'WTF is MEV' - Charlie Noyes

first part um we have our first speaker um charlie noy from paradigm giving us a talk on wtf is meb charlie feel free to directly share screen now perfect all right oh yeah here we go all right mono technical difficulties aside uh tina thank you so much hello uh my name is charlie noyes uh i'm an investment partner at paradigm uh crypto focused investment firm uh i have been interested in mev for a long time and i have had uh the opportunity and pleasure of getting to work with tina and the rest of the flashbacks team um for the last like six or eight months or so now um so my talk is on wtf as mev um i'm not sure how much uh how much more i will have to say about mev or how many or how interesting this will be relative to the rest of the agenda but we will try to give the intro mev is present in any system which cannot demonstrate its own consistency it is there we go there we go a theoretical quantity which we can only approach asymptotically fundamental to permissionless blockchains and a measure of the profit a minor or validator sequencer etc can make through their ability to arbitrarily include exclude or reorder transactions within the blocks they produce and realistically i would suggest reading um like these descriptions of mev uh or explanations of mvv um like given the depth of the conference track today um the first of which here i'd written and the second phil more recently um but yeah if you want to understand what these profit opportunities generally look like uh and where they're actually generated um i i would suggest um going to read some of this stuff uh and the conference track will probably make a lot more sense um that being said a brief history uh i actually didn't know this uh but slash you p mcgoohan uh sorry from the pronouncer name um uh back in 2014 stopped pretty far into the future and asked a very interesting question read it what is to stop front running by a minor in any marketplace implementation by ethereum um this this was really quite ahead of its time here um so we asked the question and we didn't see much more of it for a while uh flash forward to 2019 uh and phil published you know the foundational uh mev paper clash voice 2.0 um showing that uh specifically in the context of dexes um high fees paper priority transaction ordering uh poses a systemic risk to consensus layer security um someone was with there was a lot of front running happening and priority gas auctions uh were starting to heat up um and they also said that such fees are just one form of general phenomenon uh indexes and beyond what we call minor extractable value um and what we would now define as the profit opportunities the general profit opportunities um that a block producer has access to by virtue of their ability to arbitrarily order transactions within the blocks they produce um well this was the paper uh flash forward to 2020 um and flashbots was formed a research and development organization uh to mitigate the negative externalities and risks posed by mav to smart contract blockchains by phil tina uh alex and a number of other folks and in 2021 plus uh i would say that we are now in the era of mev it's getting quite exciting uh we have muv death we have private transaction relays we have poison sandwiches and a lot of other stuff um so what do we mean by the era of mev um earlier this year i had said uh then i thought the dam is probably burst on mev the minerals will venture further into the frontier exploring more exotic forms of mev and collusion um and i would say that this has happened empirically um the percent of ethereum blocks with flash bot's bundles included um has increased from nearest i mean grounding to zero um to more than half um you know in just that period of time and uh med revenue relative to uh transaction fees on an average basis um looks pretty similar so the short version is uh this is real and it's actually happening um but what is the era of mev um i have a couple of hypotheses the first is that miners will collude to their heart's intent content and really that the hypothesis that they will run stock death out of altruism is false i think we've just come to accept that now um there i think there are a lot of good guesses that can be made about what this period of time will look like applications will start to design around med um like as a core design principle a lot of systems will fail hopefully not too catastrophically anime icons on twitter will make a lot of money uh a lot of thought experiments will not stay theoretical uh and the last bullet point here is the only prediction i will be making in this talk um so i think the best way actually to think about like where we are with mev is just with a couple of anecdotes um the first is from mev intern uh in the flashback discord uh we have observed uh front running bots keeping bids down by naming and shaming those that bid above them um so for those who have heard of like the grim trigger strategy game theoretically uh in practice uh what we are seeing is that every day or two they post some address like xerox dead beef we are all bidding 70 you are bidding 95 you and this actually works uh it it's honestly really funny you should everyone should go check it out uh otherwise we will simply outbid you until you make nothing um some other anecdotes and sort of like exotic forms of mev that we've seen one of my favorites is uh a heist that took place across blocks across multiple blocks um i think this was the first that was really documented um and uh what's interesting about this is that multimedia is is inter-block uh especially given sort of that began with pgas and we didn't have access to flashback bundles um it's a big deal um because when you submit a bundle of flashbacks you need it to be private um you don't want a minor to be able to steal the profit opportunities you've identified or for other um surgeries to be able to so it needs to remain private and and it appeared that uh someone had had had managed to break that model and that's not actually what happened though and what happened is uh that there was like a two block reorg um and a searcher was smart enough to essentially pull the profit opportunity um out of the block that was uncle and take advantage of it in the newly canonical main chain and so for those of you who've heard of time-banded attacks or the idea that you could reorganizationally um to extract mvv uh although we cannot say uh or we can say that this one does not appear to be intentional uh i would say that it is definitionally a high bandit um and uh the distraught searcher who was certain that their bundle had been leaked uh realized that that in fact yes it was included in an uncle blocked uh in an uncle block and someone else was smart enough to uh selectively extract it um that would be the one prediction i will make short term one to four block pre-order frequency may increase over the next year um but most that's that's that's pretty much all i have to say for now uh i think most importantly being in the era of mev means that a large group of very very smart people cares about understanding the nature of mev minimizing its social harm and helping us to design better systems uh i would not bet against them and i was going to include all of their profile pictures but we didn't have time so instead here's phil who i will now turn it over to thank you very much all right thank you everyone thank you charlie for the concise presentation uh next up we have phil please feel free to share screen and we'll take questions because we're running a bit late at the end of before the panel