Thread by @0xcacti

I want to write a quick thread about what JIT is and cover who the absolute king of JIT. Context: I have been doing JIT for a little while now. I am not making any money, I am using it as a way to get good at integrating with Uniswap v3.

So what is JIT. JIT stands for Just in Time liquidity, and it is a type of MEV. In this type of MEV, a searcher provides liquidity for one block and removes it, collecting transaction fees along the way.

How does this work? Well here is one way. The searcher looks at the mempool for monster swaps on Uniswap v3. Usually, they are looking for swaps on high fee tier pools (30 basis points say), but it can work on low fee tiers as well.

Once the searcher sees this swap, they will quickly create a bundle that mints a liquidity position, provide a ton of liquidity at the price of the swap, contains the Uniswap user's swap, collects the liquidity along with the fees obtained by market making, and burns the position

There is a lot that goes into this. First of all, you need to know how to work with Uniswap V3 at all ... which is tricky. Second, you need to be searching the mempool in all the right ways. Next, you need to know how to provide liquidity at spot price (tick).

Oh, and I forgot to mention. You need a massive amount of capital with which to market make.

The searcher also needs to be fairly risk tolerant on the tokens they hold. Let's say the searcher is market making for RBN/WETH. Let's further suppose an og ribbonatti elitist wants to dump their RBN. When this searcher provides WETH for the trade, they end up holding RBN.

Okay, so that is what JIT is. To over-simplify for anyone out there with a tradfi mind, JIT is when a rich MEV femboy turns Uniswap into an RFQ orderbook.

Before we continue on, I think this is a good point to say that I am fairly new to this, and I am trying to make this a thread that is simple-ish to understand. @0xalpharush pls correct me where I am wrong, you are post based takes on orderbooks and JIT.

Anyway, so with my bets heged. Now I want to talk about some of the ethics / practical considerations around JIT.

To be clear, there is definitely some good to JIT. When a user's swap is bundled into a JIT bundle, it not only gives traders better price execution but also protects them from more harmful sandwich attacks.

These benefits, however, come at the expense of the passive LPs. Anyone providing liquidity over a broad range will see most of their LP rewards vanish. Instead, these rewards are collected by searchers taking advantage of these sophisticated market making strategies.

Moreover, only a few people will be able to compete in JIT. In the long run this will be people who have a ton of capital and are skilled in market making. This is a centralizing force on defi. If there are only a few market makers they can control who gets to trade what.

Numerous people active in flashbots like @thegostep have pointed out that in a future where there is only JIT, you need off chain oracles to get prices. This is centralized, manipulatable, and bad.

Honestly, not sure what to make of it. Writing this thread out makes me feel significantly less in favor of it. Still, some form of market making centralization feels inevitable. Hopefully, flashbots and searchers can work together to make this future as equitable as possible.

Anyway, time to talk about the king of JIT. This guy is an absolute giga chad. I call him Mr. AST because his contract starts with 0xA57 which kinda looks like ast. etherscan.io/address/0xa57b…

As you can see, he has just shy of 3 million transactions. Now, most of these are not JIT. Frankly, I have looked at them a bit, and it looks more like algo trading to me than anything else.

But every now and again, he JITs. You can spot these in his transaction list by when he calls the method 0x78e111f6. This is when you know you are in for a treat.

As a matter of fact, as I am writing this thread, Mr. AST does a JIT sandwhich. You can see it here - flashbots-explorer.marto.lol/?block=14619752

In Mr. AST's JIT transactions, he usually spends funds from the following address with a casual $101mm in it. etherscan.io/address/0x5617…

Interestingly, these funds have been variously deposited and taken out of compound several times. Not sure what is going on there.

Let's analyze his most recent JIT bundle that I linked above. First, Mr. AST adds 0 $APE and appx 9550 $ETH to a liquidity position on Uniswap V3. etherscan.io/tx/0xe5beaf8a2…

For this transaction, he pays around $60. Just a casual $30mm liquidity position.

Next he sandwiches the user swap - seen here etherscan.io/tx/0xe5beaf8a2…

Frankly, I would love an etherscan magician to help me understand what is happening here.

Finally, Mr. AST collects around 9,031 $APE and 9,504 $ETH from his position. See here, etherscan.io/tx/0x278b63966….

Summing, his coinbase transfer and tx fee, he pays around 0.17 $ETH to the miners for this transaction.

What does this mean? For a roughly $600 fee, Mr. AST is walking away with $29,450,886.48 after putting in $29,417,186.55. After fees, he is walking away with a clean $33,000 in profit.