This is MEV by sxysun | Devcon Bogotá

foreign [Music] from the last talk we get we arrived at this slide and having a test for non-mev news but in this talk I'm done talk about you know sorry but this formulation of a movie is meat so specifically what it means uh why because it's like a party guy you know a guy at the corner of a party thing they don't know this is not Mev while the other people all of us are like yes we know and we don't care it's a good name and it's uh you know memes are important memes are more important than you know arguably uh many other since in our life and then but there are also another extreme in the community are vouching for a formalization of family right so some common pitfalls on this uh on the world on the definition of the word and maybe is that we give up on the clarity of the notion we over formalize it such that we lose some memes right with it is no longer a mean term and it's lost in and we are getting lost in the detail of the real value of defining mevs so in this talk I will give a clear definition of Mev that points to a solution to points clearly to the solution recipes that uh how we should solve an EV and uh I'm not gonna give a mid curve formalization nor am I abandoning our memes so what is Mev so by the end of the talk you will see that Mev is Al Capone evil deity and Lewis the 16th so uh this is me uh yeah so so to um start we see that so so why Al Capone's Mafia is Mev so because Mafia extractable value you know CCM arises from arises when one agent or Collision of Agents gains an asymmetric knowledge of another agent's private information so this condition sounds really exists on a symmetric sophistication between agents so very easy examples include sandwich internalized front running or in traditional Finance we see that people trading one strategy is actually people trading on the limiting other booths in Balance so which is essentially a form of one Asian gaining knowledge of another agent's utility or intent right when you see more bid than us on the books then you take the best us and you make the best bit um so then evil deities are more like why is it that maybe so monologue is terrible value is a value that was surrendered to the monologue IE on coordination within your mechanism your allocation mechanisms for people's preferences so one example of this is the negative externalities caused by any expressive mechanisms so for example suppose you have a random ordering then people uh spam the network and and that is the only way they can express their preferences and it is very one-dimensional way right so you have a kind of a shrink transaction quality trilemma and there are of course many other examples for so for example in the traditional high frequency trading arms race example um people the mark the cost that market maker spends on arms race gaining latency advantages was channeled as charging higher spreads for users so the externality is transferred from sophisticated agents to unsophisticated agents there are some other examples and so finally Louis XVI value arises from the fact that the coordinator so for example the sequencer or the validator has the ultimate power of deciding what the ordering or the allocation of specification on status so by specification on state I specifically mean which specification or property does the next day satisfy you can for those of you familiar with programming languages you can see that this directly links into the um you know formal verification you have a program and the specification that the next state must satisfy so then some examples of this include that the validators currently you know in ethereum or other chains accrue value because they have the power of determining what content is in the block and many other examples for uh in in chat by such as collocation fees and cross-chain such as cross-doming market makers for swaps so then we can see that Mev arises from three distinct properties the mafia's monologue and the Monarch so now a little bit more formalized suppose that m is the monarching our unions over or our gaming and W is the social welfare function then we know that the monologue kick straddle value equals the welfare that is achievable by the best possible mechanism for our game to allocate specifications on State minus the welfare of the current Monarch and the monarchy V equals to the uh of the current Monarch minus the welfare that that already existed you know in the original game in without our current Monarch has a coordinator so you can see those closely tied to the idea of externalities right and then from our definition we know immediately that Monarch EV plus monologue extractable value equals the wealth of the best possible mechanism in our uh in our game minus the welfare of the original game so so it equals the constant right so it is so the malloc UV plus monarchy V is innate to the game e and does not depend on Virtual on our choice of the mechanism and um and finally uh defining a mafia EV is a little bit hard but harder but the intuition in the mafia if it depends on the specific sophistication details or the power of agents that is existent in m so what this means is that how much exposed knowledge or last look One agent can have over other agents or their coalitions so then we can see that those three values have very have distinct sources and those sources of value are non-overlapping thus we can call them you know our new definition collectively three EV Mafia monologue Monarch extractable value you know it forms the sum type it's perfection um so then from what this implies is that the resolution recipe right future is in our hands we know that Mafia plus model plus Monarch is 100 of the Mev and that monarchy V plus monarchy V equals to the constant depending only on the original game but the percentage of malloc versus Monarch depends on M our our choice of the mechanism so you can already see that there is a nice link with the notion of price of Anarchy In traditional mechanism design here right although in traditional mechanism design of course like the you know there are theories you want bonds so they have so they Define price of energy as like the division but now we are interested in values so you know I kind of Define it as difference um uh and then finally we can see that Mafia UV is also a constant depending on choice of them so since the sources are distinct we can adjust the percentage of the three variants of MAV by transforming one form of Mev into another but in our designing of a better mechanism app so I argue that ideally we should have zero percent Mafia zero percent malloc and 100 Monarch