This is Epicenter Episode 511 with guest Stefan Ghoslan.
Welcome to Epicenter, the show which talks about the
technologies, projects, and people driving decentralization
and the boxing revolution. I'm Brian Frayn and I'm here
with Phoenix Lutch. And today we're gonna speak with
Stefan Ghosla. He is the founder of Frontier
Research. Frontier is a sort of new me
focused company, but he was also previously one of the Co
founders of Flash Bots and I think sort of the lead architect
I think if that's correct or product designers something like
that at Flash Bots. So thanks so much for joining
us, Stefan. Yeah, thank you.
It's always a pleasure to get the chance to come back on this
podcast and chat with you guys. Yeah, absolutely.
It's not the first time, actually.
Maybe you can just get started in there.
I think it's a great question. So 2020, you wrote the blog post
or a post on each research titled Flash Bots front running
the MEV Crisis. So this is now three years ago
and I'm curious just if you can like reflect a little bit sort
of looking back. I mean you, you called it back
then like MEV Crisis. I'm curious, You know what?
What did you what was your understanding of, like, the Mev
crisis? And like, what does it look like
today? Are we in an Mev crisis?
I was supposed to, like, think back on this, actually.
Earlier today someone asked like, do we actually have a
counterfactual to PBS? Like, what would have happened
if we hadn't launched Math Boost?
Would we actually have a significant different
distribution of concentration on the validator side?
Or would it look like pretty similar?
The MEV crisis was basically the thesis that said if there wasn't
action taken by the community and early Flash bots members who
sort of felt responsible to take this this action, there would be
an increase in concentration of hashing power because.
The level of activity on Ethereum was increasing to the
point where MEV became meaningful.
I if you remember during summer 2020 defy summer we had all of
the sort of start of the yield farming and like really you to
swap getting traction for the first time with all the
liquidity mining programs is it yam finance and and all this
this this good stuff. And so it was clear that, you
know, whether it's token sniping, arbitrage, whatever
else. There was an advantage of
operating this at the validator level and validators weren't
currently doing it. The activity was happening
through the transaction pool, through sort of gaming the
algorithm that the miners run for packing blocks.
So the crisis was, well, it's very clear that miners have the
advantage in doing these games. They are likely to start to
invest into running things themselves or run custom
clients, make partnerships with trading firms to be able to
extract some of that value. And that has the potential to
lead towards more concentration because there's sort of
increasing returns to being the ones that play this role.
Maybe there is a better mechanism that we can develop
and launch that enables to maintain transparency?
Over what is sort of happening in the system and maintain Open
Access to it. So make it so it's not doesn't
require a special deal with validators, but you can freely
connect and participate. And finally have some way to
sort of redistribute the value to the actors in a way that's
like welfare maximizing or whatever definition that you can
have. So that's the Mev crisis.
You sort of mentioned like, hey, you wrote this post and you made
it on E3 search. And then I'm like thinking back
to the last three years of my life and I feel like all I did
was write 2 posts and like everything else was like fluff,
right? Like I wrote this front running
the Mev crisis, which was like a spec for Mevgath, which was like
the client that that we developed and then ended up
getting adopted by minors. And the second one that I wrote
was introducing Mev Boost as a as a spec and then maybe like I
should have just written those things and just like you know
went to the beach and did nothing else the rest of the
time. Because like those specs alone I
feel like move the needle into like what the infrastructure
looks like and and and we're like the most impactful things
that that I really did. So yeah, I sort of there's this
like, really fun progression from, you know?
There not being any infrastructure to now having
gone through two major cycles of the Mev infrastructure changing
on Ethereum and do you feel like these both of these things had
the impact that you hoped it would?
In terms of mitigating the Mev crisis, yes, yeah.
Not really. Not really.
I mean it's it's like hard to say like there's no way else.
Is that what's happened or? Yeah.
I mean it's like it achieves the like the outcome in terms of
like it's a system like I adopted and like everyone got
excited about it and and you know introduce a new industry
and ecosystem with a lot of people that are having open
discussions about these things and implementing alternative
solutions to them. That may be crisis in itself.
I mean, one can debate whether it's a crisis at all, if it ever
was actually there, or if it's just like a natural way that an
industry evolves and whether, you know.
Whether it was Metgath, met Boost or something else would
have happened, the end results would have been the same and
we've ended up in the same location.
And at the at the end of the day, I don't know that the
amount of concentration that we have at the stake level today is
like meaningfully different than what we would have if we didn't
have PBS or like any sort of MDB infrastructure.
Maybe we have more transparency in how the system works because
you know, we have sort of this open pricing mechanism where the
information is being like routed through.
We have like a dollar value for like the price of blocks.
