Unchained - Why Is Ethereum Trying to Maximize Value From Users? Two Sides Debate - Ep. 388

Episode Date: August 23, 2022

Stephane Gosselin, cofounder and chief architect of Flashbots, and Uri Klarman, CEO of bloXrouteLabs, joined Unchained to discuss everything about MEV, an especially important topic now with the Merge coming.  Show highlights: what MEV is, how it works under Proof of Work some examples of MEV, like frontrunning and arbitrage how MEV is a rabbit hole full of monsters the role of Flashbots in the MEV industry and how Flashbots enabled a reduction of gas fees for users how MEV-geth functions and how it relates to auctions systems how bloXroute, Uri’s company, is working with MEV where Stephane and Uri disagree on MEV, despite agreeing on many fundamental things how MEV changes with the implementation of Proof of Stake what MEV-Boost is and the problems it solves what proposer-builder separation is and the motivation behind this idea whether DeFi would flourish more if there wasn’t frontrunning and why MEV-Boost doesn’t prevent it what externalities MEV-Boost or proposer-builder separation (PBS) would solve for users how MEV exists in other industries and in traditional finance why Flashbots’ own investors would rather trade on a fair-sequenced rollup than on Flashbots how the number of MEV extractors has been decreasing and whether this would end up centralizing MEV whether exploiting certain types of MEV is illegal how other chains are trying to solve frontrunning, like Osmosis with threshold encryption what are the levers that can be pulled to solve MEV, according to Uri how eradicating MEV can positively affect the price of ETH, and by how much whether validators can potentially share MEV profits with users how to determine if a network has a good MEV supply chain Thank you to our sponsors!   Crypto.com: https://crypto.onelink.me/J9Lg/unconfirmedcardearnfeb2021 Ava Labs: https://www.avax.network/ a16z: https://link.chtbl.com/HObAJQDL?sid=unchained   Show Links   Uri:  Twitter: https://twitter.com/uriklarman   Stephane:  Twitter: https://twitter.com/thegostep   Previous coverage of MEV on Unchained: The Debate Over Ethereum MEV: Should It Be Minimized or Boosted?: https://laurashin.bulletin.com/the-debate-over-ethereum-mev-should-it-be-minimized-or-boosted The Other Side(s) of Ethereum's MEV Argument: https://laurashin.bulletin.com/the-other-side-s-of-ethereum-s-mev-argument MEV What is MEV: https://ethereum.org/en/developers/docs/mev/#:~:text=Maximal%20extractable%20value%20(MEV)%20refers,of%20transactions%20in%20a%20block Proposer-Builder separation: https://www.alchemy.com/overviews/proposer-builder-separation Uri’s blog post: https://medium.com/@uri_61495/flipping-the-table-on-the-mev-game-dc31df8baaf7 MEV Profit sharing validators: https://www.recvc.com/mev-2-0-the-rise-of-mpsvs/ Panel conversation mentioned in the episode (39:53): https://youtu.be/UKfBFV1TuEM?t=2393 Sealed auction design: https://ethresear.ch/t/mev-sgx-a-sealed-bid-mev-auction-design/9677  Priority Gas Auction (PGA): https://www.mev.wiki/terms-and-concepts/priority-gas-auctions#:~:text=What%20is%20a%20priority%20gas,up%20fees%20for%20other%20users. Dune’s dashboard - amount of MEV extractors: https://dune.com/queries/1171509  The MEV Game of the Crypto Economy: Osmosis' Threshold Encryption vs. SGX of Flashbot?: https://mirror.xyz/infinet.eth/SFjR1H1-RMnKoIoPjqkxpauVPrLYGqLHQP1dY9FHvx4 Bank of International Settlements report on MEV: https://www.bis.org/publ/bisbull58.pdf   Flashbots Flash Boys 2.0 paper: https://arxiv.org/pdf/1904.05234.pdf Flashbots Dashboard: https://dashboard.flashbots.net/ Flashbots auctions: https://docs.flashbots.net/flashbots-auction/overview Flashbots relay open source: https://twitter.com/hasufl/status/1559908331145265156?s=20&t=gtHe5sVetxQXVKfZL2VMYg MEV Boost: https://www.alchemy.com/overviews/mev-boost MEV in ETH PoS: https://writings.flashbots.net/writings/mev-boost-call-for-testing Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, everyone. Welcome to Unchained, your no-hype resource for all things Crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto seven years ago, and as a senior editor at Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. This is the August 23rd, 2022 episode of Unchained. I'm looking for a part-time Evergreen editor for Unchained. If you're skilled in SEO and love blockchain and crypto, email your resume and writing samples to Hello at Unchained Podcast.com with the subject line, Evergreen Editor Application. With the Crypto.com app, you can buy, earn, and spend crypto in one place. Download and get $25 with the code Laura, link in the description.

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you have to check out Web3 with A16Z, the chart-topping technology podcast about the future of the next internet. Listen to Web3 with A16Z on Apple Podcasts, Spotify, or wherever you get your podcasts. Today's topic is MEV, which, up until

recently was called minor extractable value and is now being called maximal extractable value. Here to discuss are Stefan Gosselin, co-founder and chief architect of FlashBots, and Uri Klarman, CEO of Blocksrout Labs. Welcome, Stefan and Uri. Hey, hello, hello. MEV is a pretty controversial subject, as I discovered when I started diving into it. But before we get into all the concerns and arguments about it, let's just make sure people really understand what MEV is, how it works, etc.

Right now, we're in a phase where Ethereum has a proof of work consensus algorithm. So why don't we just talk about what MV looks like right now under proof of work? Stefan, do you want to start with the description? Sure, yeah. So, I mean, as you mentioned, MV is a very deep rabbit hole, extremely deep rabbit hole, full of monsters and unexpected findings. But, I mean, you know, it's been really interesting about MEV and in particular, I guess, the narrative and the meme of MEV is how it's sort of come to mean something different to different people. And it's a narrative that's been sort of picked up by a variety of different users of blockchains

to help advertise their protocol, try to explain what they're doing, try to say what's wrong with other people's protocol, it's just become this really deep and interesting technical topic. In terms of the flashboss perspective on MEV, we saw MEV as sort of an economic force that came to be with blockchains, but exists outside of it. And in particular, our observation was that this economic force came from the roles that certain actors in a blockchain have,

in particular miners at the time when the research came out. So we explored what are the different activities that miners are able to take with regards to the powers that they have in the protocol, and how can they use those powers to be able to maximize email of value that they generate for themselves? Practically, a lot of NEV means ordering censorship or inclusion of transactions. And so the power of miners to be able to create blocks and decide which transactions go in the block also means that they have sort of a monopoly on the execution of the EVM over a given block that they're assigned. And so the question for them is, how do I maximize the amount of value given this power?

