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MEV Demystified: Exploring the MEV landscape in the BNB Chain Ecosystem

2023.8.25  •  13 min read
Blog post image.

Introduction

Maximal Extractable Value (MEV) is a concept that has become central to the blockchain industry, particularly in the context of decentralized finance (DeFi). MEV refers to the profit that miners, validators, and other participants can extract from the ordering, censoring, or inserting of transactions within a block. The players in MEV include users, wallets, searchers, builders, and miners, each with distinct roles and incentives. In this article we will go deeper into the MEV landscape around the BNB Chain Ecosystem.

Background and Progress

The industry's progress on MEV has been significant, with various solutions being developed to mitigate its negative impacts and enhance efficiency. BNB Smart Chain community has worked a lot regarding MEV since early 2023, and is finally on the path to deliver MEV solutions to all the validators.

The Ethereum ecosystem has been at the forefront of addressing MEV challenges and has implemented several innovative solutions to mitigate its effects. Here's a highlight of some of the current technical solutions within the Ethereum ecosystem:

  • Flashbots: Flashbots is a research and development organization that has created a transparent marketplace for MEV extraction. It allows searchers to directly send bundles of transactions to miners, reducing harmful effects like gas price auctions and enabling more efficient value extraction.
  • Archer Swap: This is a trading platform that helps users avoid front-running by routing transactions directly to miners instead of the public mempool. It provides users with better trade execution and protection against MEV-related risks.
  • MEV-Boost: Post-merge in Ethereum's transition to proof of stake, MEV-Boost is a middleware that plugs into the architecture, allowing validators to maximize Ethereum's censorship resistance by building low-MEV blocks locally while still outsourcing the building of high-MEV blocks.
  • SUAVE: Flashbots' SUAVE project aims to decentralize the block-building process. It acts as a plug-and-play mempool and decentralized block builder for any blockchain, including Ethereum, enhancing the resilience of the network.
  • COW Swap: A decentralized trading protocol that provides MEV protection by using private liquidity sources and routing transactions in a way that minimizes exposure to front-running bots.
  • Gas Token Utilization: Some searchers in Ethereum use gas tokens to pay for transactions, optimizing for gas savings and allowing them to bid more during auctions.
  • Decentralized Builder Concepts: Research into Distributed Builders and concepts like crLists (Inclusion Lists) aims to limit the centralization of block builders, ensuring a more decentralized and resilient network.
  • MEV Capturing AMMs: New automated market maker (AMM) designs are being explored to shift transaction ordering power to AMM designers and liquidity providers, allowing them to capture part of the MEV currently harvested by block-builders and proposers.
  • Order Flow Auctions: This mechanism allows any searcher or builder to bid for user order flow, creating a more competitive and transparent marketplace for MEV extraction.
  • Tornado Cash: A privacy solution that can also mitigate some MEV risks by breaking the on-chain link between source and destination addresses.

These solutions represent a concerted effort within the EVM community to address the complex challenges posed by MEV. The ongoing research and development in this space are indicative of a maturing industry that is actively engaging with its most pressing issues.

Current On-Chain analytics and implementation

As of the latest data, approximately 22 validators have integrated with MEV providers, out of 29 that are actually active. This represents a significant portion of the active validators and underscores the growing importance of MEV in the blockchain ecosystem, with BloxRoute emerging as a relay within the BSC validators community.

Growth Trend

There has been a strong increase in integration over the last quarter, indicating a growing interest in MEV optimization for BSC validators. This trend is particularly noteworthy when considering that at the end of 2022, only 6 validators had integrated with MEV providers. The rapid growth in integration reflects the perceived value and potential of MEV, and it suggests that this area will continue to be a focus of innovation and investment in the coming months and years.

Many validators have reported increased profits and efficiency. The integration of MEV providers has allowed validators and delegators to tap into new revenue streams and optimize their operations. This success has been a driving force behind the growing interest in MEV across BSC ecosystem

On the other hand, some validators face difficulties in integration, competitiveness and transparency. The complexity of integrating MEV providers with existing systems can pose technical challenges. Additionally, concerns about transparency and competitiveness implications of MEV extraction have raised questions about the long-term sustainability and public perception of these practices.

These successes and challenges paint a nuanced picture of the current state of on-chain MEV analytics and implementation. They highlight the need for ongoing research, development, and dialogue to ensure that MEV continues to evolve in a manner that balances profitability with responsibility and transparency. The current landscape highlights the need for more competitiveness and the introduction of more relays to ensure innovation, enhance efficiency, and ensure a more balanced and robust MEV ecosystem for BSC.

