# MEV for the Next Billion: It's Time to Get Serious... by Philip Daian | Devcon Bogotá

- Speakers: [Philip Daian](https://streameth.org/speakers/philip-daian)
- Channel: [Devcon](https://streameth.org/devcon)
- Date: 2023-10-07
- Duration: 28:59
- Watch: https://streameth.org/watch/yt-ACXAzLy3iWY
- YouTube: https://www.youtube.com/watch?v=ACXAzLy3iWY

## Description

Visit the https://archive.devcon.org/ to gain access to the entire library of Devcon talks with the ease of filtering, playlists, personalized suggestions, decentralized access on Swarm, IPFS and more.
https://archive.devcon.org/archive/watch/6/mev-for-the-next-billion-its-time-to-get-serious/

We will take a birds-eye view of research, industry, and L1 developments on MEV. We start with the reasons behind the origins of MEV, a years-old warnings to developers. We revisit these against an explosion of research and industry interest in MEV. We cover the big picture of why these topics, including PBS, MEV auctions, MEV ethics, "fair ordering", cryptography, etc. are key to the decentralization and UX of L1. We will attempt to provide a roadmap to avoid the centralizing effects of MEV.

Speaker(s): Philip Daian
Skill level: Intermediate
Track: Layer 1 Protocol
Keywords: mev,decentralizaton,research

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Devcon is the Ethereum conference for developers, researchers, thinkers, and makers. 
Devcon 6 was held in Bogotá, Colombia on Oct 11 - 14, 2022.
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## Transcript

foreign [Music] all right everybody hello hello it's so good to see everyone I haven't been in a stage like this in about three years since Devcon Prague back when I was in obscure PhD student and giving a talk in a similarly sized room that no one showed up for so very emotional to be standing in front of you all here as the steward of flashbots and looking at how much has happened in our industry in the last three years I also am a PhD student at Cornell but this talk is in my capacity as flashbots so today I'm going to be taking you all on a tour through the Dark Forest and this is actually the Dark Forest where I spend my time where I live right so I know I'm taking the meme a little literally but I'll also show you some pictures I've taken in my journey over these last three years finding nav and really trying to fight for uh user fairness um so I learned in teacher school that some people only learn well with an outline so we're going to talk about three things today the first one is where did Mev come from why are we here second one is where are we today so I'm going to talk a lot about flashbots and the choices we've made as a collective how they relate to things like the base layer of ethereum security and fairness for users as well and I'm going to talk about where do we go so what is the goal for Mev what is flashbots doing this is a question I get a lot from the community and we're going to start to answer it today and how can we all do it together as an open source as an ethereum Community to really build these systems for the next trillion I'm not kidding about that um so this all started for me with this academic paper I wrote at Cornell called Flash Boys 2.0 where we looked at the market dynamics of several dexes that were popular at the time around 2018 2019 and we looked at basically the game that Bots were playing to Arbitrage these decentralized exchanges and how they related to things like user fairness and consensus security using extensive measurement infrastructure so if you're interested in that and you haven't read that paper yet I highly recommend you check it out but in that paper we Define this term called Mev maybe you've seen some talks on Mev at Devcon here so we Define this as saying oo fees or ordering optimization fees represent one case of a more General value we call minor extractable value or Mev and that refers to the total amount of ether miners can extract from manipulation of transactions within a given time frame which may include multiple blocks worth of transactions um so there's a sort of Duality to Mev that we've been exploring and pointed out basically after this paper we're on the one hand Mev is this financial potential energy that runs through everything we build every system we build um and on the other hand it has risks so what we said in the Flash Boys paper was Mev poses concrete measurable consensus layer security risks and we show that Mev poses a realistic threat to ethereum today that was four years ago so today it's even even more so so how do we get to a place where we preserve the decentralization of these systems we're building where we make sure that this Mev is used for good and not centralization that it doesn't entrench actors into our systems which are not aligned with user fairness how do we make sure these systems actually work for the people that are using them uh well there's one simple answer to that and this photo is actually from a hike I took after Devcon Osaka again all these have like a little emotional story for me so I'm kind of indulging myself here but we do that by playing the long game um so this is what what I spend my entire time kind of for the last three years obsessing about what is the long game of Mev and how do we get out of a world where we're all captured by Citadel where we're all captured by Robin Hood's new crypto wallet where we're all captured by metamask where we're all captured by flashbots or a centralized Builder this is the world we need to get away from and we need to play the very very long game here so what am I doing about this well one thing is uh stewarding this project called flashbots which we announced in this blog post called front running the Mev crisis and it has three goals number one illuminate the Dark Forest Mev when we started was an opaque obscure Niche area that no Searchers wanted to really talk about publicly you couldn't get the kind of data in The Flash Boys 2.0 Paper without doing months of academic research and that's not good right we need to communicate to the community to the users and to everyone exactly what is going on in these systems and exactly how it affects them so that's Illuminating the Dark Forest the second thing we need to do is democratize Mev extraction