Fair MEV Distribution by Davide Crapis

I work mainly on in protocol PBS and I'm gonna tell you about uh some things related to that uh today so the title of the talk is uh Mev resilient ethereum so it's mainly gonna build an overview of like the framework we are using to guide ourselves in like all the upcoming changes and how can we make uh the protocol adapt and being robust to Mev um I'm also going to talk about all the supply chain and there is a lot of infrastructure work that is going on there both on the software side and on the data side so if you're interested uh please talk to me after okay so I'm gonna start with um talking about the ethereum supply chain I'll show you some diagrams and some charts and and then I'm gonna talk about the problems that Mev induce induces on the layer 1 protocol um and then I'm gonna also talk about like the properties that we want uh for a blockchain to be like me be resilient um and then a few ideas of how we can make ethereum a media resilient okay so probably if you work in this area you've seen uh this chart many times but uh uh I want to see the talk but just uh going through that so essentially like um this is the supply chain that your transaction goes through before making it into the block so if you're a user uh most of the time you use a wallet then this wallet uh either send the transaction to the mempool or there is like some uh exclusive orders that they send directly uh to Downstream parties who are the downstream parties so the researchers uh which is essentially Bots that uh try to pick up your transactions and like if they have an opportunity they can insert some transactions before or after and before submitting this to uh the builders so the builders are a piece of infrastructure that is responsible for taking all the transactions and building uh the best block which for them is the most profitable block um before uh submitting it to the blog proposers so the blog proposer is the validator that is running the ethereum protocol and that will propose uh your block to be included in the blockchain and the relay is just an intermediary that essentially facilitates the market between the Builder and the proposal yeah so this great thing is uh what we call a block supply chain and what is Mev so Mev is a value that um essentially this intermediaries can capture and usually they capture it from users that send it transactions mostly D5 transactions and where does this value go so the Searchers take a small take uh the builders also take a small take um actually the take can be bigger or smaller depending on how much competition there is uh in their market and then finally the proposer is what takes most of uh the Mev nowadays uh but this may change in the future so now I'm gonna go into like what are the main problems that uh this thing Mev induces on the layer 1 blockchain so the first problem is related to security so Mev changes the incentives of uh the validators um and this is obviously bad because like uh um in times of uh High Mev they may have like a lot of incentives to not behave honestly proposed later things like that uh then the second problem is related to equity so the honest users of the platform uh suffer unnecessary losses uh because of uh being extracted Mev and the third one is like the cost efficiency so you can think that there is these unethical users that extract value from honest users and extract rent so at the end of the day the transactions are more expensive or like uh the users get less value so um these are all serious problems and a team needs to adapt uh to minimize the problems that this induces so the first principle essentially the first property that we want um ethereum to have is that it should be robust like uh there should be any robust incentives for validators the honest users who suffer minimal losses and unethical user should extract a minimal rent so what can we do or how can we do this so the first answer is that like in a way we are already doing it today uh with a piece of infrastructure that is evolving um this piece of infrastructure uh is um essentially a combination of like Mev Boost Plus uh um few parties that are participating into the ecosystem to extract Mev so um but essentially I'm gonna give you a high level recipe of like three steps that needs to happen for a team to be Mev resilient so the first step is extraction like some people like that have not worked in Mev before they ask oh why do we need to extract uh and the answer is that um essentially um Mev is like a fundamental property of these commitment devices that we call blockchain it's there uh if the protocol does not organize extraction it will happen inside channels and these are very big problem because like then you have security impacts attacks centralization capture that the protocol does not does not have a handle on and then you also have censorship and other type of losses for users so we need a technology for efficient Mev extraction uh what does efficient mean essentially like there is a potential Mev in the system and um we need a technology that allows us to extract Mev almost the entire potential Mev should be extracted so today we do this with the search robots uh Builder infrastructure and then the supply chain Network the meth boost that I just presented so once the Mev is extracted then what do we do uh this part is uh may take it uh for their own and extract rent so the second thing we need to do is the protocol needs to capture the nav so essentially