Miner Extractable Value. This term represents one of the most substantial fundamental risk domains that exist for systems based on blockchain technology. The initial design of a blockchain included incentives for miners (or other consensus participants determining transaction sequencing) to generate profits from the initial block subsidy introduced into circulation with each block, in addition to transaction fees paid by users for confirming their transactions.
These two elements are no longer the exclusive revenue sources that motivate miners’ actions. More intricate contracts and protocols have emerged to enable the creation and exchange of various assets hosted on a blockchain. These contracts are inherently designed for open accessibility. If you possess a necessary asset and can meet the exchange criteria outlined, any user can independently engage with the contract or protocol to conduct asset exchanges.
Since miners ultimately determine which transactions are incorporated into blocks, this grants miners preferential access to “cut in line” when interacting with such contracts and protocols. This introduces a significant issue, depending on the complexity involved in successfully extracting value from diverse contracts or protocols.
This generates substantial centralization pressure on mining as these contracts and protocols grow more complex. Miners have the capacity to seize all of this value, but to do so, they must analyze the current status of these contracts. As the complexity of the contract increases, the analysis becomes more intricate and expensive, leading to heightened centralization pressure on miners.
This situation is detrimental to censorship resistance.
Proposer Builder Separation
Ethereum epitomizes the pitfalls of MEV. Due to the significant complexity of contracts deployed on Ethereum, the volume of MEV generated on that platform has been exceptionally high. Naturally, they have devised various attempted solutions in response to this challenge.
Proposer Builder Separation aimed to alleviate the centralization risks associated with MEV by establishing a distinction between the two roles involved in progressing the blockchain. Builders (block template creators) are responsible for assembling transactions into blocks, while Proposers (miners/stakers) choose from the available block templates to identify the most profitable one. The concept behind the proposal is to allow centralization to affect template producers while protecting miners/stakers from it. As long as there exists a competitive market for template production, things should remain secure.
In reality, however, this is not what transpired. The fact is that only a few competitive Builders are available, and when the most lucrative template producers opt to censor something, it is effectively censored by every miner/staker that selects those profitable block templates. Given that it is economically illogical not to choose the most profitable template, this does not genuinely resolve the risk of censorship.
MEVpool
The MEVpool proposal by Matt Corallo and 7d5x9 is an initiative to modify the PBS proposal for Bitcoin in a manner that genuinely addresses the risk of censorship.
The primary distinction between PBS and MEVpool is that in MEVpool, the outsourcing of template creation is not absolute; miners still ultimately assemble the final block template themselves. They merely delegate the process of selecting the subset of transactions that optimize MEV extraction, including those in the block templates they create. This aims to enable miners to maximize their share of MEV while retaining the freedom to include any transactions they desire, instead of facing the binary choice of accepting censorship for maximum profit or sacrificing profit to avert censorship under PBS.
The proposal necessitates establishing marketplace relays to host order books where MEV extractors can submit their proposed transactions and the fees they are willing to pay miners for inclusion in a block. They allow extractors to set the conditions under which they will compensate for transaction finalization, meaning only if they are the initial transaction to engage with a specific contract in the block. Marketplaces would also accommodate sealed or unsealed offers, where sealed requests are orders that remain undisclosed to the miner until they mine the block.
How does this function? All miners require is the hash of a transaction to include in the merkle tree to commence mining; they don’t need the complete transaction until they discover a valid block and prepare to broadcast it. However, they do need confirmation that the transaction is valid. This is the responsibility that marketplace relays must fulfill.
There are two methods they can employ to accomplish this. Firstly, the most straightforward approach is for them to act as a purely trusted intermediary. Extractors of MEV would submit their transactions to relay operators, and miners would connect to these relays. Subsequently, they would request the list of Sealed and Unsealed bids from the marketplace operator, including the hashes necessary for incorporating Sealed bids, and utilize customized software to construct the block template. Once they successfully generate a valid block header, they would transmit the block excluding the missing data to the relay.
The relay would then incorporate the complete Sealed transactions, broadcast the block independently, and then send the miner the full Sealed transactions so they could also propagate the block. Throughout this entire process, the MEV extractor’s fee would be retained in escrow by the marketplace relay and disbursed to the miner once they find a valid block.
This approach demands a considerable amount of trust in the relay, both from miners and the MEV extractors compensating them.
The second alternative involves utilizing a Trusted Execution Environment (TEE) to manage the construction of block templates on behalf of miners, as well as handling the encrypted Sealed bids. Miners would execute the custom template software and a Bitcoin node within the TEE. After miners obtain the Sealed and Unsealed bids and construct their block, the TEE would sign an attestation of the block and provide the marketplace relay with a session key.
The marketplace would encrypt the Sealed transactions and a payment transaction for the miner’s fee using the session key. After the miner discovers a valid block hash that meets the difficulty target, the TEE would decrypt the Sealed transactions, enabling them to broadcast the complete block and collect their fee from MEV extractors. In this scenario, all parties involved must trust the TEE to remain secure.
The Final Outcome
In my opinion, the ultimate outcome of this is likely to mirror that of PBS on Ethereum. Only a limited number of large Builders are engaged in constructing MEV optimized templates for miners, and they all receive transactions directly submitted outside the mempool. MEVpool marketplace relays, in both variations, are relied upon to publicly disclose fee information about orders submitted to them, allowing regular users to make accurate fee estimations. If large marketplaces managed to draw transaction submissions that were not sent elsewhere and withheld that fee information, it could negatively impact users broadly.
Moreover, while it does provide miners the freedom to select their own transactions outside the MEV optimized subgroup, it still permits substantial marketplaces receiving private transaction submissions to exploit that advantage. Such marketplaces could pressure miners into censoring other transactions by withholding their order book data from them, particularly if no competitor had access to the same information.
Ultimately, I do not regard this as a solution to the MEV problem, but rather as a temporary fix or mitigation of its most detrimental consequences. It does not entirely eliminate the risks and pressures of centralization, though it does alleviate them in certain respects.
This is a guest article by Shinobi. The views expressed are entirely their own and may not reflect those of BTC Inc or Bitcoin Magazine.