so if we want to preserve the decentralization of the systems we're building we need to make sure that our validators aren't these vertically integrated monoliths that essentially operate as hedge funds that would be basically a worst case scenario for our Network it would be a direct capture opportunity for entities like Goldman Sachs Citadel Robin Hood Etc who you already see moving in this direction on ethereum today right so we need to make sure that Mev extraction and the benefits of Med extraction are available to all and the last one is to distribute Mev benefits so it should not be the case that only the users or only the validators are benefiting from this concept all right let's talk about where we are today uh this is a picture from West Virginia also a very dark Forest it was cold there um so now we're kind of on the heels of the ethereum merch one of the largest most massive system upgrades we've ever seen and flashbots has been working towards decentralizing itself so before what we had was a vertically integrated Builder where it would plug directly into get itself and basically build all blocks at that point we were building upwards of 90 of Mev Laden ethereum blocks and we decided to democratize this further by splitting this role into several interfaces with many participants and this was a direct kind of attack on centralized buildings Builders sorry to let new block Builders and new entities that wanted to participate in Mev have a direct channel to connect rather than needing a high upstart kind of Legally heavy world the way we see in Trad five people which I consider highly sub-optimal so what do I mean by decentralization so this this picture is actually a perfect example of it what we need to do to decentralize is build many many parties with many many utility functions that work on the system together and that cooperate and these parties need to have meaningfully economically distributed power so that's what we're working on after the merge the adoption of this system has currently reached about 56 percent of all uh all uh kind of ethereum blocks and flashbots dominance currently on this system is at 81 it's a number we're kind of actively looking at here and you can see that you get a you get a quite substantial uh validator payment Boost from running this system so generally up to like 300 percent of the fees you'd make otherwise but often spiking as high as even 80th in some blocks um okay so that's great Phil but how is that Illuminating how are we doing today on these three goals illuminate democratize this tribute and and what are we doing here so the first thing we're doing at flashbots is we're aggressively committed to open data we believe open data is the only way to escape centralization and get to a decentralized fair Universe um in that regard we've been pioneering much of the data used by a lot of the ecosystem on Mev it's very hard to read an Mev article without seeing flashbots data quoted therein and we provide open data on both public goods blockchain transactions that do not flow through us as well as transactions flowing through our node not only are we a leader in this space ourselves but we also have inspired many other parties working in the Mev space to start by releasing transparency dashboards which was Unthinkable three years ago so several other companies that are doing this include Western gate jump skip zero Mev and much more inspired by the illumination culture of our Explorer and we're taking this past the merge with Rich public data from all the centralized infrastructure we're running as well as dashboards where people can see how this infrastructure is kind of progressing and we're going to continue this culture of open data and illumination through this talk through proof of stake and through any future we're in one last thing I want to say and this is the biggest font I used in the entire slide so this is important you cannot illuminate without research flashbots is committed to doing research as a first class citizen in its activities and having a dual research and development engine you can see that in Devcon here you can see the representation of flashbots researchers both in the audience and the number of talks they've provided I recommend you know looking at the schedule that we've listed on our Forum with several amazing talks there and it's extremely hard to look at an Mev event or an Mev article or do Mev research without using this public goods research that we've been doing all right Phil that's great you guys are Illuminating what about democratization um so democratization is extremely important to me that means that every user has to have equal access to the system uh that we are building here of Med and on that perspective much like my friend little frog I believe we're a Long Way From Home um so I want to address kind of the elephant in the room this is one of the memes I've heard a lot at the hallway track of this uh conference which is ofac so we run a lot of centralized infrastructure in our systems today that is not the long-term plan at all but today we do um and we do kind of comply with U.S regulations on ofac which has become a meme so this threshold actually crossed 51 today what does this mean this kind of shows two things number one we've been like very successful in our mission to democratize Mev almost too successful um we've almost grown too quickly to outpace and build these competitive ecosystems we're striving towards so the next thing we need to do is ensure as much Global cooperation on these systems and as much diversity of participation with different utility functions as we can if you look at what the ethereum blockchain looks like today this is a picture from last night of ofac compatible blocks you can kind of get a scope of the situation so the reality is today there are not many uh transactions that are actually under these regulations as well as you have about half of blocks complying with them what this means is you may generally have to wait 15 to 30 seconds longer for the inclusion of a sanctioned transaction this is not the same as a 51 attack on eth because it doesn't operate at the consensus layer that being said it is concerning right if this number gets closer to the full proportion of eth block power