Is the era of MEV income for Ethereum users coming? In-depth interpretation of the MEV-Share protocol launched by Flashbots

Original author: Daniel Li,CoinVoice

In the blockchain field, the problem of maximizing value extraction (MEV) has been receiving much attention. MEV is a means of profiting from optimizing the order of transactions during the block building process. Although MEV brings huge profits, these benefits mainly flow to MEV searchers and block builders, while Ethereum users, wallets and DApps, etc. cannot share these benefits.

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Blockchain's dark forest MEV and how to crack it

The blockchain surpasses most systems in the world with its transparency and traceability, but there is also an invisible game behind it. Among the many games, MEV is undoubtedly the one that has attracted the most attention. Originally seen as an abusive extra tax imposed on users by opportunistic traders, MEV has become ubiquitous and has grown into an umbrella term for on-chain arbitrage trading. Arbitrage, liquidation, front-running, sandwich attacks, and reverse trading are all popular MEV attack strategies. These attack strategies have varying degrees of impact on the usability of Ethereum, and some may even pose an existential risk.

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MEV Auction (MEVA)

MEVA is an auction-based solution that aims to alleviate the MEV problem through a bidding mechanism. Validators can bid for the transactions they plan to package, and the transaction with the highest price will be packaged first. This method can effectively reduce network congestion caused by bidding.

advantage:The implementation of MEVA is relatively simple, does not require major changes to the existing consensus protocol, and can effectively reduce network congestion caused by bidding.

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Fair Sorting Service (FSS)

FSS attempts to provide ordering fairness and reduce MEV issues by implementing ordering between the mempool and relay contracts. FSS requires participants to jointly maintain a sorter to ensure that transactions are sorted in a fair manner in the mempool.

advantage:FSS can provide a more reliable mechanism to provide sorting fairness and is highly compatible with existing consensus architectures.

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Randomization of transaction order

Randomization of transaction order is a simple solution to MEV, which reduces the amount of MEV by randomizing the order of transactions when packaging transactions. This approach can reduce MEV, because multiple transaction bundles need to be submitted to have a chance to extract the expected MEV.

advantage:Randomization of transaction order reduces MEV and is relatively simple to implement.

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threshold encryption

Threshold encryption can provide strong privacy for transactions and potentially eliminate large amounts of MEV. Threshold encryption can split transactions into multiple parts and distribute those parts to multiple validators for processing. Only when all validators have completed their part can the transaction be reassembled and broadcast to the network.

advantage:Threshold encryption can provide strong privacy for transactions and potentially eliminate large amounts of MEV.

shortcoming:secondary title

MEV-Geth

MEV-Geth is a solution to the MEV problem. It reduces the risk of MEV attacks by modifying the code of the Ethereum client Geth to reduce the influence of validators or miners on transaction ordering.

advantage:MEV-Geth improves the transaction ordering algorithm, reduces the risk of MEV attacks, and improves network security.

shortcoming:MEV-Geth can only be implemented on the Geth client, and the code of the Ethereum client Geth needs to be modified, and the development and maintenance costs are relatively high.

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MEV-Share win-win model solves the problem of traders being "caught"

MEV-Share is a new decentralized transaction execution mechanism launched by Flashbots, which can effectively solve the problem of traders being "caught". In the traditional transaction execution mechanism, traders often face the risk of being "caught", that is, their transactions may be prioritized or not executed by malicious verifiers, resulting in unfair or inconsistent transaction results. By introducing programmable privacy and competitive order flow auction mechanism, MEV-Share can realize the collaboration and optimization between traders and searchers, so as to achieve a win-win situation.

First, MEV-Share accurately selects the transaction data to be hidden and displayed through programmable privacy, enabling traders to control their own private information. Additionally, Seekers bid in competitive order flow auctions to gain execution rights against users' private transactions. By selectively disclosing transaction data, traders can help searchers better optimize their bids, resulting in higher fees. This competitive order flow auction mechanism can create competition among searchers, thereby increasing traders' profits.

Second, MEV-Share introduces a new entity called Matchmaker. Matchmakers can match user-submitted deals to MEV Seekers’ deal bundles, enabling Seekers to further optimize their MEV capture efforts. After the user submits the transaction to the matchmaker, the matchmaker will selectively share the transaction information with the searcher, and the searcher listens to and receives new event streams through the SSE endpoint. The searcher then proposes a deal for the matchmaker, which is bundled with the user's deal. Currently, Flashbots only supports backruns, which will package user transactions with each valid Seeker backrun and forward them to block builders. The block builder will select the winning package and return a portion of the Seeker's backrun profits to the user.