And the flashbot sort of introduction to it, to the ecosystem, and the way that the MEV sort of industry has evolved on proof of work is for miners to outsource it to searchers. So third parties who come up with strategies on how to order transactions, how to insert their own transactions, and then compete for the inclusion into a blog. And Erie, can you elaborate on that by giving people some concrete examples of how MAV work, the types of transactions that happen? I was just about to say, coming from slightly a different angle, it's kind of like, if you think about a regular user, a regular user buys a uniswap or make some defy transaction. And you could think that if somebody's amount to buy a lot of ETH, okay, then the price is going to go up. when defy started to get big, traders figured out they can see other people transactions and front run them.

Get to their transaction before a major transaction happened and kind of like capture value by buying a cheap just before the price go up. So that's kind of like front running is one piece. A second piece is, you know, there is a price up ethon uniswap. Just before the block comes out, somebody sees that the price on Coinbase just crashed, right?

So they'll try to capture arbitrage. they know the price is actually different from what's happening on Uniswap, and they'll try to get their transaction in to capture that arbitrage. And so traders had been doing that when Defi started to get serious. And then they started competing who would be the fastest and who would be the one to pay the most. So this is where it moved to MEP to minor extractable value. People start to say, well, if I'm making $1,000, I'll pay $500 of it as tip for the minor. or the validator.

It doesn't really matter which protocol. But I'll pay it as a tip, and then they'll put to my transaction first before somebody else. So that led kind of like to the gas wars that kind of like were pre 1559 and pre flashbots. And so traders started to kind of like try to compete with one another, capturing these opportunities. And in my mind, M.V, more than anything is basically front running and capturing arbitrage. These are the two big pieces, as I see it. once things have evolved, then miners realized, wait, instead of actually, you know, they started by maybe doing under the table deals and all these kind of stuff,

flashports came out and said, how about we make it public? How about we allow everyone to participate? And it's minor extractable value because you could think whoever is really good at extracting value can pay more and get their transaction executed and it is the minor that's being paid for it. So if I can make $100 on an arbitrage, but Stefan is really good at it. He can make $150, then he can offer $101. And his transaction or he's arbitrage or his front front will get in and mine won't. And this is kind of like where things currently stand where miners are the ones making most of the money.

They're not actually doing it themselves. Other people are kind of like professionalized and kind of like found the expertise in capturing this value. bribing or paying the fee or however you'd like to call it to whoever construct blocks. It's validators in POS, it's minors in proof of work. That piece doesn't really matter. And that's kind of like where things stand. Earlier you talked about how this happens in Dify. Does this also happen with things like NFTs or what about single payments?

So NFTs for sure, right? It's the same story if a big NFT drop is happening. Everybody want to be the first one to capture it or maybe meant a million. I don't know, kitty cats or whatnot, et cetera. So because of the financial implications of the NFTs, that game is also being played. But if I'm just, you know, I'm sending one Eth to Laura soon, then this transaction, there's no arbitrage,

there isn't front running, there isn't anything like that. That transaction would go through one way or another. It's not inside this game, right? The MEV game is very much about defy and NFTs, And it's less about, you know, somebody making a payment from one entity to another, or I deploy a smart contract, which does something, which isn't that valuable at this time, or there's no value to extract from it. Then that's the regular game.

And it's probably worth mentioning that we at BlockShed have been in the game for quite a while. When FlashBots came out, I was actually slightly worried from the implications of that. But FlashBots actually did a really solid favor to the community by siloing this competition, right, if we had the gas wars and people try to outbeat one another, basically driving out all normal usage, right? My normal transaction won't go through if I'm not paying really tons of gas and really high fee, although I really shouldn't. So at the time, this was prior to 1559, et cetera, the immediate result of flashbot siloing the M.EV game and kind of separating it from regular usage was that regular users were no longer kind of forced to compete in this game.

So the immediate result of Flashbot was actually a very positive thing. I was wrong on that. I was actually concerned about that. And that taught me to be like I have my own opinions. I'm a very opinionated guy. but we should also all kind of like, well, I might be wrong, but what my opinion is. So I think this. But, Ari, just to clarify, are you saying that the immediate benefit for users was lower gas fees?

Yeah. When Flashwood came out, that was the immediate result. Basically, take all the gas competition, put it silo there competing against one another, and only the best one is included. Everybody else is not really affected. And so just to quantify this for users, you wrote a blog post recently where you said that, and maybe cost users 160,000 eph per year. That's roughly $300 million.

And about 50% of that is front running. That's kind of like taking it from the immediate result of Flashwalt was kind of like that effect. On the other hand, I think front running is bad. Okay, basically if a user make a transaction and somebody else come and this user gets a worse trade, then the outcome is friction. It's not value, it's not economic activity. It's that me trying to buy a thousand if cost me, I don't know, $1.1 million rather than $1 million, that kind of thing.

And I'm trying to look for ways to capture all the good and the upside of the MEP in the system kind of like figuring that piece out without hurting the users, which is hard. Okay. So obviously we've already been talking about. about FlashBots, but it's been early talking about it. So Stefan, why don't you explain FlashBats role in working on MBB?

Okay. I mean, there's a few ways I can go about it. One of them is to try to entangle some of the things Yuri talked about. But maybe instead, I'll talk about, you know, how we see our own role in the ecosystem. So FlashBots emerge as a research collective. And so it was based on the area. idea that we see this MEV activity having negative externalities on the network, there's a lot of

spam in the transaction pool, regular users are ending up paying more and more volatile gas prices. Is there like a fundamental flaw in the way that the transaction pool works that causes this? That was the initial sort of approach. And so we developed a solution for this, right, which was end up being called MEV Geith. And it is that the transaction pool was not expressive enough for certain types of users of Ethereum. Certain types of users had preferences on the specific position in the block that they had, that the only way they could express that preference was by causing spam or by optimizing for latency, or by basically creating some externality to everyone else in the network.

So our view of MEV is, MEV is a complex, you know, systemic problem for blockchains. And solutions, depending on how they're implemented, have some externalities. So we research what are the externalities of various different solutions and how can solutions be designed to maximize the alignment with the objectives and the principles of the underlying blockchain. And so MEVGath is a version of the Go Ethereum client, which is, I think, still the most popular client

that essentially enables these Mave auctions to happen in a separate place rather than, as already said, like right in the Mempool or right on the blockchain. Is that a fair characterization? Correct. So it replaces what was, you know, the most common strategy, PGA, right? Which is a latency game.

Which is... Price gas auctioned. And it replaces that with just a sealed, sealed bid auction. So instead of leaking value to investing into low latency strategies, instead you capture that value in the auction directly. Okay. Now, Uri, how is BlockSprout working on Mav? So BlockSROT is a service provider. Okay, we're a networking company, without people to see transaction fast, to see Blox fast, to act fast, which for competitive defy actors and anybody in the space, basically,

you want to see any transaction happening before it's added to the chain because it's going to affect the price. You want to know how it affects the price, what's happening at any given moment, especially if you're a large market maker, if you're a major trader, playing both the defy game and the CFI game. So that's at the core of our business. And when MEV became a thing, then many of the MEV actors are actually our customers. So all the MEV searchers want to see everybody else's transactions.