And you have some nice dashboards that like allow us to
show it like maybe there was some path dependency there
that's different. But in terms of like how things
are evolving, it seems like pretty inherent to the way that
blockchains are designed that the end result will end up being
being very similar. Maybe maybe just maybe just
commenting here one thing, I at least I do feel like reasonably
confident that MEV did not increase validator
centralization in a meaningful like was not a meaningful driver
for validator centralization on this area.
I think that's pretty clear. Yeah.
So I think from that perspective, if you take, if you
take like concentration on the validator level, then I think if
that's the kind of criteria, then I would say like, yeah, I
think it worked out, right, like that didn't happen or it
happened to some extent for other reasons that were
unrelated to MUV, I think. Right, right.
It didn't fail, yeah. We don't know if it was
necessary, but we know that it didn't fail.
I think the thing that I'm the most excited about in the end
and in particular with the introduction of of Mevboost like
so Mevgeth was like a really simple solution.
It was like get Flashboss to run a server and then like route all
the Mevs through the server and then like Multiplex it to the
minors, right? And it was just like introduce
like Flashboss has like a server that like runs the Mev market.
Mevboost is a much more sort of open system where you have a lot
of different layers to it and a lot of room for individual
entities to compete and offering additional services, right.
So the just the introduction of the the block builder role and
the relay role has sort of meant that this thing of operating an
MEV market that the Flashbluts was doing now is being done by
like I don't know 6-7 eight companies.
And there's quite a bit of turnover I think in the like in
the dominance of of these parties.
They're like trying to figure out how to like make it
sustainable, how to have a revenue model and competing for
features that they develop. I think that's all very positive
because it brings a lot more diversity to the way that these
systems are being iterated upon. And just the number of different
perspectives they're being reflected into the the
architectures that they get adopted.
So that that to me has been like quite successful, if nothing
else, just having more different stakeholders are involved in
developing and competing against each other for developing this
this infrastructure, providing services on top of it, that
seems like quite a decentralized way to approach infrastructure
development. So it's almost like the third
thing you did right? Like I guess formalizing this.
Mev supply chain with the different actors and how you can
break them apart and then how you can like separate the roles.
Did anything change in that perspective from how you looked
at the Mev supply chain during Mev Boost and like nowadays?
Or has anything you haven't foreseen or something I.
Don't think there's anything that I haven't foreseen.
I think what? I've been trying to introduce as
like a reframing of the Mev supply chain is to think of it
less linearly and think of it more as sort of a chaotic set of
games. I presented a little while ago
and we wrote this blog post with Frontier about infinite games
and introducing this idea of a transaction supply network.
So instead of thinking of Mev supply chain as being like users
originated MEV and then. It sort of gets sort of funneled
through this system of of extraction all the way to the
validator inside be inside. Do you think about a cluster of
a bunch of different infrastructure component that
yeah, it originates with with users, but depending on gets
either intense like whatever they're trying to achieve and
interacting with the chain, they get routed through different
sets of specialized infrastructure that leverage
tools like auctions. I leverage tools like privacy.
To provide those services and capture that those system that
reflect that value back to the user and provide the utility
that the user is looking for. It's kind of like this, this
thing to say, like, OK, MEV is like a lens through which you
can see the world, right? And once you start to look at
like bridges, you look at changes, you look at all these
different things from the Mev lens.
It's like a toolkit that allows you to analyze them and
understand how. How do the dynamics play out if
you set this up in a decentralized setting?
I think it's useful to have this lens, but still look at all
these components individually, all these games individually, as
opposed to say, there's only one game here and it's like the Mev
supply chain and that's the only thing that matters.
I'd rather look at individual components.
Can you talk a bit about your vision for frontier research?
Like what do you hope to build? What kind of organization do you
hope to build, and what kind of impact do you hope to have on
the ME landscape or crypto more generally?
Yeah, Frontier Research. So I left flash bots at the end
of. 2022 like and beginning of the fall 2022 and I so took some
time off and decided like is this something I want to
continue working on, do I want to continue working on on MUVI
felt like that there was still some contributions I had to make
to the space and so started sort of a research organization
around this that were helps working with various different
teams that are that are participating across the entire.
The entire ecosystem of MVV infrastructure help them sort of
up level the level, the their understanding and mental models
around MV help do some analysis over the system that they
produce and advise on go to market and whatnot.
So we've been doing that for quite a few months now since
since the beginning of of this year now we've we've started
looking more active like OK, where are the opportunities for
developing products. We've started incubating a block
builder called called Faith Builder that participates in
this game. I sort of see very abstractly
the set of games as being an abstract set of two two roles.
You either have a message passing system with some rules
over how these messages are handled and aggregated and you
have individual agents. That can be called like solvers
or searchers or block builders or whatever else that aggregate
these messages and then solve them, optimize them according to
some objective function. And so the block builder that
we're running we see as being sort of fundamental to enabling
the development of all these different games across the
ecosystem and participating in them and helping them bootstrap
to provide the better user services.
So it's. The generalized solver that aims
to participate in all of these different blockchain games.
