Michael

Excited to present Relay Block Merging (rBM), a joint exploration with the @gattacahq team- rBM increases block value by offsetting exclusive flow and timing games: → Higher revenue for proposers and builders. → Higher staking rewards. → Sustainable income for relays. It also improves censorship resistance by allowing relays to sort in transactions a builder may have filtered. Viewed another way, it improves throughput. Primer on why Relay Block Merging works: (1) Exclusive flow refers to transactions that are not publicly visible. This brings numerous advantages, like front running protection. However, exclusive flow can constrain block value. This is because individual builders may not see all transactions that could be combined into an optimal block. →Relay Block Merging offsets this by allowing relays to append transactions unavailable to the winning builder. →The merged block has to be more valuable than the best bid from the PBS auction at delivery time. →This strictly increases block value while leaving the execution guarantees of the winning builder intact. (2) Relay Timing Games refer to relays delaying the delivery of their best bid. As bids typically increases over time, this increases the relay's chance of winning the slot. → Relay block merging repurposes this idle time into a "merging stage" used to optimize block value. TL;DR → relay block merging is a way of increasing block value and censorship resistance today. → This benefits relays, builders, proposers, and stakers. Relay Inclusion Lists (rILs) are a complementary design: → rILs increase the censorship resistance of txs in the mempool. → rBM increases the censorship resistance of exclusive flow. More on rILs: x.com/gattacahq/stat…

BALs can be used to check state transition guarantees via generalized proofs. Proposers confirm outcomes rather than transactions. This gives more room for optimization, i.e. more valuable blocks. Examples: (1) Decrease balance A by 50 USDC. Increase balance B by min. 0.021 ETH. (2) First access guarantees for e.g. Uniswap. (3) Execution guarantees.

@lepsoe The golden days of the internet. Tinge of nostalgia.

When Chuck Norris enters the room, he doesn't turn the lights on..he turns the dark off Chuck counted to infinity, twice. Chuck can divide by zero Chuck can hear sign language We'll miss you Chuck..

The transaction pipeline, like any market, rewards max. information. Practically: waiting until the last moment to bid. This causes returns to scale from builders (easier to attract flow) to validators (smoother returns). While the dynamic is universal, variance should be aggressively reduced to even the playing field: -> Less missed slots -> More predictable inclusion; less overbidding. -> Reduced performance gaps between validators. ...and many other win<>wins.

The low-hanging fruits are delegating the trade to a sophisticated party, and extending the time horizon out. Also like the @ETHGasOfficial approach of kicking back a share of secondary trade volume to the validator, which prices out volatility to an extent. Generally anything that adds predictability is beneficial, such as: Allowing multiple parties to contribute to blocks. Less latency variance in the block propagation pipeline.

@mostlyblocks Thanks! Yeah, the boundaries between those aren't perfectly clean, and gas is a solid example of that. Curious what approaches you're thinking about for the adverse selection problem

Recommended reading. Blockspace allocation sits at the bottom of organic yield on Ethereum. Any improvement that allows more information to be reflected in blocks is valuable for the ecosystem. basic example: When blocks are kept lean during volatility, compute capacity is underutilized. Less latency variance allows fuller blocks, preserving compute capacity.

@0xQuintus @QuasarBuilder @potuz_eth Big builders will also sample much more frequently and show less variance. Would argue that small builders unexpectedly winning are trading firms bringing their own flow, which already account for some % of slots. For a small neutral builder, this seems unlikely.

I think it very much depends on your starting state for the market, but I think its harder to maintain "right of first execution" style OF deals if you can't predict when you will win. Bid shading is risky because you never know when you will get "picked off" by a small builder who hardly shades and has some unexpected flow If this leads to less EOF then you have less concentration. Also latency matters less when you have sealed bid.

So if the builder got 33M and the proposer got 1.2M only, no wonder why builders are trying to remove the option to hide the bid in Gloas 🤡.

Re. overindexing on black swan events. Proposer authentications are nuanced and I encourage everyone interested to read & participate in the complete discussion: github.com/ethereum/build…

@fra_mosterts @chainbound_ @blockspaceforum It’s great data. Thanks for making it public.

It is so impressive to see the utilization of @chainbound_ datasets in various research and reports across the ecosystem! kudos to @blockspaceforum on this, very insightful!

Ethereum's strongest cases vis-a-vis TradFi have always been: (1) The network has no counterparty risk. (2) The asset is (will be!) deflationary.

@dataalways @_eltitan Hard to call where exactly it'll be post-ePBS. My general take is that any delay yielding an uplift not drowned out by variance would be sufficient incentive for a fork. The changes are not complex and node operators are very keen to differentiate.

@mostlyblocks @_eltitan where's the lower bound on delays that you think matter and incentivize a fork? the epbs slot redesign cuts the headroom from ~2500ms to <1000 ms (hopefully lower, unclear final time will be).

As a sophisticated proposer that has forked clients before, agree with @_eltitan that obscurity is not a winning strategy. That is, from the network perspective. For a sophisticated proposer, it's great.

@ericonomic @seelffff Orders are posted to Polymarket's off-chain CLOB. It's just rageslop.

@seelffff if you were actually making money this way you wouldn't say it publicly larp

i'm running a MEV attack on everyone trading polymarket $100 → $700,000 and you have no idea your transaction sits in the polygon mempool for 400 milliseconds 400ms i'm already inside and already making money off you it's called front-running it's legal and there's nothing you can do about it the setup: you hit "confirm" on $80,000 12ms later my node sees you in the mempool 340ms before the block i'm already in the position you move the price with your entry i'm already there you buy at a worse price than me every single time no exceptions 23 days of MEV on polymarket: → best trade: whale dropped $200K on iran strike i front-ran them by 290ms +$18,400 → max drawdown: 2.8% → net: $628,000 all you need is a node on polygon $47/month while you're watching the price i'm watching the mempool while you're entering i'm already exiting you think you're trading the market you're actually trading against me only hardcode only RUST did you even know this existed?

