Review of Blockdaemon's Analysis on "SoK: Cross-Domain MEV"
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The Research team at Blockdaemon, one of the leading blockchain infrastructure platforms, has undertaken the task of analyzing papers on blockchain and interoperability and condensing the knowledge into summaries.
This week, Rafael Belchior, R&D Engineer at Blockdaemon, summarized a paper on cross-chain MEV titled ‘SoK: Cross-Domain MEV’ by Conor McMenamin.
We believe this is an important topic, the importance of which will only increase as we move towards a future with 1000s of blockchains including, general purpose blockchains, inter-connected rollup ecosystems, and application-specific blockchains, interconnected by cross-chain liquidity networks, shared sequencers, zk proofs, and arbitrary messaging bridges.
This review aims to contextualize the summary presented by Blockdaemon and highlight some of the key learnings and implications for the broader blockchain community.
Let’s dive in!
Background: Cross-Domain MEV
As the blockchain ecosystem expands and becomes more interconnected, the issue of interoperability has become paramount. Interoperability, in simple terms, refers to the ability of different blockchain systems to interact and exchange assets and information seamlessly. A notable but less talked about outcome of this phenomenon is cross-chain MEV (Maximum Extractable Value).
“Maximal extractable value (MEV) is a measure devised to study consensus security by modeling the profit a miner (or validator, sequencer, or other privileged protocol actor) can make through their ability to arbitrarily include, exclude, or re-order transactions from the blocks they produce.” — Flashbots.
Let’s break down this definition:
MEV is the reward miners or validators obtain by strategically reordering, adding, or excluding transactions within a block.
I personally like to think about cross-domain MEV by fitting the concept into the ‘blockchains are cities’ analogy: If blockchains are cities, and bridges are highways that connect them, MEV is like a toll booth on the highway — Normally, cars (transactions) pass in the order they arrive. But what if the toll booth operator (miner or validator) could earn extra by letting some cars skip the queue, or by keeping some cars waiting, or even by not letting certain cars pass at all? This extra money they earn is MEV.
In simpler terms, MEV represents the extra profit these 'toll booth operators' make by choosing the order of how cars (transactions) pass based on what benefits them most. And as our blockchain world grows with more and more connecting 'highways', leading to an increase in cross-chain interactions, MEV will likely emerge as a significant revenue stream for miners and validators.
Core Insights from Blockdaemon’s Analysis
According to the team at Blockdaemon, the paper's main contribution is the table below, which categorizes various mechanisms to mitigate the negative impacts of MEV and promote its democratization.
Let's delve into the insights from this table and compare how MEV functions in current protocol implementations versus its optimal role:
The table above underscores the link between MEV profit potential and consecutive block control. With greater control, profits rise, but so do complexities.
Additional key takeaways from the paper, as outlined by Blockdaemon, include:
Cross-domain MEV is centered on transactional arbitrage spanning multiple blockchains, distinguishing it from single-domain MEV.
'Searchers' encounter challenges in developing cross-chain MEV strategies. The greater the number of domains, the higher the potential profits and complexities.
Bundlers, who tend to favour high-fee bundles, can manipulate orders if they are also validators in the system. Large operators validating on multiple chains pose a risk, potentially overshadowing smaller players, highlighting the need to democratize cross-chain MEV.
In terms of MEV mitigation, the paper suggests techniques like shared sequencers, single-domain sequencers, and approaches like order-flow auctions.
Though the paper offers a commendable systematic analysis of MEV, Blockdaemon correctly highlights a gap: the need for actionable insights, particularly in the cross-domain context. Bridging this gap can help transform theoretical concepts into practical solutions.
Closing Thoughts
Given Blockdaemon's position as a prominent node provider, grasping the nuances of MEV is paramount. The insights from this paper have the potential to influence Blockdaemon's strategies, pushing towards a more decentralized MEV landscape.
Blockdaemon's review highlights the necessity for stakeholders to remain updated on MEV developments. We hope that future research delves deeper into this area, much like Conor McMenamin’s work.
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