(1/26) @ethereum Roadmap: Proposer-Builder Separation
The Merge was successful, $ETH is Proof of Stake! As the era of miners closes, we find ourselves entering a new meta: the age of MEV
Your guide to existential threat facing Ethereum... and the plan to vanquish it
(2/26) @ethereum is the World Computer, a globally shared utility that exists between a network of 1,000s of computers, each running a local version of the Ethereum Virtual Machine (EVM).
Anyone can access the World Computer by submitting a transaction to the network.
twitter.com/SalomonCrypto/status/1554633476598484993
(3/26) Holistically, an @ethereum transaction is an instruction for the World Computer. Transactions are irreversible and atomic (they execute completely or they fail).
To use the World Computer, users create a transaction and sends it to the mempool.
twitter.com/SalomonCrypto/status/1568092433803808770
(4/26) The mempool is a public database of pending transactions, each with their own instructions for the World Computer.
In order to build a new block and progress the blockchain (and therefore the World Computer), @ethereum nodes select pending transactions from the mempool.
(5/26) This method has important benefits (decentralized, transparent, censorship resistant, etc) but also a critical weakness: the public nature of the mempool.
From this setup comes the existential risk of crypto: MEV.
(6/26) In November 2020, @thegostep posted "Flashbots: Frontrunning the MEV crisis" and introduced the community to Maximum Extractable Value (MEV).
In its most basic incarnation, MEV is a form of arbitrage.
twitter.com/SalomonCrypto/status/1540870370437107712
(7/26) Imagine a bot that is closely watching the mempool for pending txns. Suddenly, a pending txn with a HUGEEEE $ETH market buy appears.
The bot, knowing the pending txn will raise the price of $ETH, quickly buys $ETH, waits for the txn and then immediately sells it.
twitter.com/SalomonCrypto/status/1540870428213669888
(8/26) The result:
MEV bot - bought before a huge txn drove up the price of $ETH and sold immediately after, locking in a profit.
Whale - revealed his hand early and had to buy $ETH at a higher price because of the MEV bot.
The bot extracted value from the whale.
(9/26) This example is perhaps the most basic type of MEV; from here, things get exotic very quickly.
While MEV is a very diverse category, there is a common through line: MEV is the value that can be captured by a participant with privileged knowledge or access to a system.
twitter.com/SalomonCrypto/status/1537908651112878085
(10/26) In our example, that includes the detailed knowledge of the mempool and the ability to manipulate the order of transactions. The bot uses these levers to extract value.
But what if you didn't need these indirect levers? What if you could just build the block yourself?
(11/26) An @ethereum node is a computer responsible for operating the World Computer and progressing the blockchain. (Under Proof of Stake) the blockchain progresses when a block proposer (selected randomly) submits a new block to the network
First they need to build that block
(12/26) The naive approach to block building is to scan the mempool for the txns with the highest priority fees. Each txn is picked in descending order until the block is filled up.
A less naive node might notice some opportunities as its building.
(13/26) Remember our huge $ETH buy? Maybe no one noticed and so as it's building a block, the node can slip in a txn to capture the arbitrage.
Or maybe some did notice and submitted the arbitrage txn and the node might just decide to ignore that txn and put their own in.
(14/26) Nodes do not have to respect the mempool when they are building blocks; each one is able to select txns as it sees fit.
Some nodes are going to build baseline-blocks, other nodes are going to play more aggressive.
A few will be WAYYY better than anyone else.
(15/26) Consider the implications of being better at building blocks. Lets imagine 2 nodes: naive builder (NB) and MEV builder (MB)
- NB and MB will have the same costs & opportunity to build blocks
- MB will earn more yield than NB
- MB's stake will grow faster than NB's stake
(16/26) As of yesterday, @ethereum is a Proof of Stake chain.
What does it mean to have a Proof of Stake chain where some nodes (can) earn more than others?
Centralization is inevitable.
twitter.com/SalomonCrypto/status/1570307219027283969
(17/26) Centralization is the anathema of @ethereum. The World Computer is built on a single core principle: decentralization.
From decentralization flows credible neutrality.
From credible neutrality comes global dominance.
twitter.com/SalomonCrypto/status/1559920665477595137
(18/26) By its very nature, block building will always reward those with the most resources. Faster connections, better algorithms and smarter people will always outcompete vanilla builders.
Rather than leveling the playing field, we just send the pros the major leagues.
(19/26) This is what an @ethereum block looks like. At the highest level, it can be thought of as having 3 sections: admin, consensus and execution.
A node must propose a new block with all 3 parts... but there's no reason the node must build the whole block.
twitter.com/SalomonCrypto/status/1568365818509139968
(20/26) The team at Flashbots gave us a vision: highly specialized block builders. Each one will be a well resourced expert, finding MEV as aggressively as possible
They will compete to build the most attractive blocks in the hopes that the next proposing node picks their bundle
twitter.com/SalomonCrypto/status/1548279550664052736
(21/26) Phase 1: mev-geth, which provided a private channel for block builders to send txn bundles/blocks to nodes with upcoming proposals.
Rather than find MEV themselves, these nodes can access the channel and pick the highest profit opportunity.
twitter.com/SalomonCrypto/status/1548279805463764994
(22/26) Phase 2: mev-boost, which adapts mev-geth for Proof of Stake and extends it by creating a two sided marketplace.
Any node can access mev-boost for extra MEV yield and any block builders can submit bundles.
twitter.com/SalomonCrypto/status/1548279862611218433
(23/26) This new architecture allow has incredible benefits:
- nodes get equal access to MEV
- block builders get many more bundles/blocks
- block builders can specialize and centralize without affecting the decentralization of @ethereum
(24/26) mev-boost is a huge step towards solving the problem, but it still rests on centralization through Flashbots and some implicit trust assumptions.
Thus, the endgame of Flashbots is to fold itself directly into @ethereum. The endgame of the World Computer is Enshrined PBS.
(25/26) mev-boost is a piece of additional software that bolts PBS on top of @ethereum, but the long term plan is to enshrine it into the World Computer by building it into the core protocol specs.
twitter.com/SalomonCrypto/status/1548279891291869184
(26/26) And so, we are charting a course towards a decentralized @ethereum that has centralized block production; a cutthroat game of MEV transformed into fair access for all nodes.
This is @VitalikButerin's Ethereum Endgame.
vitalik.ca/general/2021/12/06/endgame.html