The Ethereum Dark Forest is perilous, and new entrants can reduce the risk of participation by choosing the right alliance to join.
Recommended reading: ” Selected Links | Understanding the Predator Game MEV of the Ethereum Dark Forest “
Written by: Fiona Kobayashi, software engineer, currently working on research in the MEV field. Compiler: Perry Wang
What ordinary DeFi users don’t know is that when we discuss MEV (miners can extract value, or cool kids call it the “maximum extractable value”), the territory of this field is constantly changing, and multiple fronts have formed within it.
Last year, when Frank Researcher shared evidence of clear arbitrage MEV among miners for the first time, the dust slowly fell, and several groups of newly participating MEV groups were scrambling to establish dominance.
In this article, I will (just superficially) discuss the various groups competing to expand the MEV capture field and their respective spheres of influence.
Front
The new MEV entrants have received varying degrees of computing power support from the circle of MEV-friendly miners. They can be roughly divided into the following categories:
Group 1: Frontrunning / Backrunning Monopoly Alliance
These organizations have been operating long before MEV has become a mainstream threat today, and can even be traced back to the days before the debut of Bancor, the pioneer of DeFi, in early 2018. Therefore, they already have a mature infrastructure that can easily evolve into a monopolistic and horizontally integrated MEV Searcher Cartels (MEV Searcher Cartels).
Simply put, this means:
- They can integrate their existing robots into the MEV infrastructure almost effortlessly. Since they have optimized the transaction reordering algorithm, they only need to build the logic of bribing miners on the chain. For example, check the results of the preemptive run/tailing, if the previous transaction has been successful, will the block coinbase transaction be used to issue bribes to the miners, otherwise the bribe will be withdrawn.
- They have the resources (horizontal integration) to enter other strategies for seeking MEV revenue, such as sandwiches and liquidation. The “sandwich” technique is essentially adding a rush and trailing operation on both sides of an innocent AMM user transaction. For this MEV predatory group, its sandwich technique has been highly optimized. MEV-powered liquidation is essentially an illegally manipulated trailing transaction (more details below).
- They have more time to establish working relationships with larger mining pools. The greater the computing power that these mining pools have at their disposal, the faster they can win in PoW competitions with other MEV participants in competitive operations. The Ethereum EIP1559 protocol upgrade will annoy them because it will “technically” weaken its competitive computing power advantage, but as Stephane said , if MEV profits give miners financial incentives, the mining pools behind them can indeed Choose to simply run a modified Geth.
- The sheer size of this profit-making alliance means that it may be slower to accept the emerging MEV strategy than its competitors.
Group 2: MEV group bound by DAO and agreement
Representatives in this category include KeeperDAO’s Rook , 1inch’s dark pools , Miners-focused ArcherDAO, and SushiSwap’s recent YCabal proposal . These groups use the MEV strategy to “make profits for DAO/Protocol.”
Simply put, it means:
- They provide their users with the right to choose whether to join, and route their transactions directly to the mining pool through a private relay network (aka dark pool), skipping the terrible memory pool (think Samczsun et al. used Spark last year) The Tai Chi network of the mining pool conducted the famous $9.6 million white hat rescue ).
- But in addition to the private defense mechanism, it also analyzes the downstream MEV opportunities of the transaction itself, such as circulation arbitrage and liquidation caused by these transactions. The income generated by these MEVs is automatically extracted in the same block and returned to the DAO/protocol In the controlled fund pool.
- The competitive advantage of the group comes from the fact that they control the flow of user transactions, so through the private proxy path, it can be ensured that only the DAO/protocol can see the transaction, and can automatically gain an advantage in the same block before everyone else. . .
- Their ability to develop customized MEV strategies will be limited by how quickly they can approve proposals through the governance process.
- Now there is Chainlink’s fair sorting service , which to some extent also belongs to this category, but they don’t seem to extract anything from MEV operations, but they may encourage the use of Link tokens to pay sort miners to ensure that they are used. The transactions of all owners of the oracle network are fairly ranked. The article on fair ordering services still does not introduce the technical details. Technically speaking, they may not be able to ensure the ordering of transactions in the entire block, but I have been paying close attention to the resulting results.
The third group: Decentralized MEV group
Flashbots and others are democratizing MEV acquisition, providing developers in the ecosystem with MEV infrastructure and mining pool support that can be accessed publicly.
- Their role in the ecosystem may be underestimated-if it were not for their recent rise, the large alliances in the MEV contention field would use protocol-specific MEV relays, and almost all MEV opportunities that were not privately mined would be included in the bag. .
- The decentralized nature of its infrastructure has also incubated a sub-category in this category-a vertically integrated group formed by independent developers to cooperate and form, using the Flashbots infrastructure to focus on a specific MEV field, that is, 2-3 developers The team only specializes in arbitrage, liquidation or runaway transactions.
- When a new type of opportunity arises, considering its size and niche nature, this type of MEV participants may be the first to react and switch the track.
- However, it is also due to the decentralized nature of Flashbots that some participants in the first group mentioned above use the publicly available infrastructure of the decentralized MEV group.
How is the harvest of MEV Reapers?