So yeah, that's sort of a venture that we're incubating
from the Frontier team. So this means like it's a
builder in the flash was muv boost because somebody could
also be a solver maybe know, I don't know for cow swap or like
you know other products like that.
Is that correct? There are, they're very similar
games at the end of the day, they they achieve similar
objectives and they sort of are architected and in ways that
benefit from participation in multiple of these of these
games. I mean, the move of activity and
like the trend, this is like 1 trend that's that's interesting
to discuss is how, how much Rfqs are going to gain in momentum
and adoption. Over the course of the next 12
months, can you explain Rfqs? Yeah, I can give like.
Maybe I can give like an mev explanation to it.
Sure. Please, Yeah.
And then I'll give the like the maybe I'll give the user
explanation and then the MEV explanation as well.
So the user explanation is you're used to doing trades on
top of D5 by going to usersoft.com and like requesting
a swap. What happens then is you're
tapping onto AMM liquidity that's on chain, but you have a
lot of inefficiency in the prices that you obtained.
So the liquidity that's on chain is stale, it isn't by
professional counterparties and you're susceptible to
sanctioning attacks and like exploitation of your orders if
you if you, if you route it through there, so.
It doesn't give you very good pricing essentially to interact
with uni swap relative to the pricing that professional
traders would be able to get by interacting with all the
different liquidity venues. RFQ just allows you to outsource
the work of routing through a bunch of different liquidity
venues to some solving system it says hey, we're going to
introduce. A marketplace of service
providers that are going to compete to give you the best
price, and they can do the complex work of figuring out how
to access liquidity wherever it is on the user side.
It's great you have the same experience of doing a swap and
getting the tokens that you want, but you can also expect to
get better pricing on the trades that you do.
The Mev lens is. Rfq's like recapture value
that's being leaked sort of down the supply chain, right.
So if you look at the distribution of validator
revenues today, over 50% of it comes from basically arbitrage
against unit swap Lp's, right. And so US swap Lp's put a bunch
of capital into into their AMM pools.
And they're relying on C Phi, D Phi arbitragers to update the
prices that they offer relative to the prices on other liquidity
venues like by an Anson and whatnot.
And arbitragers are capturing significant amount of value.
The Ammlps are losing that value and this is called LVR loss
versus rebalancing. There's a service that these
arbitragers are offering which is to maintain prices on chain.
It comes at a significant cost for.
The Lps and a lot of that value ends up being captured by
validators. What RFQ does is it says, OK,
thank you very much for like the system that was like generating
all our value for validators. Like we as the originators of
this order flow would rather recapture this value either for
ourselves or for our users. And so we're going to create the
system that enables us to internalize essentially the
liquidity. And provide that value back to
to our users. So the sort of trend on on this
RFQ stuff is for more and more of the liquidity to move off
chain, to move away from from AMM contracts and be sort of
accessible by these professional market makers, these
professional solvers that can get better price improvements to
the users and better quotes to the users.
And and expose less of that, sort of down towards towards
others. And then in this RFQ example, so
let's say I'm on Ethereum, you know I wanna trade some E for
USCC for example. Then I'm making this request for
quotation or something and then it's like hey, I want I have E
if I want USCC it it this also means that somebody could come
and say, hey I'm a trading company and I can make that
trade on finance and here's how many, you know USCC I will give
you for this EVE and you know it nothing ever settle.
I mean of course they're going to send me the USCC on Ethereum,
but but the trade actually gets executed on finance.
So this would be this will be possible or?
That's like, yeah, that's mostly how Rfqs work.
Traders don't necessarily need to make the trade on finance at
the end of the day, like they hold a bunch of tokens on chain
and they like heads their exposure on other venues.
So basically it's like they have inventory on Ethereum that they
are providing within their market making and their goal is
to keep this inventory within some range.
Of parameters that's like in line with their hedging on the
centralized exchange. And yeah, whenever this
inventory goes like too far in One Direction or another that
they lose money, but so long as it stays within a certain range
that they make line. Maybe let's talk about block
building. I feel like block building is
something that's. Very poorly understood I think
by most people even it probably even E theorem uses ever like no
a year right that like valid or not actually building the blocks
and happens in some other way and and and how that's
happening. So can you just explain what
what is the the what's block building and what is the the
block building landscape in Ethereum at the moment.
Yeah. So block building is is
basically validators outsourcing the job of putting transactions
into a block to a marketplace. Anyone can be a block builder.
Anyone can like spin one up not everyone can be a good block
builder because block builder is very dependent on having access
to order flow. So there's a trend here, which
is increasing amounts of private order flow that's being routed
to block builders. Interestingly enough, right,
like a lot of the discussion there was initially, like, oh,
no, block builders are going to get exclusive order flow deals
and become super dominant and it'll be centralizing towards
towards the chain because you'll have just like one party that
produces all the blocks. Realistically, I think that's
there's a lot of economic dynamics that mean that that's
not going to be the case. What is happening is there's an
increasing adoption of order flow aggregation systems.