They want to see the blocks as fast as they come. They want to make sure that their transactions or their bundles go directly and ASAP to all the mining pools because they want to make it to the next block, et cetera. So we're more like picks and shovels as a company. Then when Flashbot came out, they're running the Flashbot relay, which kind of connect searchers to the mining pools. We're running also Flashpot Relays, kind of like a private version of that that people pay us to get faster.

latency, et cetera. I think what Stefan says, like, you know, some transactions has preferences they want to express, I think that's really like high level of saying somebody wants to be first to capture arbitrage or to front run another transaction. Not always, but almost always, right? Or just come after a transaction because it creates some opportunity, which is usually still arbitrage. And I think maybe the point where me and Stefan kind of like disagree.

is that I see it as, okay, we want to minimize externalities and figure out the effect on gas was very easy to see. So that's definitely a point to flashwads credit. But what are we paying here? And when we define the system in such a way or we build the system in such a way, what's the price that's being paid? If we say that always Ethereum is optimizing for MEV. So every transaction, all the value that can be extracted will be extracted. And so it's really hungry and attempting actively to kind of capture anything left behind it. What does that mean for users?

Okay? Like, what does that mean if I'm a regular user and I'm not? I know high frequency trading firm, whatnot, et cetera. And I just see a price on Ethereum and I, you know, sorry, on Uniswap and I tried to buy there. but I allowed for some slippage because maybe the price would slightly change and I would always get the worst price or I would always get frontrun

there are some defy projects I spoke with somebody interesting not long ago basically you know automated vaults that kind of like adjust their positions based on oracles etc but they can't be fully automated because all the MEP researchers know oh here's an Oracle transaction

this is how the positions are going to be adjusted they always act before this protocol works, and that protocol always gets the worst price. Okay, so this actually affects more than the regular user that kind of like made the transaction. It also means what kind of product we can or can't build in D5. And the question is, what's the trade-off?

What do we want to enable? What do we don't want to enable? How much it's benefiting to users? How much it's, you know, giving them hard time? And that's maybe the point where me and Safai, I might not see it die-to-eye. Okay, so before we get into the controversial aspects, which I definitely want to get to, let's make sure that we explain how M-AV is going to change as a theory moves to proof of stake next month.

Yeah, I'm happy to talk about it. Obviously, proof of stake has been a long time in the making, but at flashbots, you know, we try to keep up to date with as many research topics as we can. And we saw that, you know, around about last summer, that a lot of the core developers are starting to ramp up and focusing on the merge as being the next major release of Ethereum immediately after the London hard fork. And so we started engaging and figuring out, okay, well, the easy thing to do would be for us to continue shipping, you know, the same software that we already have, M.EV. Geth for a proof of stake environment. But we thought we could do better. So we engaged with various different stakeholders, including Ethereum foundations, validators, core devs, client development teams to try to figure out, is there something that we can do to improve the current situation of MEV on Ethereum?

The biggest concerns that they had were basically twofold. One was client diversity, and the second one was solo staker participation in MUV. So, you know, one of the big limitations of the way that MEV Geff works is that it requires minors to see the full content of the transactions that they receive. And so that means that you cannot send these transactions to every single miner. You can only send it to mining pools that have some trust involved and that you can monitor how they operate with the transactions that they receive. Matching that over to a proof of stake world, it would not have been possible to send these transactions. over to the solo validators. In order to mitigate this, we basically developed a new piece of software from the ground up,

called MEV Boost, and that aims to sort of solve for these key concerns. So it's a neutral piece of software. It's done sort of in an open source, public good way. And it's software that any validator from the largest sticking pools to solo biotators at home can run to get full access to MEV. One other component that will be part of this is something called proposed or builder separation. Bori, do you want to explain what that is? Sure.

Although I think we and Stefan should have like switch roles because I think Stefan would actually like I would explain the first bit better and he would this one. I want to add something to what Stefan is saying, which I think is important, especially for the greater community to kind of figure out where we're going and what are the implications. What MEV boost does is that it allows any validator out there to receive sealed blocks. So just like they don't know what's inside the block. They receive a seal block and actually multiple potential seal blocks. And they choose who pays them the most.

So maybe one block builder. Block builder are special MEV entities that try to maximize how much MEV they can capture. and they're each trying to capture as much MEP as possible, and they're, again, similar to the previous setup, trying to outbid one another. Who would pay the validator the most? And so the validator gets several, hopefully, several competing potential blocks,

and it chooses which one to actually sign blindly, and then the block propagated either by that validator or by the relay, but basically it signed it blindly, and then it goes to the network, which basically means, and I think it's a big deal, that blocks are constructed to optimize MIV.

If something improves the amount of MEP, it will be included, if it's not, then it wouldn't be included, or lower priority. And it's a major shift, again, from the perspective of the users, as I see it.

Knowing that this is how blocks are constructed is a big deal. Now, MEV boost. is a step towards PBS is basically the idea of separating the proposer, the validator, which propose a new block to the other validator, from the builder, the one who construct the block. And I think it was Vitalik and like two weeks ago in a conference was saying that the motivation to separate these entities is that a small, if there isn't a separation, okay? So think about the validator, try to optimize and extract as much MEV. You could imagine that a solo validator would earn much less proportionally

compared to a giant liquidity pool with tons of resources, right? The solo validator would either construct a vanilla block or would use some open source tool that would help him, while the very large entity will have professionals trying to come up with strategies and construct it better and more optimized block, which means that larger validators would be better off. So a validator which is 100 times bigger would make more than 100 times more money, maybe a thousand times more money.

I don't know. I don't know if the matter of that. And so by separating the validator and the constructor of the block, you're preventing the economies of scale effect of centralization. So if larger pools are more profitable, it makes sense that they will be more dominant. And this is a centralization force. And if you split the two pieces, the actual validation of blocks and the construction of blocks,

then the economies of scale and centralization power stays within the MEP block building space, well, validators are all the same, whether you're small or you're big, you're going to make the same amount of proportional money. If you're 10 times bigger, you'll make 10 times more money. but not a thousand times more money, because somebody else would be providing, we'll be doing this work, right? We'll be providing them the same options. Okay.

So it sort of sounds like you feel like some parts of this at least are not a good move. Like what would you prefer to see happen? So I feel there are issues here. Me and Stefan are actually kind of like we were DMing it like the other day, etc. I was like, Stefan mentioned the externalities around it. Okay. we're doing all of this to mitigate negative externalities.

And the question is, what are these negative externalities? Like, what good are we doing here? What, like, how are we saving Ethereum, right? Or we're improving it. And what is the cost? And kind of like balancing between the two. The downside of PBS and the downside of ME boost, MEPBOS, etc. As I see it, is that it optimizes to maximize MEV.