where the monarchs profits are distributed so what this specifically means and why is this true is that because Mafia relies on the existence that there is one exposed knowledge and there's unsophistication or sophistication between agents right there is a symmetry and so specifically once you have this then the sophisticated agents are going to charge sort of unsophistication text on the other agents and thus this hurts long-term stability of the domain or long-term prosperity and then why we want zero percent monologue is because any value that or any weapon that is tributed to the monologue is forever lost it's not recoverable and nor is it redistributable so then uh and why 100 Monarch with redistribution is that if there is no redistribution to the Monarch then uh then the 100 Monarch EV going to erode the incentive for people to use your mechanism right because you're essentially creating reintroducing the value that they would have paid to the monologue by having them pay to the Monarch instead so there's a different you can see there's uh so users would be indifferent between paying to the monologue in the original game and paying to the monarchy in The Meta game so you know this kind of violates the individual rationality guarantees so then there are of course some caveats as to our choice of Monarch and our definitions so as we can see that the welfare of the game without the mechanism depends on E right so now we assume that the mechanism represents a domain or a builder or some just some Coalition of Agents then we can give a kind of and have a notion of Internet domain correlation Factor K where k equals one if the mechanism is monopolistic across all domains so here we are kind of cheating a bit we are including time as another domain so K is kind of like and this discounted and dimensional preference curve and an example of the prismic curve you can see on the top right corner and then k equals zero if the mechanism is powerless so then what this implies is that by forming a larger Collision means the correlation has a higher K and this enables them to do more credible extortions so what this means is that the Monarch is red value for your Collision of Agents you know forming the mechanism m equals to K multiplied by the original monarchy Family Medicine forms the grand Coalition so then uh of course this implies the users can also be the Monarch if they have a large enough K right and similar probability researchers or Builders you can imagine different mechanisms than what is currently being played in the Meb field so essentially the inter-domain correlation Factor represents your collective bargaining power which determines how the Monarch is set up who we thrown as the king and how the Monarch is set up within the game so then however the okay so so there are some caveats to the choice you know how much coalitions can you have right so you can imagine this formalized as a corporate game where the core of the game might not exist if we have too many inter inter domain correlations so uh this kind of reminds us as the you know original notion of there exists anatomicity of coordination and in and efficiency and this also relates back to you know a notion I would like to call the incompleteness theorem of Meb ratio so you can see that the game e cannot continue if there is not enough competition what this means is that you can increase the coordination but it does not always increase if efficiency of the allocation in reality and even if you try to eliminate the efficiencies caused by your extra coordination by using some another credible commitment or coordination device in The Meta game then you're just transferring the monologue its credible value in the original game to the Monarch in the rapt game right so this kind of provides a ground for us to refute any you know uh previous ideas by Virgil Griffiths and his whole ethereum as game changing technology argument um so then the uh coming back to this the specific value of the correlation Factor K depends on how we set up the game we can throw out these from different monarchs ultimately we want to choose the best mechanism and and start that is most incentive along with long-term prosperity and is most capable of coordination so you can see there's a trade-off over here and of course like why do we want a manner why do we need this meme right why can't we just go the formalization reality in a full formalization throwing Mass equations uh so the reason for this monarchy abstraction is because the outcome in contrary to traditional mechanisms and the outcome in Mev is not common knowledge and depends on each agent's private information which the other agent don't have priority don't have priority Mev time which is the allocation time or like block building time so it is hard to analyze the equivalence in this game especially when there is exists and a smear as symmetry in the sophistication of Agents so thus we reduce the guarantee of of our mechanism to just have some some bounce like some some loose bounds on the incentive compatibility and the individual rationale so then now to concretize things we provide some case studies so specifically we say that there's uh we know that there has it has been vanilla first come first serve and frequent batch auction style first come first where we increase the fairness granularity within the receive other fairness protocols so what they specifically means is that instead of reporting a strict ordering by the receive all the time of the transaction each individual node now reports a partial ordering to the leader of the ordering consensus protocol so what this concrete means is that you know you just take the smaller than to smaller or equal to and then after aggregating each individual knows preference the Monarch in this case the leader of the consensus protocol gets a week ordering by first come first serve and then there are of course we know there there must exist some other batches in it which is caused both by the conducted paradoxes and the initial partial being reported by each individual node so now the Monarch tries to resolve the order of the on or the batches using auctions right so this is why it's free from Dash auction uh and then in reality why is this model like let's speak into some datas we see that in reality it's over 65 of the unit volume is comes from Arbitrage it's you know maybe statistical and among the other 35 it's a big a few few market makers so what this means is that the MAV activity constitutes a huge amount of ethereum activity and the burst period on ethereum which arises from public information reviews so for example