Challenges and Opportunities

MEV presents both challenges and opportunities for the blockchain industry. While it raises complex issues related to fairness, centralization, and ethics, it also offers the potential for enhanced efficiency, profitability, and innovation. Attracting more relayers requires a multifaceted approach that emphasizes transparency, incentives, ease of integration, community engagement, and regulatory compliance.

Challenges in Implementing MEV

  • Fairness in Transaction Prioritization: Ensuring that transactions are processed fairly and not subject to manipulation by miners or validators is a significant challenge. The ability to reorder or exclude transactions can lead to front-running and other exploitative practices.
  • Complexity of Implementation: Creating a system that can effectively capture MEV while maintaining network integrity and performance is complex. It requires careful consideration of various factors, including transaction fees, gas prices, and network congestion.
  • Centralization Risks: MEV can incentivize centralization, where a few powerful entities control the majority of mining power. This can undermine the decentralized nature of the blockchain and create vulnerabilities.
  • Ethical Considerations: The extraction of MEV raises ethical questions about the fairness and transparency of the blockchain. It can create an uneven playing field where certain participants have an advantage over others.

Opportunities for New Implementation

  • Enhanced Efficiency: Properly implemented, MEV can lead to more efficient block production and transaction processing. By optimizing transactions, miners can maximize their profits while improving network performance.
  • Potential Profitability for Various Actors: MEV presents opportunities for miners, searchers, block builders, and proposers to earn additional revenue. By strategically including transactions, they can capture value that would otherwise be lost.
  • Innovation in Transaction Processing: MEV opens the door for innovative solutions in transaction processing, including batch auctions, fair sequencing, and threshold encryption. These can mitigate some of the challenges associated with MEV and enhance the overall user experience.
  • Collaboration with Layer 2 Solutions: Integrating MEV with Layer 2 solutions like roll-ups can create synergies that enhance scalability and performance. It also allows for experimentation with different MEV models and approaches.

Community Dev and Multiple technical proposal approach to resolve the challenges and how to move forwards

Multiple approaches, including various architectural solutions, represent a collaborative strategy to address MEV challenges and help to move forward in the broader ecosystem. By leveraging diverse expertise and innovative solutions within the community, we’ve highlighted below implementations that reflect a concerted effort to enhance network efficiency, security, and profitability, fostering a more resilient and adaptive blockchain infrastructure.

Bid Relay, within the MEV infrastructure, serves as a pivotal bridge connecting various transaction stakeholders, streamlining MEV opportunities identification and exploitation. Its bidding process not only ensures transparency and fairness but also optimizes profit for both validators and searchers. By acting as an intermediary, Bid Relay enhances network efficiency, reduces congestion, and bolsters security, all while aligning with the decentralization of blockchain. Its integration is essential for a robust, scalable, and equitable MEV infrastructure, ensuring optimal transaction processing and profit maximization.

Let’s start with an introduction to Bid Relay.

Bid Relay is a sophisticated approach to managing MEV within blockchain networks. It focuses on creating a more transparent, efficient, and equitable environment for transaction inclusion. Here's an introduction to its components and the importance of each design element:

Components and Workflow

Searchers: Identify MEV opportunities and send bids to the MEV Relay.

MEV Relay: Centralizes the bidding process, collecting and aggregating bids.

Miners/Validators: Decide on transaction inclusion based on proposals from the MEV Relay.

Importance of Each Design Element

Searchers' Role: Enables a competitive environment where different entities can identify and bid for MEV opportunities, fostering innovation and efficiency.

MEV Relay's Role: Acts as a transparent intermediary, reducing network congestion and ensuring a fair bidding process.

Miners/Validators' Role: Enhances network integrity by making informed decisions on transaction inclusion, based on aggregated bids.

Overall Importance

Efficiency: Centralizing the bidding process reduces complexity and speeds up transaction processing.

Transparency: Ensures that all participants have equal access and understanding of the process.

Profit Maximization: Facilitates profit maximization for miners and searchers through a structured bidding process.

Adaptability: Its design allows for implementation across various blockchain networks.

In conclusion, Bid Relay MEV Architecture offers a balanced and innovative approach to handling MEV. By focusing on the roles of searchers, MEV Relay, and miners/validators, it promotes fairness, efficiency, and transparency. Its unique design elements make it a promising solution for the ongoing challenges associated with MEV in the blockchain ecosystem.

