mevconomics.wtf
March 24, 2023
About
2023, ETHconomics meets MEVconomics. Only 6 months post the Merge, we already survived the FTX collapse and then the nationalization of the banks.
On ETH land, with withdrawals just weeks away, account abstraction is finally around the corner, optimistic relays are up and running pushing the edges of the latency game, and in-protocol proposer-builder separation (PBS) still looming on the horizon, how would these dynamics impact MEVconomics?
On MEV land, the evolution of MEV-aware dapp designs, intensified wallet competition, and the up-leveling of the RPC game along with builder innovation, shift the MEV distribution power back towards the users.
With the modular blockchain thesis playing out and the rise of middlewares and superchains, every part of the modular stack seems to be eyeing a piece of the MEV snacks. How does the rise of order flow auctions (OFA) that enables MEV distribution towards the users impact protocol economics? How can we fend off builder centralization and avoid falling into the tradfi HFT paradigm, while the MEV-boost latency game is already in full steam going from 3-digit milliseconds to single-digit milliseconds?
This is part of the .wtf series of unconference (see defi.wtf, macro.wtf, mev.wtf, reorg.wtf), where we bring back the modern resurrection of the Greek Pnyx (/nɪks/): a supportive space for open, inclusive, informed, and thoughtful exchanges of ideas, for the practice of the ancient art of asking the right questions to move beyond hype and arrive at knowledge.
Let’s co-create a treasure map, for the new Millennium Prize Problems of crypto.
Speakers
Kshitij Kulkarni
Schedule
March 24, 2023
12:00 EDT
CHAPTER 1 ⚡️ Lay of the Land of MEVconomics
12:00 EDT
State of the MEV Union
A rapid-fire overview of where we’ve gone since the Merge and where we’re headed. Looking at all aspects of the MEV supply chain including validators, builders, searchers, relays, applications, wallets, and users.
Jon Charbonneau12:20 EDT
MEV Activities Since the Merge - Strategies, Searchers and Builders during Market Panic
A peek into the 6 months of MEV activities on Ethereum since the Merge. We zoom into the MEV market dynamics on the day of FTX collapse on Nov 9, 2022 and SVB bank run on Mar 11, 2023.
Elaine Hu12:40 EDT
Information is the New Money
In this talk, we explore the concept of privacy and explain how private information can by itself form the basis of money. We explore existing ETH monetary theses, positing a new hypothesis that the combination of privacy and commitments allows for a new form of financial expression that is even more valuable than previous forms of money. We provide intuition for the thesis that decentralized privacy is far more economically valuable than centralized privacy, and can form the basis of a more efficient financial system for users while underpinning the bull case for all cryptocurrency.
Phil Daian13:00 EDT
the Ethereum protocol’s perspective
Robust protocol economics is critical to Ethereum being able to serve its role as a stable blockchain that reliably operates as expected and can resist attempts to censor or reverse transactions. But protocol economics can change in complicated ways, both because of changes to the protocol and because of changes in the ecosystem and application landscape. This talk will go into what some of those changes have been in the past and may be in the future.
Vitalik Buterin13:20 EDT
Wait it’s all PBS? Always have been.
Existing decentralization roadmaps for L2s only look at decentralizing the proposer, ignoring the important role of the block builder for decentralization, revenue, and user guarantees.
Hasu13:40 EDT
ETHconomics Meets MEVconomics
what does it mean for Ethereum to be MEV resilient? What are future-proof solutions to MEV-induced problems? What are the main constraints for in-protocol vs out-of protocol solutions? We discuss these with an eye on future/potential protocol improvements and how these may impact the MEV ecosystem.
Davide Crapis
Barnabé MonnotJustin Drake14:20 EDT
CHAPTER 2 ⚡️ Lay of the Layers in MEVconomics
14:20 EDT
MEVeconomics in L2 - A Closer Look at the Sequencer's Role and MEV
We look at MEV through the lens of a Sequencer's ordering policy. Unlike layer-1 blockchains, the Sequencer has ample time to extract MEV and in nearly all rollups there is only one Sequencer who is primed position to do it. How they decide to pick and order the pending transactions impacts how searchers can find MEV, the type of MEV available to searchers, and ultimately the user experience.