that would be kind of a upsetting for the ability of a lot of uh parties to get transactions included and also for ethereum to operate as a system um and as a foundation um so how do we get out of this and make sure that doesn't happen well there's one thing from me as flashbots that I'm going to say and then I'm going to go into really how do we get out of this on like a technical level so what I have to say as flashbots is we do not intend to impose our utility functions or our legal risk analyzes on the ethereum network full stop that stands against everything I believe in it stands against the last seven years of my participation in this ecosystem in the last 10 years of my participation in cryptocurrency in general I'm here for censorship resistance everyone who knows me knows that and I I've also researched this issue you know long before ofax so how do we get out of here we believe one key tool is open source so open sourcing as much of our infrastructure as possible is the only way we get out of this centralized Builder morass right we need to make sure that people can easily build this technology that the barriers to entry are low and almost non-existent if we want to have a diversity of participants A diversity of competition and meaningfully economically decentralized power in the systems we're building um so this is something we're actively working towards here so this first graph is an adoption graph you can see on the bottom basically the adoption in purple of the Mev boost system on each blocks and it's steadily increasing an adoption adoption as we reach 50 but if you look at who's actually building these blocks where that bright purple bars flashbots here you can see a number of new uh industry players are coming in to uh building blocks and as well as relaying them we have several relays as I showed you on a previous slide um and this is to us key to democratization so in our opinion the relay is not a piece of software that will exist in two or three years it will be replaced by PBS or more sophisticated kind of interfaces on the other hand the Builder is extremely concerning to avoid centralization in because of the entrenched incentives in that level of the stack so how do we avoid centralization open sourcing is one way supporting our competition is another and a third way is making sure we Lobby aggressively the entire ecosystem them to avoid entrenching centralized choices like private or exclusive order flow into the way they do business because these will destroy the system that we love as a whole um okay Phil so how do we get out of here well like any Forest when you're in the middle of a forest and it's dark the only way out is through so come with me on a journey and let me take you through uh where we are today so the first thing we're doing is on the left we're supporting not only Paradigm as our partners but many others who are asking these hard social and legal questions about the base layer about validation about how this impacts everything we're building we're supporting them as much as we can with discussions with engagement and and in many other ways the other thing is on the top right you can see part of a tweet storm of mine where I talk about how to actually achieve censorship resistance and neutrality through decentralization through Geographic distributions of the preferences of different utility functions um I don't think you can pressure any one validator to be decentralized and I think that will ultimately make you more centralized if you knock on coinbase's door and you say guys you have to shut down now or you have to like mine transactions that will get your public company sanctioned by its relevant authorities that's not how you build a maximally robust system that's how you push your system to the edges this is Mev for the next trillion we're trying to go to the whole world the entire Financial value of the entire world here so we are absolutely trying to go beyond the preferences and utility functions of any single player um the other thing we're doing is these are research posts you can read from vitalik and our team that we've been engaging on for a while on how do we bring back the status quo of proof of work style censorship resistance where the validators have Agency on choosing only builders that are not censoring while maintaining the revenue that they can see from Mev optimization so we don't want to make validators choose Mev optimization or censoring we want them to be on whatever point on that trade-off point they want to be at and we want to incubate as many points on this graph as we can and how do we do that we do that through research again research is absolutely key and we cannot get out without it alrighty so much like tree roots the last step is to distribute this Mev to our entire Community organism in this room so here is actually the the part we've done the least work on but the part we're really going to focus on next so we do have this product called flashbots protect which you can plug into your metamask and and essentially get the benefits of private Mev auctions and and extend these to all normal you know retail kind of users of blockchain so that you don't need to be a sophisticated party to access the benefits of what we're building at flashbots but we have a much much more richer set of features to come on this front and I'm going to talk about that next the bottom line with distribute is we've been too slow like I'm not going to lie with you we must do more here and I think the other two have kind of Taken priority but it's time to kind of make sure we really give users the benefits of this Mev so my guess is in a year people are going to be happy to be sandwiched because they're going to be saving so much money on their transactions so don't call it a sandwich attack call it a sandwich and let's make sure it doesn't lead to a centralized Builder world all right let's talk more about walking out of this Forest over here so where are we going so this is how I see the the Mev Marketplace as a user validator Supply demand optimization problem where the user wants to minimize the fees plus Mev basically the rent it's offering to the system and the validator wants to maximize this basically the Commodities offering to resolve this potential