Now, I'm totally okay or personally, I feel totally okay that arbitrage opportunities will be captured, like, they'll be captured by somebody for the system to be efficient. It's not bad, I mean, it doesn't hurt anybody. There is inefficiency, and whoever fixes it, profit. And I don't see any reason why that wouldn't be the validators. It's actually a good thing. But optimizing for front running and enabling that, so trading is not somewhat adversarial. It's like the most adversarialia. You're never going to stand a chance.

You're always in like the worst position you could ever be in. That is a cost to the users and the system. So like we want Defi to flourish. If there wasn't front running, defy it would flourish more, obviously. And so this is the cost. The question is what's the upside? And I think this is more like a question of Stefan Rukinan,

what's the benefit of doing it and is it worth? Yeah, Stefan, so I'm curious, like did you guys ever look at constructing MEV boost in a way where front running would not be allowed in some fashion. I don't know how you would implement that, but what's your take on the parts of MEV that are harmful to users? I think it's difficult to have a conversation under this framing. A lot of the categorization of MEV that Yuri has been presenting, I think, is inaccurate and doesn't represent how MEV works from a research and protocol development perspective. I think that there's very complex implications for MEV across the application layer as well as the protocol layer.

And the most important way to think about it is through the frame of where is the value accrual going and how are the strategies for capturing that value impacting others. I think there's also some correction I want to put to the way that MV boost as software was framed. So M&V Boost does not inherently maximize MEP in any way. It's actually completely unopinionated. The only thing that it does is it allows validators to outsource the way that they construct blocks to third parties. And the approach that those third parties use is completely detached from the MN boost software itself. So asking a question like, why doesn't MVV boost prevent front running? is, you know, from the protocol developer perspective,

just not really like a coherent question. There's a few undefined things here. So first of all, front running itself isn't like a defined concept within the realm of blockchains, right? So you have such a thing as a public transaction pool, which, you know, some bot operators pay people like Block Shrout to get preferred access to. And then they use the transaction that they receive from that chance,

to then insert other transactions ahead of it, right? And then submit that to miners for inclusion. So I think those are the types of strategies that that Uri is trying to refer to as front-running, which is really just a subset of the MAV strategies that are out there. Thinking about, like, how do we mitigate those kinds of strategies is a difficult topic to talk about and we can get into that. But, you know, the sort of perspective of the MEV boost is it's not meant to be a layer for solving this kind of strategies or preventing those kinds of strategies. It's purely just meant to be a layer for allowing validators to outsource and get access to the MEV.

Hopping in for a second. So first of all, you're right. MVB Boost, like MEPB boost allows to give it to third parties, not necessarily to whoever pays the most. So I totally agree with that. But I remember we were speaking briefly on this in Paris. We were talking about front running versus arbitrage versus others. And you said, like, I disagree with like the definition. So I'm not trying to kind of like throw you and like phrase a question in a way that looks bad.

Rather, I know you have a different opinion about it. I'm honestly like interested to get your take. I think like it's kind of like arbitrage is kind of like, okay. And front running is bad and we should try to mitigate it. I know your opinion is different. And I would very much like to better understand that. Yeah, sure. So, like, these are very deep research questions on which even I don't have the best perspective.

So, you know, FlashBots has a whole research team that's focused on answering these kinds of questions. And they publish a lot of useful documentation on trying to classify different types of MUV. You know, for anyone that's listening to this and just in checking those out, you can see writings. FlashBots.net. And that's where a lot of the preliminary research and research articles that we've done. posts go. You know, with regards to the ethical side of front-running and arbitrage and just types of strategies out there, we have an upcoming post that's going to be on that topic that's going to be published. Maybe by the time this episode goes out, and it's going to go into

like depth about those different different classifications. So I wouldn't want to spoil the surprise before it gets posted. And what about the externalities? We talk about that too. For me, it's super interesting. It's kind of like, what are the externalities that really you think like MEPB boost is solving for? It's kind of like one thing is like basically allowing everyone to participate. That's like super easy and kind of like understood. What other, like we were just, again, we were talking about it. And I ask you something.

You said like, no, that's not really what we're solving for. So what are the externalities on the chain and on the user we're trying to solve for with MEP boost or PPS? like one or the other. Yeah, so I sort of mentioned, right, like the design goals behind MIV boost are to allow for solo validators to participate in MIV and then also to keep promoting sort of client diversity. Both of those things are, maybe I'd say the client diversity one is mostly just an architectural, technical one, but allowing solo validators to participate is perhaps the main one that has implications for the way that the you know, the ecosystem of MEV develops, which is you want them to be able to extract at the same rate,

the value of MEV as even the largest staking pools and node operators can. So it eliminates, right, the economies of scale that comes with being a node operator in a way that encourages even solo stakers to participate in the network. That's really the main, the main objective with both. both PBS and MEP boost. Now, one thing that I want to specify is PBS itself sits on like a much larger roadmap of Ethereum. And so whenever we talk about these technologies, about these protocol features, they come with one, a lot of unanswered research questions and two dependencies on other parts of, for example, the Ethereum roadmap to be able to sort of fit together in a cohesive puzzle. So like while PBS may solve, right, the ability of solo validators to

permissionlessly participate in, you know, in MV. It doesn't solve other other issues that Ethereum may have. All right. So we're going to dive a little bit more into the controversy around this, but first a quick word from the sponsors who make this show possible. Curious about the world of crypto and the future of the next internet, then check out Web3 with A16Z. The chart topping technology. podcast from the Minds at Andresen Horowitz, the go-to destination for discussions on tech as it changes our world. Whether you're a crypto-curious person looking for signal versus noise in the day's headlines, or a C-suite decision-maker seeking to understand Web3 as part of your business strategy, Web3 with A16Z is the podcast for you. Tune in each week for leading insights from the top scientists and makers in the space through carefully curated conversations.

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Back to my conversation with Stefan and Uri. So one question I had about what you were saying before, about how MEV boost doesn't do anything on its own to maximize the amount of MEV being extracted. As far as I understand, it at least makes that aspect of it competitive, meaning builders will propose. You're right. It's builders propose. It's confusing. So they're creating these blocks and they're doing it in a way where they're trying to make it something that is profitable for the minor and for themselves, right? So the more value that they can extract, then the better rate they can offer the minor

and the better profit that they can give to themselves. So in that aspect, I do think that PBS does, or MEV boosts, does kind of contribute to this, right? Yeah. So, you know, here we're getting more talking about what is inherent about MEV and less about the specifics of the MV Boost software. So one way to think about MEV is like this free energy that's created by, by applications, wallets and users, right? They create transactions in such a way that they're giving the power to someone else to be

able to extract value. And the question is, okay, what is the impact of this and how are third parties a to extract that value. That's really sort of where the value originates. So someone is going to be able to see, okay, there's an opportunity here that I want to capture. How do I go about capturing it? In the full MEV boost system, right, these are searchers.