Third, MEV-Share also supports collaboration and optimization between traders and searchers. By keeping transactions private, traders can now haggle for the MEV they create without allowing searchers to compete. Programmable information sharing enables collaboration and optimization. This mechanism can form a benign interaction between searchers and traders, thus achieving a win-win situation.

By introducing programmable privacy and competitive order flow auction mechanism, MEV-Share further optimizes and improves the scheme of sharing MEV revenue. Programmable privacy allows traders to hide transaction information in encrypted smart contracts, thereby protecting their privacy and security. The competitive order flow auction mechanism allows searchers to provide higher bids in the auction process to obtain transaction flow, thereby maximizing the interests of traders and searchers.

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What impact does the MEV-Share protocol bring to the Ethereum ecosystem

MEV is not a new concept. Research on MEV has appeared as early as 2019. At that time, some blockchain researchers began to explore the predictability and manipulability of blockchain transaction sequences, and this manipulability Impact on the blockchain market. But when the market is hot, most people are busy making profits from MEV, and many things are covered up by the heat of the market. At present, due to the impact of the encryption market, financial activities on the chain have slowed down, and people have begun to pay attention to the impact of the MEV issue on market fairness and sustainability.

As a non-profit organization operating on the Ethereum network, Flashbots has been working to solve the MEV problem and provide users of the Ethereum ecosystem with a more secure and fair transaction execution mechanism. As early as 2021, Flashbots launched the MEV-Boost protocol, which improves transaction execution efficiency and security by allowing transaction builders and verifiers to share MEV revenue. The MEV-Share protocol is developed on the basis of the MEV-Boost protocol. Compared with the MEV-Boost protocol, MEV-Share further includes trading users in the distribution of MEV revenue, achieving a more equitable distribution. Currently, MEV-Share is still in beta version, but its impact on the Ethereum ecosystem will be significant.

The launch of the MEV-Share protocol will have the following major impacts on the Ethereum ecosystem:

(1) Improve the efficiency and fairness of transactions:The traditional transaction execution mechanism has the risk of being trapped, and the transaction of the trader may be executed first or not by the malicious verifier, resulting in unfair transaction results or not in line with the wishes of the trader. MEV-Share can minimize the risk of being trapped and improve transaction efficiency and fairness by introducing programmable privacy and a competitive order flow auction mechanism.

(2) Reduce the influence of MEV:MEV is an important issue in the Ethereum ecosystem that can pose a threat to the availability and security of the Ethereum network. By introducing a competitive order flow auction mechanism, MEV-Share can incorporate the value of MEV into the network, thereby reducing the impact of MEV.

(3) Enhance the benefits and participation of ordinary users:In traditional blockchain transactions, it is often difficult for ordinary users to share the value of MEV. The MEV-Share protocol enables ordinary users to share the benefits of MEV through the open MEV revenue distribution mechanism, and can obtain more benefits by providing liquidity and other services. This will enhance the benefits and participation of ordinary users, and promote a more fair and sustainable development of the Ethereum ecosystem.

(4) Promote innovation in the Ethereum ecosystem:As a new decentralized transaction execution mechanism, MEV-Share can provide more possibilities for the innovation of the Ethereum ecosystem. For example, MEV-Share can provide a more efficient and fair trading mechanism for decentralized exchanges, and it can also provide a safer and more reliable trading mechanism for other DeFi applications.

(5) Improve the overall competitiveness of the Ethereum network:Summarize

Summarize

Most of the MEV protocols currently on the market only focus on solving the predatory MEV problem, while the MEV-Share protocol not only solves this problem, but also better distributes the three parties of users, miners and searchers through the public MEV revenue distribution mechanism. interests, improving the openness and sustainability of the market. In addition, the protocol also facilitates the combination of validators and traders, reducing the negative impact of MEV on the market. Although the MEV-Share protocol is still in the beta stage, it has successfully introduced the shared revenue mechanism into the Ethereum ecosystem, opening the door to MEV revenue for a large number of ordinary users. This is of great significance to the fair and sustainable development of the Ethereum ecosystem.