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First glimpse into the LSD MEV track: What will marketization and fairness of MEV bring to LSD?

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When MEV meets the hot LSD wave, what kind of combination will they have?

Original Title: "LSD MEV Track Debut: What Will MEV Commercialization and Fairness Bring to LSD?"

Original Source: DeepTech TechFlow

MEV (Maximal Extractable Value) is one of the most important topics in the cryptocurrency industry. It refers to the maximum value that validators can extract from block production that exceeds standard block rewards and gas fees by adding, removing, and changing the order of transactions in a block.

When MEV meets the hot LSD wave, what kind of combination will they have?

MEV Concept Review

MEV is not a new product, it involves three interest-related groups in the blockchain industry: users, validators, and searchers.

Essentially, MEV facilitates the competition for block space usage rights among all blockchain users. Therefore, in the current blockchain boom, MEV has become a "cash machine" for many seekers. For example, as of April 19th, within seven days during the Memecoin craze, the profits generated by MEV have exceeded three million US dollars.

One counterintuitive phenomenon here is that the value of MEV is not captured by the validators of the blockchain, but by the searchers, who are often referred to as "scientists" in the Chinese encryption community.

MEV can be simply understood as on-chain arbitrage conducted through methods such as front-running. The most common example is the sandwich attack, also known as the sandwich bot.

For example, when you buy $10,000 worth of token X on Uniswap, the robot detects this transaction and buys X with a higher transaction fee before the block is packaged. The robot's transaction is executed first.

Due to the Uniswap automated market-making mechanism, the unit price of token X will be raised. After your transaction is executed, the price of token X will continue to rise. At this point, the robot generates another transaction to sell the X bought at a lower price in the previous transaction, making a profit from the price difference.

The two transactions generated by the robot just sandwiched our transaction, making it look like a sandwich.

MEV Protocol and Practice

In order to regulate the unrestrained extraction brought by MEV, a number of MEV-related protocols have emerged in the encryption industry, such as Flashbots, CowSawp, Manifold Finance, etc.

CowSwap and Flashbots represent the two main directions of MEV applications.

CowSwap stands in opposition to MEV searchers. It utilizes a mechanism of batch auctions to apply a unified settlement price to all transactions within the same batch, thus eliminating the need for sorting and ensuring that each person receives the same asset price.

Flashbots is a platform that aggregates potential searchers, manages them in a standardized manner, and establishes a private mempool to provide users who use Flashbots RPC with opportunities to avoid harmful MEV transactions. Flashbots Bundle provides harmless MEV opportunities for searchers. Flashbots MEV-Boost establishes a channel that can help protocols effectively communicate with validators, allowing validators to receive additional rewards through MEV-Boost.

MEV-Share, a new product built on MEV-Boost, aims to promote fairness in the MEV market by allowing both block space users and searchers to pay fees and extract value within the rules, ultimately achieving fair transaction ordering. MEV is essentially a three-party game between builders, searchers, and block space users, where builders can gain economic incentives through their own power, searchers can obtain arbitrage fees, and block space users seem to be left as the losers.

The ultimate result of MEV-Share is to promote the marketization, standardization, trustworthiness, privacy, and decentralization of MEV behavior, while ensuring the transaction privacy of block space users. Validators receive their own rewards, searchers receive a small portion of MEV rewards, and block space users receive the majority of MEV rewards.

Implementing MEV-Share will have a direct impact on both blockchain space users and validators, so the LSD section that gathers validators will also be directly affected. Unlike the nested structure of LSDFi,

Construction, MEV is actually another direction of LSD extension - it will also bring more real income to the LSD protocol. Ultimately, the growth curve of the future MEV track is likely to resonate with LSD.

We mentioned earlier that Manifold Finance is also a protocol that can bring additional MEV revenue to Ethereum stakers. It has created a new asset called mevETH and extended it to the entire chain through LayerZero. mevETH will feed non-extractive MEV revenue back to stakers. In addition, Manifold Finance has also partnered with many DeFi OG protocols such as SushiSwap to provide MEV protection for protocol users.

MEV Impact on LSD Track: A Preliminary Exploration

Let's imagine for a moment, with the promotion of MEV-Share, what kind of development will the LSD protocol have?

The fair and market-oriented nature of MEV provides predictable returns for LSD protocol and Ethereum stakers, and higher returns will promote the growth of Ethereum staking and the adoption of LSD protocol for MEV-Boost or other MEV solutions.

In the future, the LSD protocol may determine which MEV solution to use through native token governance to obtain higher incentives. This is also an empowerment of the native token of the LSD protocol.

The growth of Ethereum staking will drive the market share of LSDFi track, and the rise of LSDFi will in turn drive the growth of Ethereum staking, forming a flywheel. Fair and market-oriented MEV products will serve as the lubricant for this flywheel.

From another perspective, the fairness and marketization of MEV will promote the growth of on-chain activity. Its promotion of reasonable gas fees and maximization of block space utilization are secret weapons to enhance the user experience on the chain. The increase in on-chain activity will also drive the demand for block space, which will in turn promote the adoption of MEV products and ultimately drive the demand for public chain security, namely the demand for Ethereum staking. This is also a flywheel.

Final

I really like the term "non-extractive" mentioned by Manifold Finance. Currently, most MEV protocols are designed to solve the problem of extractive MEV, and are committed to establishing a market-oriented and fair MEV market. However, the problems they ultimately solve will not only be the problem of extractive MEV, but also the distribution of interests among block space users, validators, and searchers will be better allocated, thereby promoting the overall growth of the Ethereum ecosystem.