So searchers see some value capture opportunity here. They submit it to a builder. A builder aggregates all of these bundles and they produce a block. and then they submit those blocks to validators for inclusion. So the reason why you want a system like this to happen efficiently is because it puts all of each step of value capture in a public auction, a public market. So the amount that a builder pays to the validator for the block

becomes publicly known to the entire network. There's no longer sort of these special relationships, these special deals where a builder can, you know, agree with a validator to say, I will produce all your blocks and we will like split the revenue 50-50. Instead, you have this public market where all of the data and the payments become transparent. And it just brings a lot more light to this entire supply chain or this entire industry. Okay, so you've clearly, you know, delineated some of the benefits. But when I asked about Mav on Twitter, the vast majority of the responses were kind of negative to the concept. And, you know, as we've been discussing, being able to extract MV is actually becoming more baked into Ethereum rather than something that's being avoided. And here's just a few of the comments, you know, one user Harry Popper Rissue wrote,

why as an industry and community, are we not focusing more on prevention instead of just accepting it as something that will always exist? Bitcoin Dad Pod tweeted, why would anyone knowingly consent to participate in a system with MEV? Why not just stick with the Fiat system? So what are your responses to this? I think it's very easy to look at MEV on the surface

immediately and say like, well, can we just get rid of it? Isn't there something that we can do? Isn't there someone that can prevent this from being Yeah, exactly. And the answer is it's a lot harder than it may look immediately. So MEV exists and like exists in the traditional financial system as well.

And it's the reason why you have such large like financial intermediaries that are just like dominating, you know, and doing a lot of regulatory capture. So it's not like it doesn't exist elsewhere. It exists elsewhere. Just the ways in which it's dealt with are maybe not as transparent. And like maybe the public is not as aware about, about where the MEV resides. So, you know, step one is just making sure that people understand how. the system works, people understand where the value goes.

And there are definitely a bunch of different solutions that can be developed for dealing with this value capture. You know, one of the ways that FlashBoss is sort of a strong believer in is in reducing the amount of MEV that actually gets exposed. So a lot of the MEV right on Ethereum is exposed from the way that the applications are designed. So Ethereum, I mean, Uniswap, right, is a great example. is sort of the one that was used in the initial explorations of MEV.

Uniswap works by exposing a ton of slippage for its users. But Uniswap could also decide to design an alternative system that doesn't allow their users to expose that much slippage. Similarly, wallets could also figure out how to produce transactions and send user transaction in a way that doesn't leak as much value from their users in a way that is capturable by other people. So one of the important things about like, you know, oh, wow, like MEV is bad.

You know, MEV, if only we could solve MEV. Well, users have the choice, right? They choose which application that they want to use. They choose which wallet that they want to use. And the reality is a lot of them continue to choose wallets and applications that expose a lot of value that they could capture. But instead, they send that value to the bot operators and ultimately to miners. And so, you know, the Fosh boss job is like, okay, well, what do we do with all this value that, you know, users and applications have decided to expose?

And the most stable thing that you can do is submit that all the way down the chain in a transparent way to the validators of the network. I actually also want to ask about one specific comment that someone made where they pointed me to a talk that was given by people like it was a panel, Vitalik and Hasu and people from paradise. dime. And at one moment, they were asked, oh, would you rather trade on, you know, on a flashbots version of, of Ethereum with M.AV booster or M.V. Big Ten or a fair sequenced roll-up, which is just what it sounds like. It's, you know, not something where the transactions have been reordered in any fashion. And he pointed out, and I did watch this segment, that even your own investors, people from paradigm would have, you know, chosen the fair sequence roll-up. So what is your response to that? I mean, I can't speak for the people of paradigm and I don't know the exact situation involved.

Yeah, so it's probably best to ask them what they meant by that. Maybe they didn't understand exactly how the system works. I'm not sure. Maybe they have some other interests in mind. I think it's worthwhile to ask them. And so you, you wouldn't go with a fair sequence roll-up. you would choose something with the flashboss method? So I don't think there's any, I mean, there are some solutions that I think approximate what like a good trading experience would be on Ethereum today. The batch auction sort of approaches to building decentralized exchanges is actually quite good and helps mitigate a lot of the externalities.

So I think, you know, solving, it is a solvable problem at the application layer. It's not necessarily something that needs to be solved at the protocol layer. And that is sort of compatible with any chain, right? So it's a system that you can build that helps mitigate or helps find better prices for end users of decentralized exchanges. That's not dependent on the protocol in which it's built, which is always like a good way to build these kinds of applications. So, like, would I prefer to use, like, flashbots versus fair sequencing to me isn't really the question. The question is, like, would I prefer to use a decentralized exchange that gives me the best price or one that, like, exposes, you know, value to someone else?

And my answer is always going to be the one that gives me the best price. I also was wondering just kind of, you know, if we're going to look at sort of other consequences of implementing this more fully into Ethereum, I saw that the number of Mavis, extractors has decreased over the last two years. It went from 80 down to like about 27 now. And I wonder as we get into this space where it's sort of more baked in, won't over time, the larger extractors simply become more competitive, therefore winning more auctions, eventually leading eventually to centralization, or if this assumption is incorrect, you know, what do you think will happen or why have we already seen that the number of

extractors has been decreasing. I think it's an important discussion to have. I will ask, like, is that based on the flashbots explore numbers? Or is it based on a Dune, a Dune X, why is it? Yeah. Yeah, I think it's difficult to know exactly the number because as strategies get more complex, there are, it becomes harder and harder to define exactly like what is MEPD strategy and what isn't. Right. So we can say, we can look at a specific strategy like atomic arbitrage on Ethereum. And we can see that like over time, there are fewer parties that are sort of excelling at it. I think that's normal. Right. Like for a given strategy space, you'll have specialization over time and certain parties will be able to to sort of reliably capture more opportunities, the ones that aren't eventually fall out of the market. So, you know, it's, it's interesting to look at it as a pure per strategy space. definitely I think MEP just like every other industry sort of as it matures you sort of see very clearly who are the winners and who aren't able to compete the goal I think in MV and any other industry should be to foster maximum amount of competition right so you want to be able to have a system that trends towards more pure competition and low barriers to entry for new entrants rather than something that trends towards being more monopolistic, where a single party is able to capture all of it. And that's perhaps the conversation that becomes more interesting is, like, does having only

few parties are acting monopolistically have any externalities? And a FlashBoss's perspective is like, yes, definitely it does. And so that's something that we want to avoid and we want to maximize the amount of competition. So another question that I have, which is highly relevant, given what happened with tornado cash recently is that, again, this was suggested on Twitter by Rebecca Reddick of Avey. And she mentioned that the Bank of International Settlements recently wrote a paper on Mav. And in it, they said, in most jurisdictions, activities such as front-running are considered illegal. And in the paper, they suggested that exploiting M-A-V in blockchains

could be illegal in those jurisdictions. And I also saw a paper published last week in SSRN by two researchers at the University of Surrey, they assert that sandwich attacks, which is having a transaction that pushes up the user's price and then a transaction on the other side that is able to benefit from that, profit from that, that they run a significant risk of being found to violate the chief anti-fraud provision of the Commodities Exchange Act as effectuated by CFTC Rule 180.1. So what do you guys think about this potential illegality of exploiting at least certain type of MEV, especially, you know, as we're seeing these kind of freakouts about what the sanctions might mean for Ethereum at the protocol level.