So more and more of the transaction flows being routed
through systems that say we will directly send to block builders,
we'll send to all the block builders, but we'll directly
send to the block builders and never touch the public
transaction pool. And so essentially, if you're a
block builder, you have to connect all these different
private sources of order flow to be able to build competitive
blocks. You compete on this access of
the order flow, compete on the efficiency of the merging and
then submit blocks to validators for inclusion.
There's sort of two types of block builders.
There's block builders that generate the order flow
themselves, which you could call integrated sort of searcher
builders. A lot of the dominant block
builders to date have been of this kind.
They don't really monetize from playing the role of the block
builder. The block builder is sort of a
way for them to execute trades that they would want to execute
anyways and have some edge in providing this execution.
And then the second type of block builders are sort of
neutral block builders and they're the ones that don't
generate order for themselves. They don't do trading
themselves. They just aggregate the trading
as done by a bunch of other searchers, traders and provide
sort of Fair execution across all that flow.
And that's like one of the big questions right now on the block
building side is, is it inevitable for block builders to
be traders or can neutral block builders provide services and be
competitive? So if you think about a business
model of the builder searcher, I guess they make the money
through their own searching and the neutral block builder has to
sort of. Come up with some way to to make
money from the private order flow or how do you kind of
attract the order flow just by being a neutral party?
Is that basically the the strategy or you know I guess
whatever you can share or how how do they compete with this
like integrated further, I mean either you're like doing the
trading yourself or you're providing some service to
someone that wants to sell transactions on chain, right.
Let's say that you're a trader, right you're you're considering
like running a block builder. It's not easy to run a block
builder like not everyone can do it, not anyone can get access
all the private order flow that's required.
So you have like some, some cost, right, like you have some
some potential revenue versus cost calculation that says like
are we going to do trading or not or do block building or not.
So they're they're willing to pay for someone else to provide
that service if they don't have to sort of spin up themselves.
I think this exists with several other systems as well where like
they would be willing to to submit flow to the block builder
if they can get some guarantees or like partnership on on how it
works. I genuinely don't think block
building alone is a very good business to run.
It's like very competitive marketplace and unless you're
able to get some some very like special deals, basically the
profits get competed away. So the model is not necessarily
super attractive. So what is going to be the kind
of future of block building? So you think there's other
products that are gonna be built by block builders and what do
you think are the most promising ones?
I think there's two trends that are worth keeping an eye on.
One is a transition of order flow from from public venues to
private to venues in particular, like just the transition of you
to swap order flow from the main pool to you to swap X.
That will influence a lot of different things.
I think that will mean that searcher builders become less
competitive and less important and neutral builders will become
more more prominent. Hey can you explain why and and
maybe just also explain what is the unit swap X cuz I think many
people will not be. Can I use that Unisop X is like
the rfq platform? Basically that's Unisop launched
works similarly to the one inch fusion, similarly to Cal swap in
some ways as well. It aims to use all sources of
liquidity to be able to provide price improvements through
running an auction with a bunch of professional private market
makers for the right to settle a swap.
So what this does is it transitions a lot of activity
away from the public transaction pool.
So we can say sort of goodbye to all the Santo Chang, which is
great, great for users but also reduces sort of the opportunity
space for those trades to take place.
It makes providing liquidity as a passive LP and AMM's a lot
more difficult because you have active market makers that have
first look on all the retail orders and the chance to settle
those. And so as a liquidity provider
in AMM, you sort of just get all of the leftovers that for
whatever reason the the professional market makers
aren't settling. So you have to ask yourself like
why aren't the professional market makers settling this and
why do I, why am I as a retail, you know, do I believe that I'm
making money off of off of this trade?
The answer is like probably you're not.
And so I expect there to be just like a decrease in the amount of
liquidity that's available on, on, on layer one AMM's and more
and more of that that trading to sort of settle on on this either
private liquidity or layer two. This in turn like sort of
reduces the arbitrage opportunity between the layer
one and like other trading venues and if you have less
liquidity that's available to be targeted, you will expose less
value. Separately, there's like Unsoft
before and like hooks and like other like mitigations are being
developed to be able to reduce the amount of LVR that are
exposed by passive Lps. Essentially all these
microstructure changes that you swap is introducing reduce the
amount of MV that gets exposed in the system and reduce the
opportunity for integrated searcher builders to sort of you
know have a significant portion of the value of the blocks.
So more and more of I think the value of the blocks is going to
be distributed towards other use cases relative to just
arbitraging you swap that will cause the shift away from
searching builders to respond neutral builder.
And then how do like neutral builders differentiate?
I guess maybe we went into a bit, but is it mostly on this
like SO offers they can make for?
Private order flow? Or what other dimensions are
there to differentiate for neutral building?
