By Daniel Li, CoinVoice

In the field of blockchain, the issue of Maximizing Extracted Value (MEV) has always attracted much attention. MEV is a means of profiting from optimizing the order of transactions during the block construction process. Although MEV brings huge profits, these benefits mainly flow to MEV searchers and block builders, while Ethereum users, wallets, DApps, etc. cannot share these benefits.

To solve this problem, Ethereum infrastructure service Flashbots recently launched a beta version of the MEV-Share protocol, which aims to distribute a portion of MEV revenue to users of the Ethereum ecosystem and achieve open and fair distribution of revenue. This marks that MEV revenue sharing has entered practice from theory, and the era of MEV revenue for Ethereum users is coming.

Blockchain’s Dark Forest MEV and How to Crack It

Blockchain surpasses most systems in the world with its transparency and traceability, but there are also invisible games behind it. Among the many games, MEV is undoubtedly the one that attracts the most attention. Initially, MEV was seen as an abuse of additional taxes imposed on users by opportunistic traders, but now it has become ubiquitous and has developed into a general term for on-chain arbitrage transactions. Arbitrage, liquidation, front-running, sandwich attacks, and reverse transactions are all popular MEV attack strategies. These attack strategies have different degrees of impact on the availability of Ethereum, and some may even pose a survival risk.

MEV is like a dark forest, where searchers and block builders (miners) hide in the dark, plundering value from uninformed users/traders. Malicious MEV has caused market unfairness, network security, privacy leakage, and increased costs. With the rapid development of DeFi applications, the problem of MEV has become increasingly prominent. More and more institutions have begun to pay attention to this issue and try to solve it by minimizing the negative impact of MEV. The main solutions are as follows:

MEV Auction (MEVA)

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

Advantages: MEVA is relatively simple to implement and does not require major changes to the existing consensus protocol. It can also effectively reduce network congestion caused by bidding.

Disadvantages: MEVA has a certain centralization risk, because smaller sorters will try to cooperate with larger ones to form a more centralized consensus. In addition, since MEV is harvested by the winning bidder, the mining income that other sorters should have obtained will be made up by users, which will result in higher costs for users.

Fair Sorting Service (FSS)

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

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

Disadvantages: FSS may introduce the risk of oracle collusion and may increase user costs as incentives for oracle providers may incur additional fees.

Randomization of transaction order

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

Advantages: Randomization of transaction order can reduce MEV and is relatively simple to implement.

Disadvantages: This approach may increase the cost of executing MEV because multiple submissions of transaction bundles are required to obtain the expected MEV.

Threshold Encryption

Threshold encryption can provide strong privacy for transactions and has the potential to eliminate a large amount of MEV. Threshold encryption can split transactions into multiple parts and assign these parts to multiple validators for processing. Only when all validators have completed their parts can the transaction be reassembled and broadcast to the network.

Pros: Threshold cryptography can provide strong privacy for transactions and has the potential to eliminate large amounts of MEV.

Disadvantages: Threshold encryption introduces complex verification procedures and requires a large number of validators, which may not work.

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 sorting.

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

Disadvantages: MEV-Geth can only be implemented on the Geth client, and the code of the Ethereum client Geth needs to be modified, which results in high development and maintenance costs.

At present, most of the design ideas of MEV protocols are to solve the problem of predatory MEV and are committed to establishing a market-oriented and fair MEV market. However, there is no specific plan for the distribution of benefits among the three parties involved in the MEV problem, namely traders, miners and searchers. Recently, Flashbots launched the MEV-Share beta version, which just fills this gap. The core idea of ​​MEV-Share is to regard MEV as a public resource. Under the premise of ensuring the privacy of user transactions in the block space, miners, searchers and traders can share the benefits of MEV through a reasonable benefit distribution mechanism. Thereby promoting the marketization, standardization, credibility, privacy and decentralization of MEV. Although MEV-Share is still in the beta stage, it is expected to become one of the important solutions to the MEV problem in the future.

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

MEV-Share is a new decentralized transaction execution mechanism launched by Flashbots, which can effectively solve the problem of traders being "squeezed". In traditional transaction execution mechanisms, traders often face the risk of being "squeezed", that is, their transactions may be prioritized or not executed by malicious validators, resulting in unfair transaction results or not in line with the wishes of traders. MEV-Share can achieve collaboration and optimization between traders and searchers by introducing programmable privacy and competitive order flow auction mechanisms, thereby achieving a win-win situation.

First, MEV-Share enables traders to control their own private information by accurately selecting the transaction data to hide and display through programmable privacy. In addition, searchers bid in competitive order flow auctions to obtain execution rights for users' private transactions. By selectively disclosing transaction data, traders can help searchers better optimize their bids and thus obtain higher fees. This competitive order flow auction mechanism can create competition among searchers, thereby increasing traders' profits.

