The painful reality revealed by MEV real data and the centralization of Ethereum

Uncovering the Painful Truth The MEV Data and Ethereum's Centralization

The severity and speed of MEV evolution have exceeded people’s imaginations, and severe centralization phenomena have emerged under the MEV-boost architecture.

“Introduction”

A few days ago, a transaction by the Ethereum Foundation on Uniswap V3 fell victim to a sandwich attack, resulting in a loss of over $9,000, according to data from EigenPhi, sparking a heated discussion. In the web3 world, MEV (maximal extractable value) is not an unfamiliar term, but what facts do we discover when we look at the real data of MEV on Ethereum instead of just the concept? Will our existing understanding of MEV change?

In this podcast, we are fortunate to have Mars Cheng, CEO and Co-founder of the leading MEV data analysis platform EigenPhi, to discuss MEV from the perspective of real data. We will cover the basic concept of MEV, the actual impact of MEV on DeFi applications, the limitations of application-layer measures to reduce MEV, the serious centralization issues under the MEV-boost structure after the merge, and the unreasonable design of the PBS roadmap.

To be honest, this podcast is a bit depressing towards the end, which was beyond the host’s expectations during preparation. MEV has always been a complex and controversial issue, and there are indeed many doubts about the PBS roadmap. Hopefully, this podcast can bring up the topic and stimulate more discussions and attention, leading to better solutions.

• Doge From Meme to Moonshot! Can it Dodge Zero? DOGE Price Slashes 3.5% as Meme Coin Races Past $500,000 Milestone
• Building DApps on Ethereum: The Wild and Wacky World of Digital Assets
• How can the tourism industry benefit from new technologies like the metaverse?

host: Stephanie@stephaniiee_eth

guest: Mars Cheng@kidrane

“Interview Highlights”

MEV is the most important aspect that sets DeFi apart from traditional finance

Traditional trading also involves front-running, but competitors are difficult to observe, which is known as LianGuairtially observable in game theory. However, in blockchain, all players can see the historical data of all others, making it fully observable. Therefore, this category of data does not exist in traditional finance.

MEV is more severe than imagined

After EigenPhi’s research report on how MEV affects Uniswap and Curve, everyone realized that the situation with MEV is much more severe and widespread than previously thought. The recent attack on the Ethereum Foundation’s transaction was not of significant value and did not trigger any alarms in monitoring systems. However, it’s countless how many victims of this type are detected by our monitoring system, not to mention how many regular traders can match the level of the Ethereum Foundation.

Another important point these reports aim to convey is that MEV evolves faster than most people imagine. Some transactions involve hundreds of transfers, and a sandwich attack can victimize dozens of people at once.

How Ordinary Users Can Avoid Attacks

Attacks are indiscriminate; as long as there are arbitrage opportunities, there will be people who take advantage of them. The key is to control the transaction amount and the way it is operated, so that these people have no incentive.

Specifically, on one hand, the transaction amount can be kept relatively small to prevent significant slippage; on the other hand, protected RPC nodes can be set up, which can largely avoid losses.

Reducing MEV Profitability at the Application Level is Limited

From the data, some dapps such as cowswap have indeed effectively reduced some MEV. However, I don’t think it should be the responsibility of protocols to do this because it’s not enough. From the perspective of flash loans, applications in DeFi are composable, and the effect of a single protocol doing this is limited because the ultimate ordering power lies in the hands of validators.

Moreover, from the perspective of application development, applications themselves are already complex, and considering security and MEV issues makes it even more difficult for application developers.

After the merger, MEV-Boost has rapidly changed the MEV supply chain

After the merger, the roles of builders, relays, and validators became clearer. This actually happened outside the Ethereum protocol, but in reality, over 90% of transactions are packaged based on the MEV-Boost supply chain. This makes me doubt whether the intended PoS design has been achieved after the merger because although stakers have the ultimate power to determine transaction ordering, in reality, it is largely not the validators themselves doing this, but rather concentrated in the hands of a few powerful builders. The top 4 builders hold over 90% of the market share, and the concentration of relays is even more severe. The alignment of decentralized intentions and actual circumstances may need to be reconsidered.

 scr: Order Flows: Kingmaker of the Block Builders

Value Extraction in Different Links of the MEV Supply Chain

The problem now is that it is difficult to analyze the larger searchers who have their own builders based on publicly available data. However, overall, independent builders find it challenging to make money, while searcher-builder combinations find it easier, of course, they also have more complex transactions. Relays, on the other hand, are basically not profitable. Therefore, the main money-makers are the groups consisting of searcher-builder combinations and validators, with validators taking over half of the MEV profits. Now, in terms of validator income, the proportion of MEV and gas fees is roughly equal.

Reasons for Centralization Due to PBS Design

On one hand, there is too much determinism, and on the other hand, there is one-sided bidding. In theory, the builder with the most money wins, and only the person with the most money wins. This deterministic approach leads to extreme centralization. One-sided bidding also causes serious problems, meaning that validators do not have to compete, making costs unable to decrease, and efficiency lower.

PBS and AA are actually changing the consensus mechanism of Ethereum. Apart from the stakers, there are many others who can change the transaction order. So, is it really still PoS?

We will continue to update Blocking; if you have any questions or suggestions, please contact us!