One of the most significant risk factors for blockchain-based systems is the concept known as Miner Extractable Value (MEV). Initially, blockchain’s design allowed miners to earn revenue from the initial block subsidy released into circulation per block and from fees paid by users to validate their transactions. However, these two sources are no longer the only income avenues that trigger miners’ actions.

Nowadays, more complex contracts and protocols have been developed to facilitate the creation and exchange of various assets hosted on a blockchain. By design, these contracts are accessible to anyone who has a requisite asset and can meet the exchange conditions specified. In this scenario, any user can single-handedly engage with the contract or protocol to trade assets.

Miners, who decide what transactions are accepted into blocks, are given preferential access to interact with these contracts and protocols first. The complexity involved in successfully extracting value from various contracts or protocols can present a serious problem. The more intricate these contracts and protocols become, the more centralization pressure it puts on mining. To collect all this value, miners need to analyze the current state of these contracts, which can be complex and costly, further increasing centralization pressure. This is detrimental to censorship resistance.

Separation of Proposer and Builder

Ethereum is a classic example of MEV gone astray. The complexity of contracts deployed on Ethereum has led to a vast amount of MEV created on the chain. This has led to the development of various solutions, such as the Proposer Builder Separation (PBS). PBS aims to reduce the centralization risks of MEV by dividing the roles involved in blockchain progression. Builders assemble transactions into blocks, and Proposers choose the most profitable block templates. Theoretically, this should keep things secure as long as there is a competitive market for template production.

However, in reality, only a few competitive Builders exist. When these profitable template producers decide to censor something, it is effectively censored by every miner that chooses to use those profitable block templates. As it is economically illogical not to choose the most profitable template, this solution does not genuinely resolve the risk of censorship.

Introduction of MEVpool

The MEVpool proposal by Matt Corallo and 7d5x9 is an attempt to adjust the PBS proposal for Bitcoin to actually mitigate the risk of censorship. Unlike PBS, where template construction is entirely outsourced, in MEVpool, miners still construct the final block template themselves. They simply outsource the selection of transactions that optimize MEV extraction, including those in block templates they construct themselves. This mechanism aims to allow miners to maximize their MEV cut while still maintaining the freedom to include any transactions they want.

The MEVpool proposal requires the establishment of marketplace relays to host orderbooks, where MEV extractors can post their proposed transactions and the fees they will pay to miners for including them in a block. These marketplaces would also support sealed or unsealed orders, where sealed requests are orders where the transaction proposed isn’t revealed to the miner until they mine the block.

The marketplace relays serve two purposes. Firstly, they can act as a trusted third party, where MEV extractors submit their transactions, and miners connect to these relays. Secondly, a Trusted Execution Environment (TEE) can be used to handle the construction of block templates by miners, as well as handling the encrypted Sealed bids.

Outcome

The outcome of this is likely to be similar to PBS on Ethereum. There are only a few large Builders constructing MEV optimized templates for miners, and the MEVpool marketplace relays, both versions, are trusted to publicly broadcast fee information about orders submitted to them. This could affect regular users if large marketplaces withhold fee data and attract transaction submissions not sent elsewhere.

While it does allow miners the freedom to select their transactions outside of the MEV optimized subgroup, it still provides room for large marketplaces receiving private transaction submissions to leverage their position. These marketplaces could force miners into censoring other transactions by withholding their orderbook data if no competitor had access to the same information.

In conclusion, while this is not a complete solution to the issue of MEV, it does provide some mitigation of its worst effects. It does not entirely remove the centralization risks and pressures, but it does alleviate them in certain areas.

This article was written by Shinobi. The views and opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.