Miner Extractable Value. This phrase is essentially one of the largest basic risk areas available for blockchain -based systems. The original perception of a blockchain included incentives for miners (or other consensus participants who decide transaction ordering) to earn revenue based on whatever initial block grant is introduced into circulation each block in addition to fees that users pay to have their transactions confirmed.
These two things are no longer the only revenue that incentives miners. More complicated contracts and protocols are now available to facilitate the creation and exchange between different assets that host a blockchain. These contracts by design allow open access to anyone. If you have a required asset and can meet the specified exchange conditions, anyone user can interact with the contract or protocol to exchange assets.
Given that miners ultimately decide which transactions are accepted in blocks, this miners give you prefer to “jump the line” in interaction with such contracts and protocols. This presents a serious problem, depending on the degree of complexity involved in the successful extraction of value from different contracts or protocols.
This creates a huge centralization pressure on mining, the more complicated these contracts and protocols become. Miners have ability To collect all this value, but to do so they actually have to analyze the current state of these contracts. The more complex the contract, the more complex and expensive the analysis and the more centralization pressure it creates for miners.
This is terrible for censorship resistance.
Proposes Builder Separation
Ethereum is the poster child of MEV who has gone wrong. Due to the high complexity of contracts implemented in Ethereum, the amount of MEV created on this chain has been very large. Of course, they have come up with attempts at solutions in response to the problem.
Proposes Builder Separation tried to mitigate centralization risks for MEV by creating separation between the two roles involved in moving blockchain forward. Builders (block template creators) handles the role of actually collecting transactions in blocks, and the proposers (miners/stakes) choose between the available block templates to choose the most profitable. The idea behind the proposal is that we can let the centralization affect the template manufacturers, but protect miners/stakes from it. As long as there is a competitive market for template production, things still need to be safe.
In practice, that’s not what happened. The reality is that there are only a few competitive builders, and when the most profitable template manufacturers decide to censor something, it is effectively censored by any miner/stacks who choose to use these profitable block templates. Given that it is financially irrational not to choose the most profitable template, this does not really solve the risk of censorship.
Mevpool
The MEVPool proposal by Matt Corallo and 7D5X9 is an attempt to change the PBS proposal to Bitcoin in a way that actually mitigates the risk of censorship.
The biggest difference between PBS and MEVPOOL is outsourcing of template construction is not total, at Mevpool my workers still constructs the end block template itself. They simply outsource the process of choosing the subgroup of transactions that optimize MEV extraction, including those in block templates, they construct themselves. This aims to allow miners to maximize their cut -out of MEV while still maintaining the freedom to include the transactions they want, as opposed to the binary choice of accepting censorship for maximum profits or waking up profits to prevent censorship under PBS.
The proposal requires setup of market relays to host order books where MEV extractors can place their proposed transactions and the fees they pay to miners to include them in a block. They would allow the extractor to define conditions under which they will pay for the conclusion of transaction, ie. If they are the first transaction that interacts with a particular contract in the block. Marketplaces would also support sealed or unpredicted orders, ie. Sealed requests are orders where the proposed transaction is not actually revealed to the miner until they mines the block.
How does it work? All miners need is hashish of a transaction to be included in the Merkle tree to start mining, they do not need the full transaction until they find a valid block and go to emit it. But they need to know that the transaction is valid. This is the role of marketplace relays.
There are two ways they can do to do this. First, the simplest way is that they must be a purely trusted third party. Extractors of MEV would submit their transactions to relay operators and miners would connect to these relays. Afterwards, they would request the list of sealed and unprecedented bids from the marketplace operator, including the hash needed to include sealed bids and get a custom piece of software to construct the block template. Once they have successfully found a valid blockheader, they would send the block minus the missing data to the relay.
The relay will then include the full sealed transactions, emit the block itself and then send the miner the full sealed transactions so that they could also emit the block. Throughout this process, the MEV extractor’s fee would be held in the escrow of the marketplace relay and released to the miner after finding a valid block.
This requires to put a lot of confidence in the baton, both from miners as well as MEV extractors that pay them.
The second option is the use of a trusted execution environment (TEE) to handle the construction of block templates from the miners and handle the encrypted sealed bids. Miners ran the custom template software and a Bitcoin knot inside the tee. After miners have received the sealed and unpredicted bids and constructed their block, Tee would sign a certificate of the block and give the marketplace a session key.
The marketplace would encrypt the sealed transactions and a transaction that pays the miner’s fee to the session key. Once the mines have found a valid blockhash meeting the difficulty target, TEE would decrypt the sealed transactions and allow them to send out the full block and charge their fee from MEV extractors. In this scenario, everyone involved has to rely on tee to remain safe.
The end result
The end result of this is very likely in my opinion to correspond to PBS at Ethereum. There are only a handful of large builders constructing MEV optimized templates for miners, and they have all transactions directly submitted to them out of the band from Mempool. Mevpool Marketplace relays, both variations, are confidence in publishing fee information about orders submitted to them to allow normal users to do correct fee stimulation. If large marketplaces were able to attract transaction posts that were not sent anywhere else and withheld these fee data, this could affect users as a whole.
Although it allows miners the freedom to choose their own transactions outside of MEV optimized subgroup, it still leaves room for large marketplaces that receive private transaction posts to utilize this position. Such marketplaces could force miners to censor other transactions by withholding their Orderbook data from them if no competitor existed with access to the same information.
In the end, I do not see this as a solution to the question of MEV, more of a bandaid or mitigation of the worst possible effects of it. It does not completely remove centralization risks and pressure, but it improves them in certain areas.
This is a guest post of Shinobi. Opinions that are expressed are entirely their own and do not necessarily reflect those from BTC Inc or Bitcoin magazine.