First of all, the inter... I always take with a grain of salt, everything coming out from the International Bank of Settlement. And like, not even regarding to this. This might actually have a point, but like, as a source for, like, whose announcement we should be listening to. But I think this, and especially with the tornado cash and everything around here, actually brings us to some serious questions we need to answer.

Also in the context of MEV and front running in general, when what do we as actors in it? What do we do? With ME specifically, Tornado Cash is a complicated question, right? If Block Strout is a block builder and we're trying to add transactions and construct them into a block and give that to the validator, and that block includes a banned transaction, an ophick banned transaction. Are we facilitating that transaction?

And maybe the answer is yes, maybe the answer is no. We think the answer is no because, you know, we're helping the validate or order the transaction based on their preference. They get accepted or not accepted, et cetera. But it's definitely a major legal question that everybody in the space are looking into. and what are the implications of both for major stinging pools, whether they are like, you know, Coinbase and exchanges, whether they're Lido. Do they comply?

Do they not comply? Do they build blocks with such transaction? Do they not build stuff? Yeah, but I want you to answer these questions for MEV. You know, it's not as serious as O factors, but just because of like the implications of it and how, like, is this national security or? is this like a slap on the wrist. But the same goes here as well. It's kind of like if you're

participating in it, are you in fact breaking the law in your jurisdiction? And there are two parts here. One of them is completely legal, which I think both me and Stefan are not the person to add to the people to actually answer about it. Okay, it's kind of like, well, it really depends when you create a system. Like, is what my entity doing is that participating or not participating? If I'm accepting from somebody else and doing front running, am I participating in it? Also, front running isn't necessarily the right term. We're just like, we just borrowed it from a different field. So there's, it's not exactly the same.

From my perspective, it's more like, think of flash boys, right? The people connected New York and Chicago, right? If you're one millisecond faster than everybody else. And you manage to reach, you know, price crashes in New York. You're the first one to reach Chicago and sell before. everybody else. Are you front running? And that's kind of like there are legal questions around that. I think the more interesting question, especially for people like us, are actually not the legal ones. It's actually the ethical ones. Like, is this a bad thing that we're doing here? Is this a bad thing we're

enabling here? It might be a bit of a non-answer because like it's a legal question. You know, me and Stefan are not lawyers. But I think we disagree on is it a good thing? Is it a bad thing? If Stefan calls MVV, like it's energy out there that people, you know, MVV actors or others could extract, I see it slightly differently. If somebody makes a transaction and you wants to buy ETH for $1,000 and the price of ETH is $1,000. But, you know, 15 seconds later, okay, the price have changed. And it's kind of, well, price went down to $900. And now someone, oh, look at this sucker transaction. I can buy, sell him for a thousand and then sell after him and capture value that way.

Is that a bad thing? And saying that the application layers should just like solve it. I'm not sure I agree with that. Maybe some applications can solve some of it. But if we're talking about Ethereum, like what should Ethereum as the base layer do? It's an open question from my end. Should it optimize all of that and just leave it to applications? on top of it or provide a system-wide solution, which aims to mitigate it.

Yeah, I didn't get to mention this, but, you know, as REE just said, it looks like this will be integrated at the protocol. I guess we alluded to that earlier, but given these risks about the potential illegality of even if not talking about included in the protocol, which is, you know, the next big thing, de facto, this is how validators are going to run very, very soon. This is happening right now. And it's a major change. Maybe it's a good thing.

Maybe it's a bad thing. I know, but it's definitely a major change. And I'm not sure all the community would agree with Stefan that this is kind of like a neutral situation. How does this affect users, et cetera? And I think it's something that users should be aware. This is how Ethereum is going to act very, very soon. Stefan, what do you think, given what I just mentioned about this potentially being illegal in some jurisdictions? what do you think about the fact that this is, the way Ethereum is moving is to integrate it more?

I don't think that's true. I don't think that's the way that Ethereum is moving. Again, you know, M.EV Boost does a very specific thing, right? It allows all validators to be able to extract at a proportional amount to their state rate. It eliminates economies of scale. It doesn't have sort of an opinion on, on, you know, legal issues that you mentioned. So I just want to avoid sort of entangling separate questions

or concerns together in this conversation because I don't think it's, you know, it definitely causes more confusion than it does help the public understand how these systems work. Wait, so you're saying that if this does get integrated at the protocol level, then you don't think there's a problem with, you know, what, what at least these legal analyses say.

What is this and what does integrate it at the protocol level mean? Oh, I mean building PBS into Ethereum. Yeah, so PBS is a commit reveal scheme, right, at the block level that allows for a validator to accept a block from the network. And then it does a change to the way that the fork choice rule works to be able to say, to accommodate the fact that you have this commit reveal at the protocol. level. Well, it doesn't say, it doesn't say anything about the way that the blocks are constructed or sort of anything that happens before, before that commit reveal period. So, you know,

PBS, while like it is sort of a protocol change, it really does not impact the way that MEV itself gets extracted from how it does today. One of the research paths that that is interesting is sort of further transaction pool privacy. And is there ways to provide that in a way that is not trusted? So today, right, like users can use something like flashbots protect to be able to send transactions directly to a builder and get those transactions included on Ethereum. But they still have to reveal those transactions to the builder. And so ultimately the builder can only in a trusted way sort of promise, hey, I won't operate

on any of the information that you've revealed. But using privacy technologies like threshold encryption, SGX or others, it would be possible to implement technologies where it's not possible for a builder to see the content of the user transactions. So I think those kinds of solutions, those kinds of research topics are sort of completely separate from PBS and PBS getting included at the protocol level and are definitely sort of active areas of research that might be more relevant. relevant to questions of, you know, what options does a user have when they send their transactions to a platform like, like Ethereum? You know, about the post that you mentioned, the reported by the BIC and the reports on the CFTC rule?

On, yeah, on the CFTC rule and sandwiching. So I think like this is a new topic that's being explored academically, which is, like, what are the ethics of, of transactions? How does that relate to MEV? And how does that relate to the law? And I think those are good, like, initial explorations, but they do miss some aspects of the problem. As far as I understand, again, we have our research team that's, like, specifically looking at this. I don't know the details. But my understanding is that parts of the analysis may not consider exactly how it actually sort of ends up working on Ethereum. For example, presenting a similarity that front running in the traditional finance sphere is the same as front running in the blockchain context, they end up being very different activities that pro-who would benefit from being called differently.

because otherwise it involves a lot of mental models that are borrowed from a system that is completely different. Interesting. About threshold encryption and some of these other options that you mentioned to conceal the memple and make it effectively impossible to exploit MEV, as far as I know, I think osmosis, at least, is working on baking in threshold encryption. Are we seeing that other chains are trying to do this? And if so, would that eventually make Ethereum less competitive against them? Or is this something that Ethereum is also looking into?