Financial energy of our our universe into a single collapse discrete state um so what do we need to do in this market we need to make it more private privacy is the key here you can't have freedom without privacy we need it to be more decentralized economically meaningfully decentralized we need it to be more competitive geographically so one actor cannot dominate the preferences of the system we need more user tooling so users can be sophisticated on their side of the Curve we need a market that's more robust efficient and geographically diverse to me this is self-explanatory if we're not building towards these three goals we're going to fail and we don't want to have externalities on the ethereum network Corruption of the validator set changes of incentives and proof of work or any of these other kind of externalities of Mev and we want to maintain the success of flashbots in democratizing Mev to the Searcher Community already and prevent first party deals between Searchers Builders relays and other actors in the system these are best done when you communicate on a technical not a political API and that's what we're aiming to build so WTF do we do next at flashbots well we're going to decentralize the crap out of this thing that's the answer so we are here to avoid entrenching centralization at every step this is my commitment to you as long as I'm here in this community I will be working whatever the status quo is to further decentralize power in Mev in an iterative way and I expect every single person in this room to hold me to account okay now you can clap some so we're not going to end up owned by Citadel no no I'm not done sorry sorry just a little Applause um so what are we doing at flashbots this is the question every Community member asks me and today I'm going to answer it for you and please kind of follow up with me and start the conversation um we're building a project called codename Suave it's something we've been working on for kind of the last uh almost a year now and that we're going to be releasing iteratively to the community and building towards further it is not an end state but an initial state to start the conversation about how we decentralize this existing ecosystem that flashbots has built to all of our friends all of our competitors and all the other projects in the space so what is suave Suave is an Mev aware privacy first encrypted mempool for users and wallets so Suave will make the maximum leverage of a user's economic value to force the system to provide them fairness essentially and vice versa as a negotiation tactic in this market it features Progressive decentralization so along with the iterative steps on our centralized infrastructure that we're going to take towards Suave we're also going to have a very clear decentralized roadmap that we expect you again to keep us to account on and for our friends at roll ups l2s you know any other whatever you want to call them side chains multi-chain we're going to give those uh actors a turnkey decentralized block builder for both their validators to maximize their revenue and for their users to maximize the output of their economic transactions without entrenching further centralization into the roll-up or into the uh other chain so this is very very important cooperation without centralization is what we're doing here um I'll give you some more keywords about what we're building and spend a little bit of time kind of ranting about each one of these so first is a fully decentralized block Builder we stand against centralization in the block building market and I know that may seem inconsistent with our previous views but it is my belief that the only way to achieve decentralization is to front run the Mev crisis and credibly decentralize every modular component of it this is going to be a fully open source system that's going to be developed in the open so starting in about a week we'll start releasing information specs possibly even prototypes and code we'll see two weeks TM right like for for users to play with and we want you to come discuss with us that's what decentralized means if you consider yourself a competitor of us we want you to come to the table and we want to build this together because we really believe truly that the best outcome for the space is if we're all doing this together rather than fighting each other in zero-sum games um it's going to be ethnative so that means aligned with the eth validator set and intended not to corrupt the validator set of ethereum or impose things like undo token incentives or other centralization risks on the evm layer and it's going to be fully evm compatible to kind of bring the benefits of all these evm chains and their interconnectivity to Mev we're going to provide optimal user execution that harnesses Mev so we're going to use Mev as this decentralized engine in the long term to make sure the users get really the best execution on their trades in a way that's really going to make tradfy look embarrassing very shortly in my guess um we're going to offer full compatibility with flashbots today so many of you may search on flashbots May relay blacks blocks to flashbots may do whatever um and we want to have full compatibility with that system going forward um we want cross slash multi-chain support so this one is kind of self-explanatory I mean everyone asks us are you going cross-chain are you going multi-chain come on what do you guys think of course like um yes but also ethnative and etherlined we think this is the key combination for these systems in the future so they serve the whole world not just one area or one set of clients or people um last thing is we're going to maximize competition and Geographic diversity so this is the most important point that I kind of wanna everyone to leave today with is we don't get out of the Dark Forest unless we have competition and Geographic diversity and unless both of those are really meaningful so we can't build systems Solana that uh for example privilege certain economic zones or require you to have low latency to an existing set of infrastructures because then we lose out on the benefit of these Global utility functions and the amazing cooperation that these utility functions enable so every step we're going to take is going to be intended