Original title: "Value Flows in the MEV Ecosystem"
Original source: Multicoin Capital
Original compilation: Kxp, BlockBeats
Original compilation: Kxp, BlockBeats
Before reading this article, please make sure you have some understanding of MEV. For a primer on the value extractable by miners and the market structure between Seekers and Block Producers, seeTokenizing MEVThis article.
Miner Extractable Value (MEV) is an integral foundation for a permissionless decentralized system.
The market structure of MEV is variable and complex, but in a proof-of-work network (such as Ethereum 1.0), only miners and searchers can profit from it.
Previously, MEV has maintained a balance between these two players. Seekers are responsible for technically optimizing transactions and weighing the revenue share for miners. What we need to pay attention to is that both the profit paid to miners and the revenue extracted by searchers belong to MEV.
first level title
Integrated and Modular MEV Infrastructure
In the proof-of-stake network, MEV has four important roles:
Staking pool- The staking pool aggregates L1 Tokens from individual stakers and delegates them to validators participating in block production (eg, Lido, Jito, Marinade, and Coinbase)
searcher- Bots or individuals who identify and explore on-chain monetization opportunities (e.g. transaction signers on Solana and Ethereum dashboards)
block builderandJito Block EngineandFlashbots MEV-Boos）
Validators (block proposers)—Validators or full nodes vote in consensus with their pledges, thereby proposing a block for verification by other nodes in the network. such asStaked、Figment、Chorus One、Staking Facilitiesand other services are running block proposers.
In this ecosystem, all work needs to be carried out around the pledge pool, because validators need pledge to produce blocks and maximize their income, and the market for pledge is also quite competitive.
In order to expand the size of the staking pool, the platform must offer more attractive rates of return to the stakers. Previously, staking rewards were a fixed value calculated based on protocol emissions, and validators could only seek lower fees. Today, with the increase of on-chain activity, the differentiation between staking pools is becoming more and more obvious, including:
1. Base emissions from production blocks
2. Fees
3. Withdrawal of MEV shares
In order to increase the return rate of the pledge pool, the platform must entrust the verifiers with the most profitable blocks built, and ensure that the pledgers can share the rewards of their blocks. If validators are inefficient at withdrawing MEV, or choose to keep their withdrawn MEV for themselves, the staking pool needs to quickly reallocate their stake elsewhere.
Seekers are constantly looking for on-chain opportunities, or to interface with decentralized order flow marketplaces such as DFlow. When Seekers spot MEV opportunities they want to win, they use relayers backed by block builders to submit their carefully optimized transactions. They also tip the validators (a portion of the expected profit), increasing their success rate. At the same time, these tips also need to be shared with the staking pool so that they can reward stakers competitively.
Therefore, a staking pool maximizes staker revenue by requiring validators to obtain blocks from the most efficient block builders. Block builders are also more willing to produce blocks with higher profitability, because they want more validators to use these blocks, thereby increasing their own success rate and potential MEV yield.
The major staking pools in the proof-of-stake network will provide liquid staking derivatives (such as Jito's jitoSOL, Lido's stETH, and Coinbase's cbETH), these Tokens can claim the original staking assets 1:1 and accumulate all staking rewards. The purpose of setting up pledge derivatives is that it can improve capital efficiency and optimize pledge distribution.
Only recently have players in these ecosystems started working together as modular MEV infrastructure providers. However, as access to MEVs grows, we expect MEV infrastructure to also be integrated, further improving value capture at every touchpoint in the value chain.
Participants with Fees will charge the participants above it
Jito Labs is building the first fully integrated MEV system on Solana. We invested in it in August 2021, and now the Jito Foundation has launched its own staking pool, making its MEV infrastructure the first to have both an integrated block builder and a staking pool system.
first level title
Value Accumulation of MEV
exist
exist"Protocols Don't Capture Value, DAOs Manage Risk"In this paper, we demonstrate that state and risk management are necessary for any protocol to achieve sustainable value. The integrated MEV system can effectively manage the risks that may arise in each layer of interaction between searchers, stake pools, validators and block builders.
In terms of risk management, these types of participants will adopt different methods: pledgers will provide a higher rate of return on staking than the market; searchers will provide high-probability transaction confirmation; verifiers will provide increments for block proposals through pledge delegation benefits; while block builders will provide incremental benefits by increasing the probability of block adoption.
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