So I don't think that they make it less possible to extract MEV. Again, all MEV that exists will be extracted. And the question is just, what are the externalities of that extraction? And so if an application sends a- How with threshold encryption can people exploit that if they can't see the transactions? So, I mean, there's multiple different ways. So it pushes it at the edges of the... the encryption, right? So it depends on what is the sequencing model of those transactions. It

depends on what happens before a transaction is encrypted. It depends on what happens when a transaction is decrypted. So for example, if you have like a bunch of opportunities that create an arbitrage behind them and you push those through a threshold encryption system, whenever the threshold encryption decrypts, right, is when the MEV gets exposed. And then whoever is in the best position to capture that MEV gets to capture it. So it transforms what has been sort of an auction based system around the capture of that opportunity into a latency game. So whoever is co-located is the first one to see the decryption and able to submit a solution to it gets to capture that the MEP under that frame. Okay, but front running wouldn't be possible? No. Similarly, you can build

other systems on the other end of the threshold encryption. So because users are are sort of submitting transactions to this threshold encryption, you don't actually solve the problem of payment for order flow, right? So order flow in itself has value that comes from the information that contained in the transactions submitted by the end users. And so threshold encryption doesn't solve this problem. And so you can build a system in front of the threshold encryption that says, hey, if you route transactions to me, I will give you the same execution or better execution,

then you would get through the threshold encryption system and you can see it because I'm willing to pay you for it. And so you can actually still see that the M.E.V that gets exposed can either be captured at either end of the encryption speed. Although in that part, it means the user captures part of its own MEP. If whoever builds a system, right, it's kind of, well, show me the transaction, I would bid you to send them through me versus through a different system. it means the user who created this value with his transaction would capture a bigger part of it.

And whoever built that system would build will capture a smaller piece of that. And if it's competitive, you could say, you could pretty similar to the argument about like minors or validators eventually capturing all the value. If you have a competitive system that everybody tried to outbid one another to see the order flow, then it would be the user who would capture the value. and in my opinion, it's a better equilibrium. Yes, if the value being extracted goes back to whoever created it, it wasn't extracted. It stayed with whoever created it. Yeah, the big problem that exists with order flow systems in this way

is that oftentimes the value is not attributable, right? And so it can be difficult to tell exactly who generated the MEV that ends up being extracted. But for sure, I think, you know, in the best design applications and wallets, they'll be the ones, and again, I'm saying, you know, applications of wallets because a payment for order flow type of solution to me exists at the application wallet level, right? It doesn't exist at the protocol level. But, you know, the best applications of wallace will be the ones that are able to return the maximum amount of value to their users, effectively giving them the best price. And so what this also means is exposing a lot less MEV by these users, right? So one way to think about it is a good order flow system. system, right, like a good order flow solution is one that minimizes the amount of MEPs as exposed. Ori, you have a theory about different levers that can be pulled to affect MAV, and it also

goes into kind of how much MEP is impacting the ETH price, or if we were to reduce it, how much that would benefit the ETH price. So can you talk a little bit about that? Sure. So the high level is something along these lines. I'm thinking from my comment earlier, I think the major pieces of MUV is basically arbitrage opportunities

and front-running opportunities. An arbitrage is kind of okay. It doesn't hurt anybody. Somebody should capture it. It might as well be the miners or validators or whoever produces blocks. It actually might be a good thing that way, but front-running, meaning hurting the users.

You send a transaction and you get their worst execution, either time passed or and your pricing. like maybe you made a bad transaction, but also you might have done your due diligence, but the market have changed and kept you kind of like exposed because you were trying to buy ether at $1,000 even though while waiting the price had crashed. And you will get front run. My take is that in order to achieve that, we have two interesting levers. None of them actually solve it by itself, but I haven't given up about finding a better

solution to the current situation. one of them is understanding that when now that we're moving from proof of work to proof of stake there is a new actor in like playing that actor is our are stakers okay so in a proof of work world you have miners they're you know using their hardware they're trying to get as much if in our context etc with POS all of a sudden whoever construct blocks also has a giant bag of Eith in today price, I don't know, $25, $30 billion or so. And so if you look at the MEP game and you say, well, wouldn't it be nice if arbitrage still existed and people be able to capture it and even validate or capture it is fine, but do we have

a magical way to eradicate front running? So it doesn't hurt users. And if you look at the numbers, if you see if MEV pays the validators and therefore the stakers, something like $100 million per year for front running, so something like $100 million for RPG size opportunities and $100 million for captured through front running, this is a really big number up until you compare it to how much is at stake. So if you look at all the stakers together and they have $20 billion, $30 billion worth of bag of EVE, and you could say, well, how much is that for you?

And that's something like, well, if you do the $100 million out of that, like the TLDR going back for a second, if there was a theoretical world in which front running doesn't happen, and you'd ask yourself, how does that affect the price of ETH and how does that affect the bags of the stagers? And you'd say, you know what, if we magically eradicated front running, the value of EF in five years will be, let's say, 10% higher in this theoretical world where DFI flourish and there is no front running compared to the current world with front running. if the difference is only 5% or 10%, then stakers would actually rather not allowing for frontrunners. Stakers would make more money if front running, if front running is eradicated somehow magically

and their value of their eth goes up, because $100 million is nothing when you have a giant, giant bag of eaves. And so the math around it is kind of nice, basically, if it would only increase the price of ETH with something like 4% over five years, and the audience could think, what would price of ETH look like? And anybody could have an opinion. Would it be 5% more, 10% more, 50% more, 2x?

If we somehow magically allow the defyke to flourish without front running. And so this is a super powerful lever. Stakers decide what validators would do. If staker is staked with validators that don't do front running, there will be no front running. The problem with that, or with this particular lever, and why this single lever doesn't solve the problem, is that if there was just one staker in the world and he would have to choose, oh, do I eradicate front running or not, then he would definitely choose to eradicate front running. Okay.

Eradicating front running would pay him something like $300,400 million per year, even if we're talking about a small price change of 10% over five years versus the $100 million that it would get from front running. But if you have many stakers, it's still in their collective favorite. This is a classical tragedy of the comments. Each one of them would want everybody not to do front running. But each one individually, when it's their turn to propose a block, they would, you know, I'd actually make more money if I include front running and I'll make slightly more money.

So as a collective, they'll make more money if they eradicate front running and only stake with validators which don't do front running. But each individual one would actually be slightly better off if it does front running, which kind of like breaks this entire like autopian dream. But it's a start point. They would make more money. Can we push them in this right direction? Which brings us to the second lever that we have, which is users.

