Thread by @yusufxzy

1/15 More than $4B in MEV volume has been recorded on Layer 2 networks. Transaction sequencing policies heavily influence how this value is captured. I've written about how policies such as Arbitrum's FCFS & Timeboost, Optimism's PGA, FastLane, and OEV Network impact MEV capture.

2/15 Research from @sui414 shows over $3.9B in atomic arbitrage and $400M in sandwich attack volume have occurred across major L2s such as Arbitrum, Optimism, zkSync, Scroll, and OP Stack-based rollups.

3/15 Arbitrum's current FCFS (First Come, First Serve) policy orders based on arrival and offer fast block times. However, it leads to latency races and network spam. MEV capture favors those with low-latency infrastructure co-located with the sequencer.

4/15 Without a public mempool, harmful MEV, like frontrunning and sandwich attacks, are eliminated. This is in contrast to what is seen on Ethereum Mainnet, where harmful MEV from Sandwich attacks are multiple times higher than MEV from arbitrage.

5/15 With FCFS, Searchers capture most of the MEV in opportunities they identify and act on, leaving none for regular users, projects, and the DAO. Timeboost helps capture this value by shifting the competition from pure latency to prediction models and a bidding process.

6/15 Timeboost introduces an auction for a 200ms "express lane" advantage. Auctions run every minute with 45 seconds for bidding and 15 for resolution. The minimum bid is 3 ARB or 0.001 ETH, with a limit of 5 bids per round per address.

7/15 Timeboost’s market could shape up in a couple of different ways,

As Timeboost runs ahead-of-time auctions, searchers can predict future MEV opportunities and

Additionally, MEV can be captured in real-time when they control the express lane.

Winners can resell express lane rights. This is a secondary market for express lane rights.

Express lane controllers may share lanes with others when both parties benefit more from sharing (MEV gained from sharing > MEV extracted alone)

8/15 @0xFastLane offers a 500ms advantage for winning bundles, with priority based on bid size. There's no minimum bid or deposit required. It uses a public mempool, allowing all types of MEV opportunities.

9/15 Optimism's PGA (Priority Gas Auction) is based on EIP-1559 and runs an English auction with visible bids. OP Bedrock will use a public mempool. This setup can lead to bid spamming, especially on low-fee chains

10/15 @API3DAO's OEV Network focuses on liquidations. It operates as an Arbitrum Orbit chain, auctioning oracle price update rights. They're starting with an English auction but plan to transition to a First-Price Sealed-bid Auction

11/ Auction designs heavily influence value capture and user experience. Timeboost, Optimism’s PGA, FastLane, and MEV-Boost are all down-stream auction designs where the auctioneer captures bid proceeds and from where the value flows to the validators or to the chain.

12/ OEV Network is more upstream and can relatively easily attribute extracted MEV back to order flow originators like lending protocols. Up-stream mechanisms require individual protocol integrations, unlike down-stream mechanisms that have a network-wide usage.

13/15 L2s must balance MEV capture with user protection, maintain network efficiency, align incentives between chain/protocols/users, and adapt their sequencing policy to market conditions and potential attack vectors.

14/15 Sharing extracted value with the originators of order flow, i.e., users and protocols, should be an essential consideration for most of these designs.

15/15 Dive into the full report here: members.delphidigital.io/reports/transa…

For better clarity on what MEV volume is,

In a USDT-ETH trade selling 2 ETH, price on DEX is $3000, price on CEX is $2999

MEV Profit is ~$2
MEV Volume is $6000