Miner Extractable Value (MEV) represents a major vulnerability for blockchain systems. Initially, blockchains included motivations for miners and other participants responsible for transaction ordering to earn through block subsidies and user fees for transaction confirmation.
However, things have evolved, and these aren’t the only ways miners earn anymore. With the advent of sophisticated contracts and protocols facilitating diverse asset exchanges on blockchains, there’s open access for anyone with the right assets to interact with these contracts. This creates an opportunity for miners to prioritize their own interactions with these protocols by manipulating transaction order.
This special access can lead miners to take advantage of complex contracts and protocols, which in turn forces a centralization trend in mining. As contracts become more intricate, their analysis becomes more demanding and costly, increasing pressure towards centralization. This scenario can severely impact the blockchain’s resistance to censorship.
One prominent example of MEV issues is on Ethereum. Given the complexity of Ethereum contracts, its network has faced significant challenges due to MEV. To tackle this, Ethereum introduced the Proposer Builder Separation (PBS) concept. This idea aims to reduce centralization by distinguishing roles between builders, who create block templates, and proposers, who select the most profitable block template. The expectation was that competition in template production could maintain security.
Reality tells another story. A small number of competitive builders dominate, and when they decide not to include certain transactions, those choices ripple through the entire network. The pervasive incentive to prioritize profit doesn’t eradicate censorship risks.
Turning to Bitcoin, the MEVpool proposal by Matt Corallo and 7d5x9 aims to adjust PBS with an eye on minimizing censorship risks. Unlike PBS where template construction is fully outsourced, MEVpool allows miners to retain control over the final block template. They can externally source transaction subsets for MEV optimization but still choose which transactions to include, offering a more nuanced solution to dealing with censorship and profit conflicts.
The MEVpool proposal requires setting up orderbook relays in marketplaces where MEV extractors can post their transactions and fees for inclusion by miners. Extractors can specify conditions, like needing to be the first to interact with a contract. These orders can be sealed or unsealed; sealed transactions are only revealed to miners post-mining the block to ensure their validity.
Two methods can facilitate this: pure trust in third-party relays or Trusted Execution Environments (TEE). The first method involves miners contacting relays for transactional information and constructing a block from this. Upon mining success, relays broadcast sealed transactions and release payments to miners, placing essential trust in the relay’s integrity.
With TEEs, miners run custom templates to handle encrypted sealed bids. This setup ensures miners can broadcast fully validated blocks after decrypting the transactions from TEEs upon successfully mining. In this case, the security of the TEE is crucial for maintaining trust.
In the end, as is evident on Ethereum with PBS, the MEVpool might not completely resolve the challenges posed by MEV. Dominant builders create highly optimized templates, often accepting transactions outside public mempools. MEVpool’s market relays, despite their varied designs, pose challenges regarding user fee data accessibility, potentially disadvantaging users and affecting miners’ choices.
Even though MEVpool provides miners with autonomous transaction selection outside MEV-optimized sets, it leaves room for manipulation by large, private marketplaces that could leverage their unique data position against miners in the absence of competitive alternatives.
Ultimately, the proposal offers not a complete solution, but perhaps a mitigation against the most adverse effects of MEV. While centralization risks persist, MEVpool addresses some concerns, providing a temporary or partial relief rather than a cure.
This analysis was provided by Shinobi. The views expressed are personal and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