Patrick McCorry14:35 EDT
MEVconomics for Modular Blockchain Stacks
MEV across a vertical stack instead of the more well-known horizontal cross-chain MEV. Several case studies and proposals for leader selection protocols will be summarized.
John Adler14:50 EDT
The MEVconomics of bridging
Using partially ordered transactions to mitigate cross-chain MEV.
James Prestwich15:05 EDT
Mycelial Partnerships in the Dark Forest
1) event driven actions, 2) partial block auctions, 3) threshold cryptography, 4) long term block auctions, as well as potential risks to the mev ecosystem such as 1) censorship markets, 2) cross domain mev and 3) centralization risks.
Sreeram Kannan15:20 EDT
MEVconomic Security in Liquid and Restaking Protocols
Restaking and LSTs provide capital efficiency and extend security to new applications, but what are the risks? Will they inevitably exert centralizing pressures on Ethereum validators? Will they build up leverage on the root of economic security, and possibly become “too big to fail”? Are LSTs just undercollateralized lending?
Jon CharbonneauSreeram KannanHasuTarun ChitraBen Fisch16:00 EDT
CHAPTER 3 ⚡️ A MEVconomics View of Distribution Mechanisms
16:00 EDT
Ordering So Fair It Ain't Fair Ordering
Fair ordering is a lie! While most fair ordering protocols were created with good intentions, they have some sneaky little side effects that render them ineffective at best and security via obscurity at worst.
The key issue with these mechanisms is that they are agnostic to the economic payoffs of the users who utilize them. In this talk, we will discuss at a high level a research program I have been working on to prove impossibility results for fair ordering. We will discuss how to construct DeFi protocols in which a given fair ordering protocol ensures worse social welfare for protocol users. We’ll skip the hard math for this audience (but will have some teasers) but give the highest level game theoretic ideas for how such a thing can happen. We believe this should be the nail in the coffin for using payoff agnostic fair ordering like Themis or Aequitas in practice — they effectively create preference relations on which protocols achieve high social welfare and which ones don’t. We’ll end with some ideas for how to make things more equitable, but in a non-payoff agnostic manner.
Tarun Chitra16:15 EDT
It’s My MEV and I Want It Now
users and their order flow. In this talk, I explore how each player is doing this (with specific examples), why they’re doing this, the risks of this integration and competition, how this will change the dynamics of the MEV market, and what we can do in order to encourage the MEV world we want to live in.
Tom Schmidt16:30 EDT
Auctions, privacy and a cat
The adoption of blockchain technology has dramatically accelerated the use of cryptographic primitives in economic design. Auctions are a well studied field in economics, but their intersection with cryptographic tools has not been studied exhaustively to say the least. This talk aims to highlight some ideas made possible by the combination of these fields. In particular, how changes to the informational structure of a game can meaningfully influence emergent dynamics.
Quintus Kilbourn16:45 EDT
Quantification of MEV sharing design (OFAs)
MEV infra space is moving towards the designs with user redistribution in mind, yet we don't know how much amount exactly can be reshared as kickback for the order flow originator, from today's MEV revenue split. We will go thru some stats to understand 1) how the values are distributed across roles today, 2) from where in the OFA flow user kickback can be extracted, and 3) how much amount it will be. We will use 2 methodologies to quantify the potential upperbound, to help inform the opportunity sizing that exist for order flow owners.
Danning Sui17:00 EDT
One Model to Rule Them All
1) Staking and lending yields compete 2) Derivatives can be unsafe 3) MEV redistribution can help improve the underlying security of the chain and 4) Reward inflation requirements can be reduced with redistribution. Along the way, we will consider MEV redistribution as a broader class of incentive mechanisms to secure blockchains.
Kshitij Kulkarni17:20 EDT
Speedrunning Finance. Latency in MEV
Speedrunning all of financial history from scratch allows you to make different, interesting, sometimes better choices about what to do about the lessons.” - Matt Levine
This panel discusses…Latency, who is it good for? Users want low latency but that want can create deleterious conditions. We’ll start with illuminating and quantifying the impact of latency games on users cost of liquidity. Then focus on the long game. Do latency games create market instability? Do they create a tax on users? A tax on the system? What’s the difference between absolute speed and relative speed games? What solutions have been tried, which worked and which failed? Wat do about latency in our systems?
Michael Jordan
Eric BudishTarun ChitraPhil Daian