The billions upon billion that is becoming Ethereum, is something that cannot be ignored
for any longer.
And the billions upon billion, it moves each day...is becoming just as important.
Many can’t see it, but a collision of value is dawning on the Ether.
DeFi and the users versus those that have secured the network since its birth.
The Miners.
So pick a side, for the future of Ethereum...because it's time for Chico Crypto
MEV, Miner extractable Value, a topic not too many crypto investors have even heard
of, let alone understand...is on the top of MIND for blockchain and dapp developers.
So what exactly is it?
MEV is the measure of the profit a miner can make through their ability to arbitrarily
include, exclude, or re-order transactions within the blocks they produce.
It doesn’t have to be a miner either, it can be a proof of stake validator, sequencer
and the like.
Charlie Noyes, one of the lead researchers of Paradigm...the star VC firm.
Put out a blog post just in February of this year titled MEV and ME.
And in it, he gives a great example of MEV.
He says “Imagine there’s a $10,000 arbitrage opportunity available on Uniswap after a large
trade has caused price slippage.
An arbitrage bot notices the opportunity and submits a transaction to capture it, offering
a $10 txfee to the miner.
The $10,000 potential profit from this opportunity is the total MEV.
One of two things may happen:
1.A miner will copy and censor the arbitrageur’s transaction in order to capture the opportunity
themselves.
2.
Other bots will notice and bid a higher txfee, starting a bidding war for the right to capture
the arbitrage.
AKA, miners are influencing trading and swapping more than they should.
And this is just an example with uniswap, with all the other defi applications and protocols
popping up daily MEV, is going to become a big issue.
In the article Charlie says “As a direct result of DeFi’s inflective success, the
known lower bound of Ethereum MEV is growing at an exponential rate.
At this pace, we believe that MEV could create meaningful issues within the next year”
Now before we get into what is being done to stop this, we need to understand how connected
Paradigm, and Charlie Noyes are to Uniswap.
Paradigm was the VC firm, which gave Uniswap it’s initial funding back in April of 2019,
and then again in August of 2020, for a second investment in their series A, august of 2020.
Which had caused Hayden, founder of Uniswap, to even tweet about their positive and mutually
beneficial relationship.
Obviously Uniswap & Paradigm are close.
So why is Paradigm, Uniswap’s backer so interested in MEV?
Well according to the MEV dashboard, which breaks down this by the protocol of where
it happened….and Uniswap takes the cake, making up nearly 50 percent of all MEV transactions.
Uniswap has a problem….So what is being done to stop this?
Well Charlie discusses the potential solutions back in the blog in the section “Mitigating
MEV”.
He says “Hopefully, the next year will bring more clarity on MEV and Ethereum’s path
forward.
A number of Paradigm’s portfolio companies are working on MEV mitigations and related
problems.
If this is of interest to you, don’t be a stranger” and lists those portfolio companies
working on MEV.
Including the 2 rollups paradigm is invested in.
Optimism and Starware’s ZKrollup….but just below them is another paradigm portfolio
company….Flashbots….
Charlie says this in the flashbots section: “Flashbots is a research and development
organization formed to mitigate the negative externalities and existential risks posed
by MEV, starting with Ethereum.
They have built out tooling to quantify MEV and eliminate the information asymmetry in
the ecosystem.
They are now implementing a proof of concept for permissionless MEV extraction called MEV-Geth,
a sealed-bid block space auction mechanism for communicating transaction order preference.”
“Flashbots’ goal is to make sure MEV incentives do not become opaque and undemocratic.
Hopefully, their infrastructure will allow application developers to better understand
how to minimize their MEV exposure, and let some pressure off that could otherwise accumulate
into really harmful externalities like time bandit attacks.”
Flashbots, is illuminating the dark forest, by creating tooling to visualize it.
Yes, that MEV dashboard we used to see that Uniswap accounts for nearly 50 percent of
MEV transactions...built by Flashbots...which has a ton more data, total MEV, MEV by day,
MEV by type, MEV by role, Ethereum Network Activity From Extracted MEV...wasted fees,
wasted blocks...and even a MEV leaderboard to see the culprits
So who is behind this Flashbots?
Well it’s none other than @thegostep on twitter, Stephane Gosselin.
We know Stephane...don’t we.
Well Charlie said Flashbots and thegostep was working on something.
He said in the blog “A proof of concept for “permissionless MEV extraction called
MEV-Geth.
He explained this as “a sealed-bid block space auction mechanism for communicating
transaction order preference” So, how long has this been being worked on?
Well about 6 months ago, thegostep posted this in ether research.
“Flashbots: Frontrunning the MEV crisis”...which dove into MEV Geth, including how it worked,
and how to use it as a searcher and miner.
But the key words from flashbots we need to remember is this is “front-running” the
MEV crisis and MEV GETH is “sealed bid block space auctions”...why remember that?
Well Stephane, has been working on this for a lot longer than just 6 months.
As we can see in November of 2018, caught on slideslive, he presented Lil Submarine..what
did this do?
It temporarily hid transactions on Ethereum...and from the description, the notable use cases
include preventing frontrunning on DEXs,hmmmm….
allowing sealed-bid auctions, hmmmmm and allowing private voting with a public tally….
Frontrunning, sealed bid auctions.
Lil Submarine from 2018 was a precursor to Flashbots, thus Flashbots isn’t anything
new…
But preventing frontrunning on DEXs, decentralized exchanges.
It has been a goal OF his for some time...So I wonder if something new launched from thegostep
could be involved with this?
Like something that would require alchemy!?
Like Alchemist Coin!
Well if you go into the github of alchemist coin, you can see something called MistX frontend...clicking
into it.
No explainer of what this is & no backend.
So what is MistX?
Well luckily Chico can dig like no other...so let’s begin.
Going back to MEV-Geth the proof of concept from Flashbots.
February 18th, Stehane spoke on this with the Zero Knowledge Podcast.
Let’s hear what he had
to say.
A direct connection to the miners….how about this connection?
Let’s go back to MistX..and Using the wayback machine, I found when the backend of it was
included in the github of alchemist and they explained just what MistX was..
It’s purpose.First...
Bundle the frontend transactions into blocks.
2nd Finds miner extracted value (MEV), and then sends them to miners through a direct
connection.
And third I’m going to black out everything, as you have to find it yourself, but as you
can see there is an alchemist crucible emoji right there.
MISTX sounds like it has a lot to do with MEV-GETH and it’s github is not public anymore...it’s
private.
Could MistX and crucibles have something to do with the gas savings of Uniswap v3?
Only time will tell, but the connections are there Uniswap to Paradigm to Paradigm to flashbots,
from flashbots to thegotstep, from the gostep to alchemist.
Cheers I’ll see you next time!