I don't really think that there is.
I think it's like a knife fight. Just do it better.
And what are your thoughts on decentralizing?
The block builder is this. Do you think this is?
Is it possible to build a decentralized block builder that
would be competitive and is there a reason to do it?
I'd say it's. I mean I don't know that much I
will say about what decentralized block building
actually looks like and the designs that I've seen or the
attempts at it have been unconvincing.
There's like this bigger question mark which is like what
does decentralization actually mean that like needs to be
answered when you're even like trying to tackle these questions
and the answers I've seen haven't necessarily made much
sense to me. This is like a very deep rabbit
hole and to like dive dive into. I I see all of these things as
like games that you that you're developing and and the main
metric to me about how decentralized it is is what are
the barriers to entry and the advantages to like to scale or
to network effects that the system involves.
And I think the definitions and like proposals for decentralized
block buildings to me are like trading off what is like a
competitive market with individual agents for like a
network that has network effects.
And to me that doesn't necessarily feel more
decentralized. Maybe there's there's something
I'm missing, but it is susceptible to same
centralization pressures at different nodes of the network
as any participant in the latency system have.
And so while it may have properties and look like a
network, it doesn't necessarily seem very decentralized to me.
So I don't know, I don't know where decentralized block
building is is headed. I think there'll be a lot of
experiments and attempts at developing it.
I would tend to believe that there's there's something
promising I think to be said for adding more constraints to the
way that block building works and essentially giving
validators the more control over the policies of what they accept
as blocks. And maybe you could say that
sort of decentralizes the the role of block building a little
bit by constraining them to some set of rules that are enforced
at the validator level. And so you are leveraging sort
of more distributed validator set and the request that those
validators may have while still having the block builder role to
actually enact those requests. That might be like a direction
for more trust list block building.
But yeah, is there like a specific approach to
decentralized block building that you've looked at?
I mean it's I guess there's a few reasons why this.
I have not looked at this in any depth but.
But there is a some, some things that sort of like triggered this
a little bit. I mean one thing is that you
know there was like so much effort and thinking that kind of
went into all let's try to make Ethereum, you know as
decentralized as we can that there's like lots of different
validators now did that work or not versus like other proofs
they change. You can debate, right?
There's some aspects in which theorem is maybe more
decentralized, some aspects maybe it's like similar to other
networks, but you know. It's still, it's pretty
centralized, right. When you look at the that would
say the validation level and then, but now we've had the
segregation of taking the roles apart and then you have this
block building. And all of a sudden if you look
at this block building, well, it's sort of like you have a few
block builders that produce most of the blocks and as you said,
right I guess at the moment. The ones that are kind of
dominant there is the search of builders, which means they're
also looking for what is the optimal transaction ordering and
finding their own things. And the ones best able to do
that are kind of trading companies, right?
They're also trade intenterized exchanges.
So from just the sort of okay, what do we want this system to
look like? Having a few companies like that
that in the end have this critical role maybe doesn't seem
like the most desirable outcome. So this is like one thing and
then the other thing has to do with you know some people
talking about. And I think this is also true
for faith builder if my if my understanding is correct or
being like a neutral builder right where?
Were basically okay, let's say there's like some builders and
they kind of maybe use the information against you when you
send it to them. But then there are others and
they say we promise we don't do that, right?
Like so trust us. Of course, that also seems like
a bizarre thing, right? Because all of a sudden the
whole thing is about building like trustless systems, right,
with crypto and and cryptography and you know decent trans
network and stuff. So if then you have at the core
of this whole thing. You have these block builders
who, you know, claim that they do things with a certain, you
know, following a certain process, and that's why people
use them. But actually it's based on
trust, and you can't, like, verify that you don't have,
like, the kind of guarantees that we generally have in crypto
networks. That also seems a little bit
weird, and it seems like the kind of thing that often you be
like, oh. Let us replace this trusted
thing of the neutral block builder with something that's,
you know, actually trustless. And then of course,
decentralizing it is often is, I guess, generally the way that
this is approached. I do think that there's a
difference there between providing better trust
guarantees and decentralizing. So like you could do block
building in a centralized way while still providing strong
privacy guarantees, right? And so you can have this what is
like filled through trust with like hey, I won't front run you
I promise be enforced cryptographically while still
being operated in a centralized manner.
I think that's the natural evolution that things will will
go towards. I think the like decentralized
component of it is the part that I'm I'm not seeing how it'll how
it'll take place. The other like question is like,
so let's say that we decide that we don't like that there's five
whatever block builders and we don't like that there's sort of
a you know a power law distribution and dominance
between them. We want block building to be
uniform distribution. The way to do that is by
creating centralization somewhere else.
You say, OK, then you put all of the order flow within a single
system and you sort of selectively distribute it to
various from block builders and then force the fact that this
uniform distribution happens on the block building side.