to maximize this competition we're going to enable open order flow for ethereum's future what is open order flow open order flow means no first party deals between wallets Builders and or validators because we believe that these first party deals in tradfi have led users to have absolutely horrible execution and have entrenched extremely predatory rent extractors rent extractors if you will and the last thing is we're going to have programmable privacy so how do you achieve all this how do you give users back their bargaining power they need to have control over what information they're giving and that only comes through privacy it's it's one tool that we need to get out of the situation we're in although it's not quite enough by itself uh for reasons that will become you know clear over time so this to me is the Genesis of a new phase of Mev a new Cooperative positive sum phase of Mev to get us out of this zero-sum negative centralizing uh ecosystem that we're headed towards even though we have avoided vertical integration we now need to avoid Builder centralization so that will be the next job of flashbots I want you all to help please please please please please please please please every person in this room let's you know all these photos are from my hikes and when you're on a hike the best thing you can do is get to the top because then it's all downhill from there it's all nice and easy the Cool Breeze is Flowing on your back so I want to hike with you all we're going to have to climb the mountain first I'm sorry it's not going to be easy but we're going to do it we're here for years and years to do this together especially if you're a user a wallet or a roll-up we want to be talking to you now about centralization in your system and the rest of the stack we're hosting a round table on this later today so please reach out with an application if you're interested in that lastly please check out our Forum where we make all these discussions and come troll the crap out of us about ofac centralization competition unfairness you just Hammer us you know please please so we really want you to participate in this because you can't meaningfully diversify power without diversifying participation so we look forward to talking to you all and hopefully this makes you feel a little better about us not being like the evil Goldman sachsborg that censors us all thank you that's awesome we have time for one or two questions make them spicy yeah there is another there is a question here one and two hey um thanks Phil great talk um so I think uh talking with the community recently one sort of trust issue that people have with flashbots is um you do all this great open source work and it's not quite clear what's like the end game what is the way you make this into you know something sustainable profitable for flashbots obviously there's a research Collective there's also accompanying your foundation or some sort of of entity there so can you talk you know to people about like what is flashbots the company organization trying to build and how do you see yourselves integrating with that ecosystem in a way where like others can also thrive the truthful answer and this doesn't satisfy people internally either as we don't know yet we think it's too early in this market and there are too many kind of variables and competitors to make a call without entrenching something that further provides centralization in the long term so we're intentionally avoiding that people ask like what do you pitch the VCS why do they invest in you well we pitch them like look guys you own eth we're going to solve this problem for you and like do you want your eat bags that are worth 100 x more than us to go to zero or not and yes we also pitch them that we do want to be sustainable because as a mission-driven organization if we're not reasonable and sustainable we won't be able to to continue operating so that the more specific answers I think there's three things we still need to do at flashbots and they were all on that slide so one of them is to decentralize ourselves completely and meaningfully and economically one of them is to enable benefit to be redistributed to users much more efficiently than it is today and the third one is to enable support for any zone or trust domain in the world that wants to use flashbots without harming the centralization of ethereum those goal are still open research questions and once we've answered that we'll look into to being sustainable and reasonable and monetizing I realize it's not a satisfying answer but personally I would rather die right now than entrench something shitty so it's kind of what we're going to be doing we're also going to announce much more about this in the next month or two because I understand this is a question people have it's a question people have internally as well so totally reasonable and totally understood hi um so I was wondering how do you think can small Builders become competitive with the big ones uh because it does seem that order flow is a very strong centralizing force right and if you just have more orders you can build more profitable blocks so this is what decentralizing the Builder role is about in the future I don't think there will be such a thing as a monolithic Builder that builds a whole block that's kind of the future we're working away from what we want to build in the future is much closer to a network of Searchers that eventually chaotically kind of produce this block hash output and in that case any economically meaningful information that you have in any possible strategy in any way can be expressed into the system without kind of ruining its decentralization properties so I agree with you open order flow oh sorry closed order flow does make this whole thing like much more centralizing that's why we want to get rid of it and that's why we want to move into systems where any Builder no matter how big or small can access the order flow of the biggest parties in the space you know metamask coinbase whatever else like that would be how you get out of that equilibrium you make the order flow Democratic as well as the Mev extraction API and that that is what we're working on so okay thank you very much Philip was an amazing and awesome thank you so much for having me