The success of The Merge and the subsequent Shapella hard fork showcased Ethereum's ability to smoothly ship significant network upgrades. However, this transition was not without its challenges and learning curves.
Over the past year, Ethereum’s journey has been punctuated by encounters with malevolent entities, unintended software anomalies, and disparities in value distribution.
As we mark the one-year anniversary of The Merge, we wanted to take a moment to review some of the significant advancements that have redefined the Ethereum ecosystem as well as their positive and negative impacts on the network, its end-users, and the critical actors in the MEV supply chain.
TL:DR several of the key lessons we learned included:
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The pursuit of maximum profits fuels centralization at the core of the network.
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Vertically integrated Searcher/Builders have proven positive economics, while credibly neutral Builders struggle to find margin and hence revenue/profitability.
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MEV-Boost Relay operations are effectively a 100% risk, 0% reward situation.
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Based on the latest in ePBS research, trusted third-party Relays at the core of the network will be a fact of life for the foreseeable future.
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Sanctions – and OFAC SDN specifically – played an unexpected role in shaping the staking and PBS landscapes.
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Promises of ‘protecting’ users from the adverse effects of MEV remain to be fully proven.
MEV-Boost and Proto-PBS
The Merge and the migration from Proof-of-Work to Proof-of-Stake was the most consequential upgrade to the Ethereum network so far.
The Merge brought
In-protocol PBS – aka enshrined PBS – was not ready at The Merge. To enable the outsourcing of block production, the Ethereum Foundation partnered with Flashbots to develop a ‘temporary’ outside-the-protocol block auction approach known as
MEV-Boost bridged the gap between Block Builders and Block Proposers – that is, the Validator who is randomly selected to be the tip of the chain and hence proposes the contents of the next block to the network.
MEV-Boost introduced net-new actors known as Relays to act as trusted intermediaries between Block Builders and Proposers. These Relays effectively serve as block auctioneers that make sure Builders are honest in their bids to Proposers, and that Proposers cannot steal the MEV bundles from Builders or Searchers.
MEV-Boost and Relays saw explosive adoption among validators thanks to the increase in block value that specialized Block Builders can generate. In the last 30 days,
Occasionally, a rare high-value block could pay out tens of thousands of dollars, with even rarer single block rewards going as high as
Block Building: The Fight to Stay Competitive
Block building has become increasingly competitive, given the current full-block auction model of MEV-Boost. That is, each block auction results in a single auction winner who wins the exclusive right to build the entire block – and many auction losers.
To gain an edge, some Block Builders have become vertically integrated with Searchers, adding proprietary order flow to their blocks and enabling differentiated MEV profits. This has resulted in neutral builders struggling to sustain revenue.
In the last 14 days, ~75% of the blocks on the Ethereum network were built by just three block builders—two of which are vertically integrated Searcher/Builders.
Source:
Slashing: How a New Attack Vector Enabled a Malicious Validator to Steal Millions
On April 3rd, the Ethereum network witnessed a new class of attacks
In response to this class of attack, Relays now publish their blocks to the beacon network before returning them to the Proposer. And if this fails, the Relay network does not return a payload to the Proposer at all.
MEV-Boost Relays Today: 100% Risk, 0% Reward
In the world of Proposer/Builder Separation, Relays play a pivotal yet undervalued role. Relays impact the entire MEV supply chain, from Searchers to Block Builders to Validators, connecting these untrusted stakeholders in a symbiotic, permissionless transaction ecosystem.
Through Relays, Validators can outsource block production to Block Builders, enhancing the ecosystem's efficiency and economic security while measurably increasing Validator revenue.
Yet, despite this critical role,
Today, the Relay landscape is increasingly centralized, with just seven unique Relay operators controlling more than 1% of the MEV-Boost network. If Relays fail to do their job(s), Validators suffer missed slots, or worse, malicious actors can exploit the network.
MEV-Boost Relays are effectively 100% risk with 0% reward, with a small number of actors participating. While Relays were only meant to be temporary until ePBS, they have proven to be critical for the security and orderly operation of the chain and are unlikely to go away for the foreseeable future.
It might be only a matter of time before we see vertically integrated Searcher/Builder/Relays as Relay operators cast about for sustainable economics.
A Rise in MEV Awareness and MEV Protection
Over the last year, MEV awareness has grown. Transaction originators began to understand the negative impact frontrunning and sandwich bots had on transaction settlement. Innovative products emerged to combat these negative externalities, such as:
- Private transaction RPC endpoints that enable users to send transactions privately to Block Builders
- Order Flow Auctions (OFAs) that enable private transactions to be backrun by MEV searchers with a percentage of the profit being shared with the user
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Transaction Boost : Blocknative’s MEV protection aggregator that enables sending to all available builder and OFA RPCs.
The network has seen a surge in private transactions as users attempt to shield themselves from MEV, with private transactions on-chain jumping from
However, the MEV protection ecosystem has a ways to go to truly protect users. An analysis using the
Counterintuitively, our analysis of public and private transactions revealed that many users who sent their transactions privately incurred more slippage than those who sent them publicly.
We expect the MEV protection market to continue to evolve. In the long run, users should not have to worry about the complexities of MEV.
We believe that forward-thinking wallets will play a critical role in protecting their users from the ill effects of MEV and providing the best settlement outcomes.
Looking Ahead
By building and operating a Block Builder and Relay from scratch, we have learned from the complexities of the MEV supply chain firsthand as an active, in-the-transaction-flow participant.
These insights have inspired us at Blocknative to create new functionality to help protect Web3 users.