Thread by @ChainLinkGod

1/ "MEV is theft"

I see two approaches being taken to handle the Miner Extractable Value (MEV) problem

The first is democratizing access to MEV while the second is the prevention of MEV

Let's talk about some of the naunces at play here 👇

2/ MEV encapsulates many different types of activity into a broad bucket

There is beneficial / neutral MEV in the form of DEX arbitrage and liquidations

Then there is negative / harmful MEV in the form of front-running and censorship

3/ Neutral / beneficial MEV provides users optimal exchange rates on DEXs and ensures undercollateralized loans get liquidated protecting the DeFi ecosystem

Negative / harmful MEV leads to greater slippage on DEX trades, higher gas fees, and the censorship of transactions

4/ The fact that MEV is such a large category of activity is what causes most of the disagreements about how it should be handled imo

Those in the camp of wanting to democratize MEV see it as an inevitable unavoidable fact of life, so might as well make it equitable/equal access

5/ This is where flashbots and MEV auctions come into play

Flashbots allow users to pay miners directly to submit bundles of transactions

MEV auctions (MEVA) auction off the right of transaction ordering in an entire block to the highest bidder

6/ The primary advantage from MEV democratization is that it helps prevent gas price auction wars

This is where bots today continuously raise the transaction fee they're willing to pay to get their transaction processed first to extract the MEV, raising fees for all

7/ Flashbots and MEV Auctions prevent on-chain gas price auction wars similarly

With Flashbots it's dependent on who bribes the miner more off-chain, with MEV Auctions, it's who bribes the network more

This lowers network congestion and lowers the gas costs for users

8/ However an important point is that these solutions do not prevent MEV from occuring, it's not designed to

These approaches make MEV much more common, because it's purposely made more accessible

This is fine if you're under the assumption MEV is inevitable, but is it?

9/ The other approach I see being taken is to prevent MEV in the first place through solutions such as @Chainlink's Fair Sequencing Services

This approach not only aims to mitigate gas price auction wars but at the same time prevent negative/harmful MEV

10/ In FSS, the creation of blocks is separated from the ordering of transactions in those blocks by delegating transaction ordering to a Decentralized Oracle Network (DON)

These DONs use a preconceived notion of fairness, such as first in the mempool, to order transactions

11/ This can be combined with the encryption of transactions, so nodes within a DON have no context regarding the types of transactions they are ordering

The transactions are only decrypted after ordering has occurred

12/ Through such solutions, neutral/beneficial MEV can still happen such as arbitrage and liquidations without on-chain gas price auction wars, while negative / harmful MEV like front-running can be completely eliminated

13/ With FSS, censorship can be prevented by encryption and also allowing transactions to be submitted on-chain (instead of to the DON) but are required to experience a speed bump, which prevents such transactions from frontrunning fairly ordered transactions

14/ This thread is obviously an oversimplification of a very complicated issue, however suffice to say I am not in the camp of thinking MEV is an unavoidable issue

Admitting defeat now will just result in Ethereum becoming no different than the traditional financial system today

15/ I would like to make clear, the democratization of neutral / beneficial MEV is complimentary with preventing malicious / harmful MEV

I believe the decentralization of transaction ordering is the solution that can achieve both goals, which FSS follows closely

16/ If you're interested in more information here are some good resources on MEV

coindesk.com/ethereum-mev-f…

coindesk.com/miners-front-r…

blog.chain.link/chainlink-fair…

ethresear.ch/t/mev-auctions…

medium.com/offchainlabs/m…

medium.com/offchainlabs/f…