Stefan alluded it earlier that users actually control the order flow. Whoever makes the money from frontrunner actually needs to fees these transaction. And currently, people just send out the transaction to the peer-to-peer network being seen by everyone and get wrecked. And this is where I kind of disagree with Stefan. It's not a good thing that you send your transaction out there and you'll always get the worst possible execution for your transaction. But they can choose where to send their transaction. So you could imagine a world where there'll be an MEV searcher or a block builder. And again, if there was just single user, right, and who was doing all the transaction, you would tell them, listen, I give you the transactions, but you don't front front of me.

You can capture arbitrage. You can make money however you'd like. but you don't front run me. If you front run me, I take my order flow and I go elsewhere. And that MED researcher or builder would be the most profitable one. He has access to the order flows. He can capture arbitrage. He can make money and others can. So users actually have a lot more power as a group than they're actually utilizing or people realize. But again, it's a utopian dream. How do we actually do it? Like how do users actually leverage the first? fact that they control the order flow. And it's an interesting and hard question. Metamask is a bit of

a kingmaker in that regard. You would say, well, Metamask can choose whoever. If we all direct the transaction to a trusted entity we have a deal with, that's not really decentralized. Basically, we just move to a centralized setup. So there is a trade of here. You want it to be decentralized and send it anybody who send it everywhere. And so users are kind of like faced with a hard choice. and users or wallets, depending on how you look at it, do I send it everyone and the user to, you know, just through the broad peer-to-peer network and everybody get wrecked? Or we send it to just a few entities who promise us that they won't front-run us,

but kind of like clues out on the decentralization piece. And what I'm trying to solve for, and I'm trying to figure out in three blocks out and in general in discussion with the community is how can we utilize these two levers to get the best outcome for users? Okay. And I think it's the users we should care about. And I think this is where me and Stefan not necessarily agree. Okay.

I think in a, well, taking it back, Stefan looking a funny way. I'm true. And again, Stefani is a good. It's not that I think Stephanie is a bad guy. It's just that I think it is possible to reduce M. by playing with these levers and designing the system, right, and kind of like at the Ethereum level. Okay, so we make the base layer provide some economic guarantees

and some mode of operation and not go to every application, say, oh, figure your shit out, okay? Like build it in a way that doesn't extract M.U.V. And going back to Stefan's first point, we just, if there are more serious validations, who can extract more value, and there are the solo valetors who extract less value, then MEV boost basically said, well, okay, now everybody are super well armed. Everybody are good at extracting.

Okay, so we took a somewhat adversarial setup, and we made it super adversarial in terms of like, okay, everybody are fair, but this is very, very adversarial. Your transaction would be tried to take advantage off. And my angle is more, okay, so the angle we should be. exploring is how do we utilize maybe these two levers, which I mentioned, that it's actually in the stakers benefit for front running not to happen. Okay, if MV boost allows validators to connect to any third party that produces a block, then maybe stakers tell their validators, listen, accept blocks, but only if they don't have front running. If they accept front running,

send it to somebody else. So it's a potential. And if user transaction would come could be used combined, then maybe we stand a chance. Maybe we can find a good solution. Yeah. So we're like over time. Stefan, why don't you respond to that? While you're talking about it, let's bring in this idea again about how validators could potentially share their MEV profit with users because I find that an interesting

idea. And go ahead and respond to Erie. Yeah, I didn't like that framing. I think I'd encourage I went to look at something that's called the MEP supply chain. And I think it's probably the most useful concept to think about how can this system evolve and what is like a good direction for the entire thing to evolve and what is a bad direction for it to evolve. And the simple heuristic that I give in that it's both a presentation and an article is that you should look

at where the value accrual is. If most of the value ends up accruing with users or validators, it's probably a good MEP supply chain. If most of the value ends up accruing with someone in the middle, like a searcher, a builder, or a relay, or some other roles or an application, a wallet, then it's probably not a good supply chain. The problem with MEV is that there's a lot of incentive for value capture. And so it's easy for someone to say,

hey, here's a solution that's solve MEP. You have to pay me to access it. We're both going to be better off because you're going to receive more value. I'm going to receive money. But the problem is usually that causes some centralization risk in the supply chain. So the order flow problem in this question that we're discussing is one of the main ways in which the supply chain ends up becoming super centralized. A block builder that's saying, hey, if you exclusively send your transactions to me, I'll give you a better deal. It also means that this block builder is not operating on the same amount of transactions as all the other block builders in the system.

and they can then use this advantage to integrate further down the supply chain and sort of reinforce a monopolistic position. So it's not that simple. It's not as simple as just saying like, okay, here's a product that's better for users on this scenario. If this product also helps a certain entity get sort of a monopolistic position, then it will be bad for the whole set of users as a whole and sort of entrenched this entity. So, you know, the five plus perspective on this problem is there are multiple different sources. of centralization. The main one initially was access to block space. And it's sort of the initial monopoly that flashbots unbundled. But we see other two big sources of monopolies that are unsolved for as of yet. One of them is order flow. And the other one is cross domain execution. So execution

on multiple different chains. And the solution that we seek to this is what we sort of loosely define as decentralized block building. And it's really just a vision. of the future that says this supply chain that we have is going to be maximally competitive in such a way that there is no single entity in the middle that's able to extract a huge amount of the rent. And therefore, the value gets pushed back to the user under the form of better order flow systems or applications like Exposed Less MEV, I should say, or efficient and transparent markets for block space, which return the value to validators and stakeholders. All right. There's so much more to unpack. I had a number of other questions that we're going to have to maybe touch on another time. And one last fact that I do you want to throw out there is that right before we recorded Hasu of FlashBots did also announce that Flashpots is going to be open sourcing its relay or ahead of the merge. I think they'd originally plan to do it at the time of the merge. But given what happened with Tornado Cash, I guess they felt the need to move that timeline up. All right. You guys, this has been so fascinating. Where can people learn

more about each of you and your work? You could always Google Bloxrout, B-L-O-A-X-R-O-U-T-E, or me, Uri-L-E-L-E-L-R-E-L-E-L-E-L-E-L-E-L-E-L-E-L-E-R-U-T-E-E-E-R-T-E-E-R-TOL. Because I think the community should be a part of the discussion, and not just, you know, left for us like MEV-V-Nerds in our channels. Yeah. So FlashBots, we still don't have a website. I don't know.

We're two years into this project and we still have failed to put together a website. But we do have a writings website. So writings.flashbots.net is a good place to go. We have a Discord community where people can go and hang out. And we're also super active on Twitter. So there are a lot of various FlashBots participants are engaging on. Perfect. All right.

Well, it's been a pleasure having you both on Unchained. Thank you so much. Thank you. Thanks so much for joining us today. To learn more about MEV, Stefan, and Uri, check out the show notes for this episode. Unchained is produced by me, Laura Shin, with up from Anthony Yun, Matt Pilchard, Bonnarvanovich, Pamajimdar, Shashok, and CLK transcription. Thanks for listening.