We're hosting an event on the transaction pipeline in Cannes. Join us. This will be the largest such event since Frontier Research's MEV Day, back in 2023.

Blockspace allocation is about reflecting a maximum of information. Recommended reading.

One framing I like is that inclusion must be predictable only from the fee, i.e. independent of discretionary judgement. This then scales with how many parties are involved in constructing the block, and how independent these are of each other. One way of looking at it could be that as long as there is a distributed way of reconciling different blocks, we're some part of the way there. Then as long as block value is maximized, this gives predictable inclusion.

Finally, the block building pipeline. In Glamsterdam, Ethereum is getting ePBS, which lets proposers outsource to a free permissionless market of block builders. This ensures that block builder centralization does not creep into staking centralization, but it leaves the question: what do we do about block builder centralization? And what are the _other_ problems in the block building pipeline that need to be addressed, and how? This has both in-protocol and extra-protocol components. ## FOCIL FOCIL is the first step into in-protocol multi-participant block building. FOCIL lets 16 randomly-selected attesters each choose a few transactions, which *must* be included somewhere in the block (the block gets rejected otherwise). This means that even if 100% of block building is taken over by one hostile actor, they cannot prevent transactions from being included, because the FOCILers will push them in. ## "Big FOCIL" This is more speculative, but has been discussed as a possible next step. The idea is to make the FOCILs bigger, so they can include all of the transactions in the block. We avoid duplication by having the i'th FOCIL'er by default only include (i) txs whose sender address's first hex char is i, and (ii) txs that were around but not included in the previous slot. So at the cost of one slot delay, only censored txs risk duplication. Taking this to its logical conclusion, the builder's role could become reduced to ONLY including "MEV-relevant" transactions (eg. DEX arbitrage), and computing the state transition. ## Encrypted mempools Encrypted mempools are one solution being explored to solve "toxic MEV": attacks such as sandwiching and frontrunning, which are exploitative against users. If a transaction is encrypted until it's included, no one gets the opportunity to "wrap" it in a hostile way. The technical challenge is: how to guarantee validity in a mempool-friendly and inclusion-friendly way that is efficient, and what technique to use to guarantee that the transaction will actually get decrypted once the block is made (and not before). ## The transaction ingress layer One thing often ignored in discussions of MEV, privacy, and other issues is the network layer: what happens in between a user sending out a transaction, and that transaction making it into a block? There are many risks if a hostile actor sees a tx "in the clear" inflight: * If it's a defi trade or otherwise MEV-relevant, they can sandwich it * In many applications, they can prepend some other action which invalidates it, not stealing money, but "griefing" you, causing you to waste time and gas fees * If you are sending a sensitive tx through a privacy protocol, even if it's all private onchain, if you send it through an RPC, the RPC can see what you did, if you send it through the public mempool, any analytics agency that runs many nodes will see what you did There has recently been increasing work on network-layer anonymization for transactions: exploring using Tor for routing transactions, ideas around building a custom ethereum-focused mixnet, non-mixnet designs that are more latency-minimized (but bandwidth-heavier, which is ok for transactions as they are tiny) like Flashnet, etc. This is an open design space, I expect the kohaku initiative @ncsgy will be interested in integrating pluggable support for such protocols, like it is for onchain privacy protocols. There is also room for doing (benign, pro-user) things to transactions before including them onchain; this is very relevant for defi. Basically, we want ideal order-matching, as a passive feature of the network layer without dependence on servers. Of course enabling good uses of this without enabling sandwiching involves cryptography or other security, some important challenges there. ## Long-term distributed block building There is a dream, that we can make Ethereum truly like BitTorrent: able to process far more transactions than any single server needs to ever coalesce locally. The challenge with this vision is that Ethereum has (and indeed a core value proposition is) synchronous shared state, so any tx could in principle depend on any other tx. This centralizes block building. "Big FOCIL" handles this partially, and it could be done extra-protocol too, but you still need one central actor to put everything in order and execute it. We could come up with designs that address this. One idea is to do the same thing that we want to do for state: acknowledge that >95% of Ethereum's activity doesn't really _need_ full globalness, though the 5% that does is often high-value, and create new categories of txs that are less global, and so friendly to fully distributed building, and make them much cheaper, while leaving the current tx types in place but (relatively) more expensive. This is also an open and exciting long-term future design space. firefly.social/post/lens/8144…

Usually happens when (1) the relay underestimates its latency to the proposer (2) the relay does not have access to all blocks. In these cases, an adjusted block can lose the auction to a weaker block carrying a bid that is greater than the adjusted bid, but smaller than the non-adjusted bid.

@mostlyblocks what actually causes these failures? Is it just adjustments coming in too late in slot so the builder takes a previously proposed & less profitable block?

Review of PBS incentives, with proprietary data from the largest relays and builders. An example of an inefficiency flying under the radar are relay bid adjustments. This year, around 5% of these fail, leading to a less valuable block winning the auction. Quite natural for relays which lack incentives, but bad in aggregate. Many such inefficiencies to be remedied. This is a collective effort.

@MostlyData_ @ChorusOne Don't hold your breath, I think there's none ;)

@mostlyblocks @ChorusOne I'm curious too

The paper on dYdX v4 @MostlyData_ and I put out still stands as the best treatment of MEV on a decentralized CLOB to my knowledge. If anybody has found a more comprehensive analysis, send it my way. A "blast-from-the-past" now that @ChorusOne has been acquired. Link below.

Paper: chorus.one/reports-resear…