Each record https://explore.flashbots.net
Participants of the mining pool
The following mining pools are currently snatching MEV cake:
- 2Miners
- Minerall Pool
- EzilPool
- BeePool
- UUPool
- SpiderPool
- CrazyPool
- FlexPool
Technically speaking, private transactions are not considered MEV, but they are indeed a supplement to the MEV strategy, so it is worth mentioning that SparkPool and Ethermine are the main dark pool supporters (as can be seen from this research report , all 77% of private transactions are mined by Ethermine).
Value extraction
According to Flashbots’ MEV Explorer, we currently expect to withdraw more than 1.2 million US dollars in MEV revenue from the entire Ethereum network every day, which is close to the transaction price of a Beeple NFT. Among them, you can see a large number of MEV alpha projects on Twitter and Etherscan, such as arbitrage promoted by zero gas lightning loans, sandwiches, and NFT rescue. Those are already regarded as the mainstream of MEV.
✌️Value extraction ✌️
I recently contacted some MEV Diablo Alpha anonymously, and I am interested to talk about the MEV liquidation strategy in detail.
As you know, liquidation is triggered when the value of a particular loan position falls below the (healthy) threshold stipulated in the agreement. When the threshold is reached, anyone can call the relevant liquidation function of the loan and buy the collateral at a steep discount, and the cost will be borne by the borrower.
This will bring MEV through ✌️ liquidation ✌️ (aka Stale Toasting) that generates capital losses. Regarding the liquidation status of the trigger time, Tokentax’s general recommendations are as follows:
“Just like selling related cryptocurrencies in exchange for fiat currency, it means that the capital gains or losses of these assets can be realized.”
Around this situation, a dark strategy is that you deliberately reduce the health of your position to trigger liquidation, and eventually you, as the guaranteed liquidator of your position, trigger a book loss, essentially unscathed.
This can only be achieved through MEV, because you can submit the clearing trigger transaction and trailing transaction at the same time in the same MEV bundle, which allows you to complete the clearing in the same block before all other clearing robots see the transaction. . It can be said that the MEV infrastructure allows you to specify logic to ensure that the first transaction is only mined when the second trailing transaction succeeds, otherwise it will be as if nothing happened, like a lightning loan rollback. Unlike a lightning loan, you do not need to pay any gas fees when rolling back. You have suffered a loss on the books, but you actually transferred your collateral to other places. It will be interesting to see if your local tax department understands all of this.
This is crazy…
This is just the tip of the iceberg. Inside the dark forest is the entire dark forest, where unscrupulous predators track other successful predators and decode their transactions. Even if the latter changes their contract to avoid detection, the former can also Keep following them. As for what MEV looks like at the L2 level, that is a question discussed in another article.
What is the situation on the blockchain outside of Ethereum?
Binance Smart Chain BSC
This question has been asked several times, because since BSC is an improved branch of Ethereum, shouldn’t they face the same threat?
The simple answer is: “No.” It is impossible for established BSC verifiers to try to develop self-service MEV measures and risk the consequences of angering Changpeng Zhao. If so, they will only get short-term gains, and then they will suffer long-term pain (being blacklisted). If they do, I think you can call it CEV (CZ approved extractable value), which is unlikely to happen.
AVAX
I believe that AVAX’s consensus model is leaderless, so theoretically speaking, the MEV in Ethereum as we know it does not apply to AVAX, because there is no single entity to handle block production or determine the order of transactions. I say “in theory” because we currently know that any consensus mechanism used in their leaderless model may be used to generate variants of MEV. Similar to the current lack of understanding of the Ethereum L2 MEV dynamics, we can only be sure when it really appears. However, I have also been following the progress of these people (I am about to be dazzled).
So, how does this affect you?
- If you are a DeFi end user, especially a Uniswap trader, you may want to look back at your slippage tolerance settings. You only need to browse various discord channels related to MEV, and you will find that there are enough sandwich attackers preparing to hunt Uni. And their number is increasing every day. If Uni V3 is released in agreement-specific MEV terms (this is not an internal alpha, I don’t know the specific content in Uni V3), then this situation will be alleviated, then all you need to do is opt-in.
- If you are a single-handed miner in an active MEV mining pool, please remember that, technically speaking, they are not obligated to share their MEV income with you, so it is worth your question to the mining pool and request for greater transparency, because It’s not easy to calculate by yourself.
- If you haven’t stepped into the MEV arena’s mining pool, you can log in to Flashbot’s miner franchise page . Otherwise, you will miss a new money feast.
- If you are an independent developer and your arbitrage/clearing bot has stopped making profits, you can consider joining the flashbots discord channel , and work with other developers with similar ideas to create your vertically integrated MEV strategy to challenge the monopoly of the above-mentioned alliances.
Does anyone do this kind of development and open source it in the next hackathon?
There is indeed a horrible dark forest in Ethereum, but letting you join forces with one of the three alliances above, instead of singly through the rivers and lakes, the risk will be less.
Please cherish it.
Acknowledgement: I would like to thank @epheph, @onewayfunction, @tzhen and other team members of Flashbots for being my technical advisors on all issues related to MEV.
Source link: fiona.mirror.xyz
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