Introduction to Miner Extractable Value (MEV)
Miner Extractable Value (MEV) presents one of the biggest risk spaces for blockchain-based systems. Initially, a blockchain’s conception included miners’ incentives to earn revenue based on an initial block subsidy, and fees paid by users to have their transactions confirmed. However, more complicated contracts and protocols have emerged, facilitating the creation of and exchange between different assets hosted on a blockchain. This gives miners preferential access to interact with such contracts and protocols, leading to potential centralization pressure, especially as these transactions become more complex.
The Issue of Proposer Builder Separation
Ethereum and MEV Issues
Ethereum has been the poster child of MEV gone wrong due to the complexity of contracts deployed on it. The large amount of MEV created on Ethereum has necessitated the development of mitigation strategies.
The Concept of Proposer Builder Separation
Proposer Builder Separation (PBS) aims to mitigate the centralization risks of MEV by creating a separation between the two roles involved in the blockchain’s progression. Builders assemble transactions into blocks, while Proposers (miners/stakers) choose between available block templates for the most profitable one. Theoretically, this approach would allow for centralization to affect template producers but safeguard miners/stakers. However, in practice, only a few competitive Builders exist, leading to potential censorship risks.
Introduction to MEVpool
MEVpool’s Proposal
MEVpool, a proposal by Matt Corallo and 7d5x9, is an attempt to modify the PBS for Bitcoin to provide mitigation for censorship risk. Unlike PBS, in MEVpool, miners continue to construct the end block template themselves. They outsource the process of selecting the subset of transactions for optimized MEV extraction, which allows miners to maximize their MEV cut while maintaining the freedom to include any transactions they wish.
Working of MEVpool
MEVpool requires setting up marketplace relays to host orderbooks where MEV extractors can post proposed transactions and the fees they’ll pay to miners for including them in a block. The procedure allows the extractor to define conditions under which they’ll pay for transaction conclusion. It also supports sealed or unsealed orders, where sealed requests are orders where the transaction proposed isn’t revealed to the miner until they mine the block.
The End Result of MEVpool
Though MEVpool doesn’t entirely solve the issue of MEV, it can be seen as a mitigation of the worst possible effects. It doesn’t completely remove the centralization risks and pressures, but it does ameliorate them in certain areas. While MEVpool allows miners the freedom to select their own transactions outside of the MEV optimized subgroup, it still leaves room for large marketplaces receiving private transaction submissions to leverage their position.
Source: Bitcoin Magazine, MEVpool, The Best Bandaid We Have For MEV
