auction off block space to searchers - outside of the protocol - so they could include profitable transactions. This saved a lot of costs for all Ethereum users by moving it off-chain.

In the more than 20 months since the launch of MEV-Geth, Flashbots has undergone a tremendous transformation. It is no longer a warrior charging into battle in the dark forest, but is now seen as a centralized force that has achieved scrutiny over Ethereum. Although Flashbots previously focused on providing real-time solutions (with all the drawbacks and shortcomings), SUAVE is trying to establish a comprehensive, decentralized solution to permanently solve the MEV crisis.

SUAVE's Inheritance

SUAVE is a new blockchain aimed at becoming the "memory bank and block builder" for all blockchains. Unlike connecting MEV activities through the Flashbots network, the new EVM-compatible blockchain will serve as the economic foundation of the market.

With the transition towards PoS and MEV-boost, the Flashbots network has expanded. As a result, while it still connects searchers with validators (instead of miners) through relays, a new role is required (block builder). This role will specialize in constructing Ethereum execution loads and optimal transaction ordering (or sorting). The goal of SUAVE is to decentralize this role.

After the launch of MEV-boost in September, the Flashbots team quickly became the first relay and block producer. Soon, it relayed and bundled over 50% of Ethereum blocks.

Flashbots quickly open-sourced its MEV-boost relay software, followed by its MEV-boost construction package, in an effort to help competition and avoid monopolies. This has worked to some extent (as seen in the recent decline in the chart above), but blockchain development is a naturally centralized activity. Without Flashbots, other entities would also rise up to build most of Ethereum's blocks and create opportunities for censorship and rent-seeking.

Ethereum Perspective: Proposal-Builder Separation (PBS)

In order to solve this problem, Vitalik proposed a design framework called "Proposer-Builder Separation" (PBS), which means that the block proposers do not generate a "maximized income" block themselves, but outsource it to external actors (builders) in the market. MEV-boost is a "native PBS" or a PBS that exists outside the protocol. It relies on the goodwill of Flashbots. If a more threatening actor plays Flashbots, Ethereum will be in big trouble.

To write PBS into the Ethereum protocol, it takes a long time and more engineering and research. Projects like Eigenlayer, which is a programmable reduction layer for staking ETH, may help adjust the incentive mechanism. In any case, it is clear that the process of block construction (or transaction ordering) will not be completed on Ethereum.

New Market Structure

Flashbots hopes to use SUAVE for block construction, rather than Ethereum, and target each blockchain.

SUAVE has three core components:

1. General preference for the environment;

2. Best Execution Market;

3. Decentralized block construction.

These are all independent components that work together to achieve the best results for all parties involved.

Flashbots has once again expanded the role lineup in the MEV ecosystem. They have finally incorporated regular users through a general preference environment. This, combined with the execution market, ensures that users can effectively return the extracted MEV to them.

MEV is inevitable?

SUAVE is the ultimate goal of Flashbots. If successful, it will fulfill its vision of being "ahead of the MEV crisis" and democratize MEV extraction. However, many still reject MEV. As the cost of using public blockchains, must users succumb to frontrunning?

The answer to the CoW protocol is no. Its main point is that each token in each block should only have one price. Instead of reordering trades for maximum profit, all trades are settled at the same price through batch auctions every 30-90 seconds. In CoW, users sign orders and submit them to the solver network. These solutions first attempt to match completely independent P2P traders from MEV, and then fill the remaining orders with on-chain liquidity pools.

Bulk auctions are completely different from today's trading methods. In both TradFi and DeFi, there is a competition to trade based on market dynamics. It is estimated that 60-80% of all DEX activity is MEV robots arbitraging on DEX after new price changes appear on centralized trading platforms. Large market makers hope to complete their orders first (in TradFi) or optimize their order placement (in DeFi). In bulk auctions, there is no competition because all trades are settled at the same price. At the same time, the solver charges a fee for the solution that generates the maximum profit for all users (not just itself).

There are some potential drawbacks. For beginners, running a solver requires a lot of resources - both computing and financial - and it is unclear whether there is sufficient privacy protection to ensure that the solver does not run ahead of the user's order.

SUAVE is a complete cycle

Perhaps surprisingly, there are many similarities between the CoW protocol and SUAVE proposed by Flashbots. CoW focuses on "transaction intent expression," while SUAVE aims to capture "generalized intent expression." This is a fancy way of saying "what do you want to buy or sell, and for how much?" The protocol then auctions off this intent to a solver (CoW) or builder (SUAVE).

The key difference is that the design of SUAVE is to extract most of the value from transaction order, while for CoW, transaction order is not important because all tokens have the same price within a block. Another key difference is that SUAVE aims to serve as a single place for multiple blockchains to submit orders, although CoW may also move in this direction.

After an in-depth investigation, SUAVE is also involved in topics similar to Chainlink's Fair Sequencing Service (FSS). FSS is designed for L2 sequencers, not for block construction, but both SUAVE and FSS attempt to establish a decentralized network for activities to gain huge benefits from scale. Of course, another big difference is that the block builders in SUAVE are trying to maximize MEV, while Chainlink node operators are trying to achieve the correct order based on the time of order submission.

Regardless, this marks a new chapter for MEV, as the profit and decentralization arms race shifts beyond Ethereum. This does not mean that the fundamental issues have been resolved. Rather, potential solutions such as SUAVE and CoW will be a dedicated, standalone network to balance the needs of decentralization and profit incentives.