some price discoveries having some binance for some people um some wells and The unpride Hectic transaction into the public member uh then uh once once it this kind of event happens it takes around 1.2 seconds and and 75 of the conflict of preferences on ethereum conflict presence is meaning that there is a conflict within what specifications should the next day satisfy uh uh you know it happens less than four percent of the time and so this means that vanilla first come first serve compared with frequent batch auction first compressor will be pairing the action activity tonalities which cause worse ux higher fees for users or centralization in the nodes from 12x more conflict of preferences so you know bursts of periods per preferences are significant and just adding some partial ordering just covering that little four percent window you can mitigate most of the negative externalities on the domain you can take value back from the monologue right so if we use the three EV framework to compare those two protocols we can see that they have the same Mafia right uh and and for marlocks the the first the vanilla version has much more monologue because uh the vanilla version nobody can express their preferences in a short burst period which constitutes most of the activity right so so the monologue arises from the tribute to the monologue arises from on coordination and then Ultra simplify social Choice function right where the spiritual Choice function is like IO like I choose to preference by the other I receive them that does not coordinate any of the first period Mev right and then burst period and maybe you know typical cases include like permission SMU price Discovery automatic so uh and then so as you can see from the graph on the right right like we are transforming the mafia slowly into the model aquarium where the value is transferred to the user so the users have the same payoff you know same bad payoff and then from the Monarch it's strictly worse right but better definition but also uh vanilla versions from the ROM on work right so in in latency games you pay more to AWS or Google Cloud because you know you need to play latency games and SAS and the Monarch you know Google and Amazon are obviously nothing incentive aligned with crypto or like whichever domain you adopt your audience and of course it's more centralized because camera is like fan um uh okay so now come some concrete examples let's see you know transformation of three if it does really actually capture most of the uh existing and maybe Notions that we have so for transforming Mala to Monarch we see that one form of this is a spread charged charged by market maker Bridges from Monarch to Mafia we see that if in traditionally if in previous ethereum profile work the miners were to go Rogue and still bundles they need to be you know they were the Monarch but they choose to gain an advantage using their estimation information the ability to act on that information wait what okay uh and then from Mafia to malloc the transformation so for example you go from a public member model to a vanilla first come first serve right you eliminated so you don't have that information but you have that uh you know uh on coordination you have a a very bad allocation of preferences which increases monologue and then from malloc to Mafia you'll see that so for example if a malicious coordinator were to pocket all of the Surplus with that that it generates from optimizing the ordering or just existing you know from coordination so this case uh you you you go from yeah and then what we can do to go from uh Mafia to monarchies to have programmable privacy right so in this case for example SGS you can still do bundle merging or block building or preference aggregation despite that you don't have a Elementary symmetry in the um information and then finally come on the current model of Dow governance is a form of transforming the Monarch to the malloc which is not good right so uh so so what this means is that so that exists for coordination right but then but launching a dollar token and then allowing it to distribute under bad economics or like whatever you're you're creating a Ponzi which uh creates more monologue right you could have got that to a monarch stage but then through more decentralization you have recreated his monologue in The Meta game of the token game right so this reminds us of the previous example of the non-monatonic relation between decentralization and coordination and efficiency in the mechanism um so then some implications of three EV right concretize this idea what why is it useful so then the solution recipes how to achieve zero percent zero percent and distribute to 100 we can solve Mafia EV using programmable privacy which allows for expressivity and agents can control how the information is used along the path of the determination of the outcome buys among narc also this relates to the traditional mechanism designs idea of the definition of How It's what how expressive a mechanism is right and then concretely what this means is that you can devise a mechanism for discovering the unsophisticated user's preferences and helping them to communicate this preference to the coordinator or to the mechanism and then we can solve malark historical value by just increasing memory efficiency right we can eliminate the price of energy while via refinement of society or I.E specialization of Labor so what you can see you know in in this example is like a contrary to the idea of monarchy has the idea of a slack right so slack is arises from coordination where it's basically you you allow somebody to have enough um modes or like period where they can grind on the higher payoffs and this is only allowed if you have a highly coordinated you know specialization of Labor in your society and then finally Monarch his travel value how do we division its value right so the value division we should division it in such a way such in that we maximize this welfare or the future returns so what this means is that you probably shouldn't focus on giving tiny Kickbacks to the existing one percent of users but instead of focusing onboarding the invisible 99 percent of users as as Monarch expressable value or like I mean in general grows super linearly with respect of compared with the number of other flow that's existent on your domain right so for example the ways you can do this is through investment into what is or some some idea like ritual active public goods funding and of course this was the original idea by feral living as well right like the the idea is that you can uh there are 99 of users that would have come