You've just introduced the problem at a different layer,
which is the order flow aggregation layer.
And then are you happy to have as like you know, 2-3 different
order flow systems that process all of the order flow And
Ethereum, is that better? Is that like a meaningful
improvement? Yeah, I think those those like
end up being the directions of inquiry that that I get, that I
get concerned about. I we also wanted to talk I guess
about the PBS system in general. Is this the right direction and
your thoughts? I guess we already covered it a
bit, but given you know, Bright and me both like say there's
like different chains and there's like different
approaches to how MVV is treated, I think.
Obviously if you're almost sort of the 1st and still like the
main venue where the liquidity is and everything and yeah, we
wanted to capture your thoughts on like would you do it again
like this or is PBS the right way or should it be done
differently on other chains? So for example, you know in
Cosmos there is like different ways to try and handle MVV.
I don't know how familiar you are with them, but like, yeah, I
guess. Just wanted to hear your
thoughts on. Is PBS the right direction for
for proof stake that works or are there other ways to to
handle this? I don't know.
I think it was right to
Etherium. I think it was right for
Ethereum at the merge like they needed enough boost and like
that was that was probably good. Like they need an MV solution at
that time and it worked out. Is it right for Ethereum in the
future? Is it right for other chains?
Is it right for layer twos? It's not clear to me.
I mean, you guys have looked at this a lot, right?
What do you guys think? So if you look at like Cosmos
chains, then it seems like there are way easier ways to address
this issue. I mean, I think in the Cosmos
chain, right? You already have the situation
that you have validators. And the validators depend on the
token holders to stay with them. And the token holders of course
want this chain to work properly, they want the token to
do well. So if now you have some
validator that says I'm going to sandwich, let's say you have
some sort of decks chain, and then some validator says I'm
going to sandwich everyone. Then the then the token, all
those are like, what the hell. This is like undermining my
project. I'm not going to stick with you.
Right. So that this is like one thing.
So I think that makes it like way harder for someone to say,
oh, I'm going to run this kind of strategy that you have on
etheorem, right? Because any theorem, I think you
just have a very different landscape.
So I think that's one thing. And yeah, I guess you've had a
few different experiments on on Cosmos, right?
Like like for examples Moses where they have basically some
in protocol MEV capture where they're you know they're
basically running some Mev bots and then it goes kind of goes
back to the stakers and mostly and then and then I guess I
think in dydx right where we have, we've done this report
where there's a committee that or where it's like okay, you
cannot the validators are not allowed right to do basically
MEV and then there would be some kind of taking looking at data
and trying to detect things and then the ability to have
slashing of validators who do it anyway.
So these things feel like pretty straightforward and easy
solution that actually solved the problem pretty well for the
foreseeable future. Maybe at some point it will
break down in some ways, but there it seems like proposal
build a separation, it adds a huge amount of complexity.
It doesn't really seem to. Does it solve the core problems
any better than that? I don't think so.
So doesn't feel like the right way for at least for let's say
Cosmos change now. OK, you have other things again
Solana, I don't know difficult. It's again very different.
So yeah. I think the one thing that's
that PBS is, is sort of validator is rejecting their
power, right. In many ways like they're saying
like all these systems of that are that do like leader
selection. They essentially say, well,
there you have, you have power, you have all the power and like
you have to like figure out what to do with it And and PBS is
kind of like rejection of this power, Say like, oh like no.
We don't want to use this power, but we want to get paid for it
and we're just going to like give this power to the highest
bidder, right? That's sort of that's sort of
what it says. But is that actually what's like
Max, you know, utility for the end user?
Or is there some other approach to dealing with the power that
these these validators receive and and the leader selection
process that provides guarantees are more useful for friend users
and that's. You know, that's how I would
frame what you're discussing. If validators opt for
constraining the types of activity or types of blocks that
they produce based off of some, you know, slashing mechanism or
whatever else, you may be able to generate more more utility
for the end users, whether it's first in, first out system or
or. Other sort of rules, I mean even
censorship rules at the end of the day, are policies that are
enforced by the validators. And so you can come up with sort
of a framework for thinking of policies that the validators
subscribe to and offer to the consumers of the block space
that they offer. So that was also what you
mentioned earlier that this way if you would have this sort of
system. Like different block builders
could serve different constraints for the validators
and that way essentialize more. Is that correct?
Yeah, exactly. Yeah, are interesting.
I do think that there was, there's this like tendency,
right, like Brian what you said with the text chain and people
saying if you said which everyone you're destroying the
project. But I guess at the same time if
you delegate to that validator who does it, you might get a
higher yield, right? So I guess there's like a sort
of. Issue there where if you just do
it and delegate to this validator it probably you just
benefit and the chain doesn't like go to 0.
But yeah, I was wondering if that maybe is what drives it.