as I showed before Mev flows from users into the pockets of the parties who capture so if the protocol does not capture it someone else will and then the same security issues that we discussed before and then there is also the rantis extraction problem so what do we need we need the trustless technology for efficient nav capture so what does uh um one thing maybe to highlight is that now I added the word uh trustless so the reason being that uh this is really a piece of infrastructure that the protocol needs needs as opposed to before where like Searchers can be like parties that act on incentive set up by the protocol um so yeah uh efficient Mev capture means that like almost the entirety of the extracted me this should be captured by the protocol modulo like uh some Fair uh reward for like the parties executing um the technology so how does this happen today um there is a eipa 1559 fees that user pay and that their automatically captured by the protocol then there is Mev boost that allows the proposal to capture the Mev and then there is different proposals uh in the workings um different parties are working on different implementation of OFA which is order flow auction which is a technology that essentially allows to capture Mev Upstream uh right after the user or the wallet sends a transaction and the user gets immediate rebate so gets immediate redistribution so now the protocol is captured uh Mev what does the protocol do with Mev so essentially uh the protocol needs to allocate this Mev in an equitable and efficient manner so um why Equitable because like if you don't allocate it's equitably then there is problems like some user may be better off some users may be worse off and then efficiently essentially what it means is that you want to like pay the parties that are running the protocols like the validators or maybe in the future like even the builders like everyone that is running protocol infrastructure needs to be rewarded in a manner that is proportional to the service that they give so we need a trustless again technology for Equitable and efficient map allocation so what what does Equitable and deficient mean specifically is essentially like you can think that every user is contributing Mev when uh it uses the protocol and then the user is getting some allocation back from the protocol to the idea this may happen via eip1559 burn so if you are older then you may get a little bit of deflation from the protocol like burning that Mev but essentially like the property we want is that the difference between the contribution and the allocation is a fair tax meaning that should be proportional to the externality that you impose uh on the platform and then the second property is efficiency so part of the Mev will not be allocated to users but will be used to like incentivize validators and other parties running the protocol and this should be efficient in a way that like you just give enough incentives so that they can run the protocol honestly and um yeah this is pretty much it maybe just like a few words like this is happening today between um with eip1559 uh burn uh the proposal get um their location through my Boost and then when there is OFA the users will get it directly but there is like many different proposal on like how to like Advance these allocation mechanism and this is what we are mainly working on okay so uh I'm done uh thank you uh we have so Rick is my group and at the EF and uh we are doing some open problems so we are working um on various uh things both on the new mechanism design and then also on like um observing the health of the current uh Marketplace so um we essentially gonna have like some open problem to help us like work on this in a collaborative way so if you're interested you can DM thank you and I think we have a few minutes uh for questions I don't know um hey I'm here um so so we know that uh some of the people in in fake in fintechs have a lot of resources in order to try and capture Mev and potentially a part of the ethereum network what what's the risk there and like how severe is it in what's what's the way that you guys can help us prevent it I guess um can you like maybe like a broad question but uh go ahead yet uh this is very broad but essentially um you want to create and this is why like I'm going through like all the properties because essentially you want to like uh create incentives for the parties extracting the Mev so that essentially like um it there is like uh access to the infrastructure uh so you want to decrease the uh barrier to entry essentially to like parties extracting um yeah so that's how we are approaching it um uh like one concrete way is like open sourcing like uh the algorithms um exposing like the private flows that these big uh fintech parties may have so yeah thanks I might be way off base I I enjoyed the presentation a lot but so in some ways flashbots is a way of of sort of organizing organizing Mev right for for users and this is this is a push to protocolize it somehow right uh are you are you working with flashbots is there okay yeah yeah we are working a lot with flashbots actually Mev boost which is kind of the latest software uh it was a collaboration between flashbots and like uh vitalik Danny dunkrat and other people at the EF so it was really like uh develop uh in conjunction um and yeah uh there is like a kind of a direction to bring part of this infrastructure into the protocol uh and yeah that's the main research we're doing okay thank you [Music]