By @SalomonCrypto
Source: Twitter
MEV = Maximum Extractable Value (formerly known as Miner Minable Value), the value by which participants with privileged access to the system (miners, validators, sequencers, etc.) profits from the transaction.
Want to learn about the maximum extractable value and the existential risk it poses to the world's computer, Ethereum ? What are the measures to solve this problem?
MEVs can manifest in many different ways, but generally follow a similar pattern:
- Users generate unconfirmed transactions and send them to the public memory pool (mempool)
- Seeker watch mempool
- When identifying MEV opportunities, searchers race to reorder deals to extract value
The first (and most obvious) problem becomes immediately obvious: MEV is a zero-sum game, and if the seeker succeeds in extracting value, it is taken from the person who generated the transaction.
Over time, users stop using the network: the cost (expressed in MEV) becomes too high.
But even more pernicious is the centralization risk posed by MEV.
Imagine there are two nodes (miners/validators), the first one does not use the MEV strategy and the second one is a MEV expert.
The first node simply grabs the highest priority transaction in the mempool, builds a block and submits it to the network. The node will earn the following income:
- Rewards for submitting blocks to the network
- Tips, paid by users to prioritize their transactions
The second node is also searching for MEV. In the worst case, they will earn exactly the same income as the first node.
In most cases, the node will find opportunities to extract value, increasing yield.
These nodes get more value with the same computing power/staking.
If two nodes are doing the same work, but one node is generating a higher yield, the node with the higher yield will take an increasing share of the network over time.
This risk also occurs in PoW, but is easier to see in PoS. More yield = more ETH = more stake.
This is a dystopian future. Block building is centralized among a small number of participants across all chains, allowing them to act as owners, administrators, and gatekeepers of all PoS chains.
At this point, you might as well call it an inefficient database.
In 2022, it is painfully obvious that global systems are designed to centralize capital, decision-making and power. World Computer Ethereum is the answer to 500 years of centralization.
The magic is in the decentralization of this network.
Flow from decentralization to:
- Credible and neutral
- censorship resistance
-Trustless commerce
- Inherent transparency
- Reduced vulnerability
- Improve reliability
-there are more
In short, the network's value comes from decentralization.
The risk of MEV is very high, both for users and for the network. Failure to address MEV would be disastrous.
Luckily, the best super brains in crypto are dealing with this problem. @thegostep@hasufl and the builders of Flashbots are plotting our roadmap through the dark forest
Flashbots is a cutting-edge research group that is discovering and defining MEV, and building the solutions Ethereum needs to answer these existential questions.
Understanding Flashbots requires understanding MEV is inevitable. While it's a new term, MEV existed long before blockchain and couldn't be solved with clever technology.
Any attempt to "remove" just causes it to shift and appear in other layers of the stack.
If MEV is removed from the consensus layer, it will be pushed to the application layer.
If you thought developing a solution for a single system was difficult, imagine if we needed to deploy a custom solution for each application.
MEV extraction currently disproportionately benefits traders and miners. As MEV extraction continues to scale, Flashbots anticipates that it will need to reallocate some value to users and system stability.
Therefore, Flashbots embraces MEV and is building a censorship-resistant, open and fair marketplace.
The idea is to create a permissionless infrastructure where MEVs are captured. All participants, regardless of size, have equal access to low-level financial primitives.
Neutral infrastructure is a breeding ground for strong competition. Strong competition drives down prices, increases choice, and provides greater access to services.
More participants share more profits, reducing the risk of centralization.
In the short/medium term, Flashbots is building a set of tools to realize the dream of an open and fair MEV market. Products like mev-geth, mev-boost, and mev-protect are starting to capture and transmit large volumes of MEV.
Long-term solution: "Proposer-Builder Separation" (PBS: Proposer-Builder Separation)
Today, miners/validators are responsible for ordering transactions (building blocks) and submitting blocks to the network. PBS splits these activities between the two characters.
While building blocks can be simple, consider that the builders of MEV deploy extremely complex and specialized strategies. Many node operators (especially single stakers) are unwilling and/or unable to do this work.
PBS allows all nodes to participate in MEV regardless of their capabilities. Professional builders can compete to build the highest value blocks and get them on-chain. Packagers can choose the highest bid, sharing MEV with builders
PBS is a very exciting and promising development for MEV on Ethereum
However, PBS is not a one-size-fits-all solution. For MEV, there are still a large number of unsolved (or even unidentified) problems
Two of the largest areas of research: cross-domain MEV and order flow integration.
2022 is an interesting year. In the real world, things are getting messier every day.
But what about on-chain? Things are finally starting to come together. The merger is imminent. The execution layer will be moved to L2. ZK technology is being deployed.
MEV, a problem that seemed to exist and cannot be solved two years ago, is becoming the hottest and most valuable technology in the crypto space.
If you're not excited, you're not paying attention.
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