Secondly, MEV-Share introduces a new entity, the Matchmaker. The Matchmaker can match user-submitted transactions with MEV searcher transaction bundles, enabling searchers to further optimize their MEV capture efforts. After a user submits a transaction to the Matchmaker, the Matchmaker will selectively share the transaction information with the searcher, who listens and receives new event streams through the SSE endpoint. The searcher then proposes a transaction for the Matchmaker and bundles it with the user's transaction. Currently, Flashbots only supports backruns, which will bundle the user's transaction with each valid searcher backrun and forward it to the block builder. The block builder will select the winning transaction bundle and return a portion of the searcher's backrun profit to the user.

Third, MEV-Share also supports collaboration and optimization between traders and searchers. By keeping transactions confidential, traders can now bargain for the MEV they create without allowing searchers to compete. Programmable information sharing enables collaboration and optimization. This mechanism can enable a virtuous interaction between searchers and traders, resulting in a win-win situation.

By introducing programmable privacy and competitive order flow auction mechanisms, 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 offer higher bids during the auction process to obtain transaction traffic, thereby maximizing the interests of traders and searchers.

The win-win model of MEV-Share not only increases the profits of traders, but also strengthens the stability and sustainability of the entire ecosystem. By reducing the emergence of malicious MEVs, MEV-Share protects the security and stability of the blockchain ecosystem. At the same time, MEV-Share provides new ideas and directions for the development of the blockchain ecosystem, encouraging more participants to join the plan of sharing MEV profits and jointly promote the innovation and application of blockchain technology.

What impact does the MEV-Share protocol have on the Ethereum ecosystem?

MEV is not a new concept. Research on MEV appeared as early as 2019, when some blockchain researchers began to explore the predictability and manipulability of blockchain transaction sequences and the impact of this manipulability on the blockchain market. However, when the market was hot, most people were busy making profits from MEV, and many things were obscured by the market's heat. Currently, affected by the crypto market, on-chain financial activities have slowed down, and people have begun to refocus on the impact of MEV issues on market fairness and sustainability.

As a non-profit organization operating on the Ethereum network, Flashbots has been committed to solving the MEV problem and providing 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 the execution efficiency and security of transactions by allowing transaction builders and validators to share MEV revenue. The MEV-Share protocol was developed based on the MEV-Boost protocol. Compared with the MEV-Boost protocol, MEV-Share further incorporates transaction users into the distribution of MEV revenue, achieving a fairer distribution. At present, MEV-Share is still in the beta version stage, but its impact on the Ethereum ecosystem will be significant.

The launch of the MEV-Share protocol has the following impacts on the Ethereum ecosystem:

(1) Improve transaction efficiency and fairness: Traditional transaction execution mechanisms have the risk of being squeezed. Traders’ transactions may be prioritized or not executed by malicious validators, resulting in unfair transaction results or not in line with the traders’ wishes. MEV-Share can minimize the risk of being squeezed and improve transaction efficiency and fairness by introducing programmable privacy and competitive order flow auction mechanisms.

(2) Reduce the impact of MEV: MEV is an important issue in the Ethereum ecosystem, which may threaten the availability and security of the Ethereum network. MEV-Share can incorporate the value of MEV into the network by introducing a competitive order flow auction mechanism, thereby reducing the impact of MEV.

(3) Enhance the benefits and participation of ordinary users: In traditional blockchain transactions, ordinary users often find it difficult to share the value of MEV. The MEV-Share protocol enables ordinary users to share the benefits of MEV through an open MEV benefit 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 equitable 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 innovation in the Ethereum ecosystem. For example, MEV-Share can provide a more efficient and fairer transaction mechanism for decentralized exchanges, and a more secure and reliable transaction mechanism for other DeFi applications.

(5) Improve the overall competitiveness of the Ethereum network: With the emergence of MEV-Share, more and more traders and searchers will choose to trade and search on the Ethereum network, thereby improving the overall competitiveness of the Ethereum network. This will help attract more users and developers and promote the development of the Ethereum ecosystem.

Summarize

Most of the MEV protocols on the market currently only focus on solving the problem of predatory MEV, while the MEV-Share protocol not only solves this problem, but also better distributes the interests of users, miners, and searchers through an open MEV revenue distribution mechanism, improving the openness and sustainability of the market. In addition, the protocol also promotes the combination of validators and traders, reducing the negative impact of MEV on the market. Although the MEV-Share protocol is still in the testing phase, it has successfully introduced a 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 achieving fairness and sustainable development of the Ethereum ecosystem.