Brian Crane, Felix Loch, Stefan Stefan discussed on Epicenter

Epicenter
|

Automatic TRANSCRIPT

To epic. The show which talks about the technology is part of some people driving decentralization and the blockchain revolution. I'm Brian crane and I'm here with my co host Felix loch. So today we're going to speak with Stefan Stefan. They're from the flashboards team and delight your team. So just a few words and that's a flash box. Of course, is 150 team that's really pioneered to work around MeV, which has become one of the most important topics in crypto, you know, across all blockchains, people are worrying and thinking about this topic. And flashbots done really pioneered this field. And focusing on Ethereum and how to address this on Ethereum and then of course the city is firm lido, which has become deleting liquid staking solution and especially on Ethereum has a huge amount of state and has also taken on a key role in shaping the future of Ethereum and of staking on Ethereum. Now, just before we go into the episode, briefly about our sponsor. So our sponsor is tally hill. So tali Ho is redefining the wallet as a public good. You can think of it like a community owned alternative to meta mask. With tally Ho, you can enter the metaverse with a web three wallet that's fully community owned and operated. It's the first wallet that's also Tao. So and commitment to community ownership and public goods goes beyond the wallet. So for example, they became one of the first sponsors of ether JS, an open-source JavaScript library, helping to develop this connector to Ethereum. And they also pledged some two and a half percent if they're talking to it, Bitcoin aqueduct. So head over to Italy dot cache cache to try out the wallet and play hooks features. So with that, let's go into the episode. So thanks so much for joining us, guys. Maybe we can maybe we can just do with interest from each of you before we sort of get into the meat of the topic, maybe step on. You want to go first? Yes. Quick intro. Hey, I'm Stefan. I'm one of the cofounders over at flashbots. I focus on everything that product product architecture related. And yeah, one of the big focuses for me over the last year has been figuring out an MeV solution for proof of stake Ethereum. So this is super excited to be here chatting with you all about it. Hey, I'm vasili. I work with the LIDAR as basically tech lead. I will lie down. And we are doing a liquid stake in for basically we want to be a doll that builds the goods taken for everything, what's taken currently where on the polygon Solana polkadot Costa. And you didn't want for avalanche. And on the. Leading liquid state and protocol. Cool. Well, let's just do a little bit of context for people, I mean, we've done a whole bunch of episodes about MeV, but still some people, it's a complex topic. So maybe we can just do a very brief intro like what is MeV and like, why is it important? Okay, I can take this on. So I need to sort of all the value that a privileged actor within a system like a blockchain is able to extract from their position as this privileged actor. When there was initially sort of brought to the community as part of Philadelphia research, it looked at minor extractable value. So the ability that minor is hot on Ethereum to extract value from inserting, reordering, reordering, or sensoring transactions. And looking specifically at sort of arbitrage and PGA wars on Ethereum. And the goal was to sort of identify what are the ways in which this value that miners have the ability to extract is actually being extracted in practice, which was through the use of gas wires and gas powered bots. And try to model what are sort of the negative externalities and the endgame of this value extraction. It quickly built up to be sort of a massive problem or a massive opportunity depending on who you are in the system. Over the last year, over a $1 billion of MeV has been extracted just atomically on Ethereum alone. And the MeV ecosystem has sort of ground to be much, much bigger than this. MeV poses a bunch of different threats to these kinds of decentralized systems. The main one being a centralization risk. And so that's why we sort of form flashbots as an organization to try to understand the problem better, do a lot of research and then build solutions that help mitigate them. Cool, yeah. So great to have you guys on. Also, and I wanted to dive a bit into that, right? So there is this concept that you introduced Stefan or like platform to introduce, which is this MeV supply chain, maybe can you talk a little bit about the MeV supply chain and where exactly the centralization risks lie that you just kind of briefly touched upon? Yeah, so the MeV supply chain is a simplification. I suppose of how the ecosystem is emerging around MeV. How the industry is emerging and the different roles the actors are playing. So the way that it works is we look at starting from a user that has certain set of preferences. They want to execute some kind of action on top of on top of a chain. They want to execute some sort of state transition. But they need help to do so. So really what they have is a set of preferences. Then what they do is they interact with an application. Whether the application is adapt, like uniswap or a wallet like meta mask, the interact with some kind of interface that helps them encode their preferences into a transaction. It's rather than the job of that application to figure out how to take this transaction and actually get it executed on chain. Historically has been pretty simple. They send that transaction to the transaction pool, it gets picked up by a minor, and it gets included. What we've sort of noticed is with these MeV opportunities, but operators picking up transactions from the transaction pool and sort of inserting themselves in the middle of the supply chain. Adding additional transactions around it to form sort of a bundle of transactions. And then submitting that to the miners for inclusion. So if you're keeping up right now, we have already four different actors on the supply chain. The user, the application, the searchers, and the miners. Finally, with the approach of proof of stake, we introduce this additional role, which referred to as the builder, and that is really just separating out the role that the miner has into two. So the role of taking a bunch of these bundles from searchers and transactions from users and producing a block with it, the block builder role. And then the role of taking the most valuable block and proposing it to the network. This is the validator rule. So that's the ensemble of the supply chain. Now, now your question here was, where does centralization emerge in all of this? The risk of MeV is initially that operators who were very good at extracting these kinds of opportunities would partner with minors to get some exclusive access to block space, right? Exclusive access to hash rate. And be able to extract the MeV and get transactions included using sort of one on one deals, as opposed to an open market for that block space. What would happen in that case is these miners are these integrated minor MeV searchers would get super linear rewards relative to their hash rate. So they would receive more rewards than an other minor would for the same amount of hashrate.

Coming up next