to your domain a few other things you know fairly but uh um yeah yeah so so it's it's been on as a narrative and then uh yeah and so so then specific implementations we know that 3ev was defined by the source of value at their distinct so the thing however the sink of those value are different so for example the mafia Extra Value sometimes thinks into into Monarch right so for example when there is a sandwich the and then two very competent atomic structures in the various things to the Monarch which is the validators and then the think of value impacts the source of value so I argue that by controlling the sink of the value we are control we can already we can also impact on the source of the value whether the magic of credible commitments so some example credible commitments I'm not going to explain that you can like hit me up later after this talk examples include Builders as roll-up or if they you have a special Builder Innovation where you grind on the expressivity of the building language or you have a decentralization of building you use sdx tokens to align the incentives or like some more fancy things but all of those conditions on all of those Solutions can conditions are low enough interdomain correlation Factor right remember from before once you have too much correlation or too much coordination then you can't possibly you know have a good mechanism or like it's very hard to do so so uh and that allow a low enough factor means that you have high enough competition which means the market is contestable so I claim that having more competition in the game by incentivizing having more competition in the game is Right curve behavior and optimizing the ordering by learning more about the preference microstructures and then grinding on the design of the mechanism is mid curve so contestibility is an important tool and it can only be realized if we design the initial Market in such a way that it is not centralizing what this means is that in reality what this means is that there should not like like we should definitely devise a mechanism that were exclusive exclusive other flow within like this provide some philosophical foundations for the previous talk right I said it's mid now it's time to you know show some real work for show some real like tests for non-ammy venis uh so then remember that uh Fraga and Russell was debating why you know whether the king of French was both right in the beginning of 20th century and they come up with the tests for presuppositions uh for utterances of sentences so for example the utterance of the sentence access Mev has a presupposition uh test that there must exist again e and then like allocation or other protocol uh M and that within M and E using the three EV definitions we can indeed see that um is constituted by a type or multiple types of the three EV so in so so in this sense the utterance of X is Mev has a presupposition of the existence condition of enm and X being indeed instead of 3v thus if there does not exist such a enm which you know translates into English is that is if that is absence of a monarch then the utterance of this sentence axis and EB is false and that's the X is not Mev so then some concrete example imagine Kim and Dawn playing a prisoner's dilemma right so then they both choose to be trained now Suppose there isn't a coordinator okay so then somebody utters the sentence he says that the value that Kim and don't is extracting apps in the Monarch I.E 1 1 is not Mev then this then this value is indeed not that maybe by passing the presupposition test right if we take a free game view um and so of course like there are other countries like Wittgenstein has this notion of a language game where the context depends on social scene so the utterance of actually some evid so this sentence might be true as the context of the authorency social and we might agree on some notion of the game so if the sentence is provided without context then the sentence is nonsense and has no choose value thus ultimately the test of Mev conditions on which philosophical interpretation of language you agree with if you are Wittgenstein you know you always switch with Einstein and believes that the utterancy is within the context where it is socially agreeable that a monarchy exists so in the previous rugby case remember we often see let's say that physics is the monarch and then over there is a value is indeed and EV um okay so so now some takeaways let's change the language it came are you tired about minor or Maximo where the grammar isn't even correct like like we say maximum mov all the time and we should just say I'm EV and it conveniently represents a shorthand for some type of Mafia malloc monarchic straddle value right have you been saying a movie because you have poor imagination to come up with a replacement term for miners that keeps the m and makes sense you know is is that what we are doing you know uh so then the argument is that by changing this language game we have several benefits we have um you know this from my formulation gives you a distinct value which Origins from the source and then it is more formalizable and it is formalizable in the sense that you don't get lost in the details it is still keeps a meme and the formalization and the proof only serves as a social process to help people to understand it and then of course they settles the better Mev argument and the trade-off or the transformation between the three values of space is clear what this implies also this implies clear solution recipes so some nurse sniping for you all that is that to research on how Monarch historical value can be distributed and research on the program of privacy solutions for Mafia IV and then finally a pre-supportation test and so to conclude I would like to hypnotize you 3v3 ev333 um that's all you can kidnap well I think we all agree that was a fantastic talk a lot of like the two speakers we we said at the beginning that maybe we have time for questions so let's pick a couple of them order it's going to be hard for me to get there so maybe you can shout out aloud yeah good question so of fact censorship uh can be done implicitly using a terminal using a form of the um preference curves but Alejo Maybe um is it Monarch is it Mafia or is it uh molok MVP it is monarch yeah but as I said like what we want is to shift the structure of the game right remember the interdoming Coalition Factor you can unify the users by devising some mechanism to help them become sophisticated and have collective bargaining power so that is what we ultimately want to do yeah anyone else all right guys so big round of applause [Applause]