I mean you could have, you could of course have, yeah, say hey,
I'm gonna launch a validator and I'm gonna be like maximization
validator and maybe you can generate higher returns and
maybe people stay with you. It's just the challenge is if
you have, if you have like governance, I mean it is very
easy then for someone to say, hey, we're going to make a
governance proposal and we're going to say like hey this this
guy here, he's like messing up our project.
So I don't know, we just slash them or we say that's not
allowed or we we take some action that goes against that.
I mean, I think this is maybe a little bit.
I guess that's also where the whole app chain world can be a
bit different from the etherum world, right?
Where the etherum world is really doesn't really allow for
that and pros and cons on that, right?
This, of course, it tells us its advantages.
Have you looked at Mev burn and do you have thoughts on it and
we were gonna ask you for your faults on it.
I don't really have I mean I I am like we're at the at the
highest level of sort of like what it its intention is but I I
don't have I yeah it would be great if you could explain first
of all what MV burn is and then what your faults are.
So one of the benefits of PBS is that you have a public price for
the value of blocks that are being produced, right, which is
not something that existed in a pre MEF, boost, pre PBS world.
Prior to that you sort, you could see the amount of
transfers to Coinbase that are taking place and you could like
you know sum it I guess and like see out of bounds like what what
it looks like. But that wasn't the price the
venue for for the price discovery to take place.
Right like. If a minor wanted to have a
different approach to collecting fees, like they could do so and
it wouldn't reflect the value of the blocks that they produce.
Similarly, we sort of saw a lot of miners say like we're only
disputing like block rewards to to the miners in our mining pool
and we're keeping all of the MEV rewards to ourselves as like our
monetization. And in some ways like that was
possible because the miners didn't see sort of this one
number that said like, OK, here's like.
The value of the block that I mined, you know, you just know
that the blocker war that was included in that block.
So now we have this public value for the blocks and the question
is like how does this value get distributed?
Right now it's sort of left to the mining pool operators or
node infrastructure providers to decide how they wanna distribute
that to their constituents. Most of the time it's they keep
a percentage of those rewards and like distribute the rest.
There's still some incentive to optimize this in some way and
whatever else. And there's more and more
discussion about maybe this value should be redistributed to
the network and not necessarily to validators.
So Mev Byrne is essentially saying, hey, we see this public
value. Is there a way to enforce that
this gets burned similar to the AP1559 rather than distributed
to to validators? There's like interest from token
holders like ETH holders to do this, and I think there's some
arguments for like network stabilities and stability as to
why why why this should be done. From my view, it seems to be net
negative for. For anyone who runs a validator
in terms of the yield that they're going to be able to
generate. Yeah, it's interesting.
It seems it's beneficial for ETH holders that don't stake right
and maybe discourages staking since the yield will be much
lower. And I guess I personally also
probably saw maybe as like one of the revenue sources for
moving away from inflationary token increase, so.
When I think it is similar to what you know I guess in osmosis
or these models where essentially the map is captured
by the chain and like redistributed to the token
itself. So I think it's important that
like you know people do stake and infrastructure providers do
run notes. So like somewhere this revenue
has to come from and probably maybe is like a pretty good
place for that. Yeah, I guess the questions also
and I think you'll have a much better understanding of this.
But, you know, if something like MV burn was created, you know,
are there ways to kind of route around that, you know, to
through some sort of, you know, off chain, like basically trying
to pretend to the chain that this block doesn't have a lot of
values, that little is burned, but actually it has more value
that than is distributed in some way between block builders,
validators in some way. Yeah.
What do you focus on that? Yes, I mean both EAP 5059 and
Mev Byrne to me is increasing the potential value of collusion
is like a way to think about it. These mechanisms all have some
sort of assumption that there's some price to collusion that's
higher than the benefit of it and.
You know, therefore the collusion isn't going to to take
place. It definitely seems to me that
with Mel Byrne there's a pretty strong incentive to attempt to
bypass it. Again, Mel Byrne is like there's
like a few ideas for how it's it's implemented and it depends
on the specifics of it and the model that does deployed.
But the incentive is there is is it significant enough to cause a
change in behavior? Given both economic incentive
and social political incentive. I don't.
Know to me it's still like what does it solve?
What does Matt Bern actually solve?
It's not clear. I mean, I guess one thing I've
heard was more that, well if Mev that it smooths, you know that
you don't have like huge returns being made on some blocks and
that then this sort of incentivizes more concentration
and staking pools or something. Because like if you just run a
few validators, then you know it's going to be very rare that
you earn like a lot of money from MVV and and so.
But I don't know, that's not sure that's how convincing the
argument is to me. This moves it by.
Removing it right. So it's like it's like an anti
staking pool thing. I heard that as one.
I think maybe Justin Drake gave that as one explanation for it.
But yeah, I think if you sort of look at it on a high level or
maybe we should talk more about that actually if you listen area
we haven't really talked about, we'd love to dive into a bit.
And so right now we talked about block builders and how they are
basically capturing a bunch of value.
But of course we have maybe other places where this can
happen too, right. So one would be the wallet or
another one might be let's say some Ethereum app that a little
bit like what UNISOP or Cal software doing to building some
kind of thing that also circumvents the MUV.
And I'm curious, how do you, what do you feel actually is
gonna be the role of maybe wallets or some of these other
players in the Mev supply network?
My claim has always been that MEV is best mitigated at the
application layer. If you build better applications
that deal with MEV, you're able to provide better user
guarantees and superior user experience because of that.
And to me, a wallet and an application are one of the same,
The venue that the user is interfacing with to to get their
their preferences expressed the role.
There's this like interesting role that the wallets have
played historically, which is to be both the assigner and an RPC
provider right? With like a nice UI around it.
But not really try to provide the experience of what the user
actually wants to do, right? Let's say that's the meta mask
thing. We are a browser extension.
We work on all the different apps.
We are sort of agnostic to the type of activity that you do.
All we do is we provide the signing, we provide the RPC
service. A lot of Mev now is about maybe.
The RPC service has become more complicated.
There's all these different private venues through which you
can route, and not just to the public transaction pool.
The type of RPC service that you use and the guarantees that you
get from them is more closely tied to the type of activity
that the user is doing. And so as an application
developer who really cares about the user experience and like
really understand what the user's trying to achieve, I
would be in a better position to understand which RPC to use.
So how do I negotiate this with the fact that right now that
service is being handled by some external product?
I want to bring that level of control over the user experience
within my application. There's a bit of a tension
between applications and and wallets in this way.
And so I think that the natural result is we'll see more sort of
separation between these things like more applications launched
in wallets, more wallets have an application feel and sort of
integrate the full sort of user. Life cycle within their own,
their own system. The role that they play in MEV
is is the same, right? Like they want to provide the
best guarantees to their users to retain them, increase the
level of activity that they have.
That could mean protecting them from MV, It could mean giving
them better prices, it could mean selling their order flow
for monetization reasons. There's a bunch of different
things that that applications can do.
Cool. I want to ask another top like
one maybe one last topic here. So this is another area that
does gets a lot of attention at the moment, which is intense.
And I mean what are intense. We've before spoke about this
RFQ thing, which I think is a great example of an intent,
right, where it's basically someone saying instead of
saying, you know, transaction that's like, you know, OK, do
exactly this on chain, I guess mostly with trade.
So I'd swap X for Y. You say like, hey, I want to, I
want this kind of outcome. You define some sort of criteria
for outcomes and then and then you know there will be a job for
somebody else to figure out what is the best way of satisfying
that outcome. And you know, there's some
blockchains that are very much focusing on this.
I guess like a Noma is one example, but some others and
then of course there's intense applications doing things like
that on Ethereum. Do you think intents are gonna
have a major impact on this MEV supply network?
Yes and no. I think intents are confusing
because the way that it's being framed is as opening up like a
very broad new set of possibilities in a way that I'm
not sure how broad it is. There's a quip about intents,
which is. An intent is no longer an intent
once it has product market fit. So an intent is called like an
RFQ if it's like a swapping use case, right?
Or an intent is called like a bridge transaction if it's about
going to a different chain. So I think intents where there
is a need is a like more advanced transaction types.
That allow for performing types of activities that you aren't
able to perform otherwise, that constrain the execution space
based off of things that are either inefficient or have
difficult trust boundaries to enforce directly on a layer one,
and those seem mostly like standards to me.
An intent that's able to have conditional execution on
multiple different chains and able to bring constraints on
external state is fairly interesting as sort of a model.
Whether or it will be developed in a generalized case or a
specific case to me is sort of a key question.
So. In this sort of infinite games,
transaction supply, network framing of things.
All these different transaction types, all these different
message types are being passed around are intense right?
They are ways of communicating some preferences over what
solvers on the other side are doing and how they're re
aggregating those messages together, the exact format and
like use cases. Are all of these different
messages going to use the same standards for being expressed or
are they going to be very use case specific?
I would tend to believe that it's more likely to be use case
specific. While like Intents can be like a
very useful generalized framework for thinking about the
expressivity of these messages and sort of pushing for more
expressive systems, I think the development will be use case
driven and it'll be about what. Is this more expressive message
type enabling to build as an application rather than the
message type being the core focus?
Cool. Well, thank you so much Stefan
for coming on. I think Mev feels like one of
these rabbit holes that's just like complex and changing at a
really rapid rate and also really fundamental for how all
these systems are going to work in the future.
So it's really great to, you know, have you back on and talk
about these things and I'm excited about the work you're
doing in Frontier and and all the all the things are going to
come out of that. So thanks so much.
Yeah, always a pleasure to come back on Hope.
I had a few insights that were interesting.
Absolutely cool. Thanks so much and thanks to the
listeners. We look forward to being back
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