Flashbots-like solution for BSC introduce by BloxRoute, currently live with 9 validators:

Introduction

Flashbots is an open-source, permissionless, and transparent solution for MEV (Miner Extractable Value) extraction on Ethereum. As BSC is EVM based, It can naturally be replicated for BSC with some modifications. The introduction of mev-boost in Ethereum has created a win-win situation for Searchers, Block builders, and Proposers. For this reason, BloxRoute team worked on a proposal that aims to implement the same profit-maximizing and profit-sharing spirit on BNB Smart Chain.

Overview

The MEV-Relay will propose potential blocks to connected Validators. Unlike Validators, the MEV-Relay can receive transaction “bundles” constructed by MEV Searchers, allowing for the maximization of profit for all stakeholders.

Architecture:

The architecture integrates the roles of searcher, builder, and relay to produce the most profitable block using an MEV builder. However, there are extra modifications required for the validator program.

Implementation

MEV-Relay Proposing Blocks: Within a given block, the MEV-Relay can propose multiple blocks if a new block offers a better reward. The validator validates and seals each proposed block that improves the value.

  • Validator-Node Changes:
  • Open HTTP Endpoints: To whitelist relay(s) and implement endpoints like eth_proposedBlock and eth_registerValidator.
  • Parallel Production: The validator also produces blocks from mempool transactions and selects the block with the highest reward to commit to the network.
  • Rate Limiter: Implement a rate limiter on eth_proposedBlock by IP.
  • Startup Arguments: Accept arguments like miner.mevrelays and miner.mevproposedblockuri.
  • Endpoints:
  • eth_proposedBlock: Represents a proposed block from the relay.
  • eth_registerValidator: The validator calculates a hash on the bytes that present the URI to accept eth_proposedBlock and signs it.
  • Validator Startup Arguments
  • miner.mevrelays: Destinations to register the validator in each epoch.
  • miner.mevproposedblockuri: Your validator URI that MEV relays should send the proposedBlock to.
  • miner.mevproposedblocknamespace: Specify if the validator should accept the proposedBlock using the eth, or mev namespace.
  • Timing: Initially, the MEV-Relay will start proposing blocks 2.5 seconds after the current block start time, this is due to the fast block time within the BSC network. A validator needs to validate and propose a block within 3 seconds (see this blog for more information on the importance of those 3 seconds).
  • Customization: Customizing the code of the validator is necessary, but it comes with high long-term upgrade and maintenance costs.

Open-sourced code:

https://github.com/bloXroute-Labs/bsc-mev-validator/pull/1

Pros

  • Profit Maximization: By allowing MEV-Relay to propose potential blocks, the solution maximizes profit for all stakeholders, including Searchers, Block builders, and Proposers.
  • Transparency and Collaboration: Being an open-source project, it encourages community collaboration and ensures transparency in the development process.
  • Parallel Production: Validators can produce blocks from mempool transactions in parallel, optimizing the block selection process.
  • Rate Limiting: Implementation of a rate limiter on eth_proposedBlock by IP helps in controlling the traffic and preventing abuse.
  • Enhanced Functionality: By implementing specific endpoints, methods, and configurations, the solution enhances the overall functionality of the BNB Smart Chain.

Cons

  • Customization Complexity: Customizing the code of the validator is necessary, but it comes with high long-term upgrade and maintenance costs. This could be a barrier for some validators and would need to be updated based on the upcoming BSC upgrade.
  • Potential Security Concerns: Opening HTTP endpoints and implementing new methods might introduce potential security vulnerabilities if not handled with utmost care.
  • Dependency on Validators: The success of the solution depends on validators' willingness to implement the required changes, which might not always be guaranteed.
  • Timing Constraints: The fast block time within the BSC network imposes constraints on the timing of proposing blocks. Validators need to validate and propose a block within 3 seconds, which might be challenging.
  • Potential Centralization Risks: If not implemented with decentralization in mind, the solution might lead to centralization risks, where a few entities control the majority of the MEV extraction.

The Flashbots-like solution for BSC by BloxRoute represents a significant advancement in maximizing profits and efficiency within the BNB Smart Chain. While it offers numerous benefits such as profit maximization, transparency, and enhanced functionality, it also comes with challenges related to customization complexity, potential security concerns, and timing constraints. Careful consideration and robust implementation are essential to leverage the pros while mitigating the cons of this innovative solution.

BSC MEV - Utilizing Sentry Node

In the context of BSC, implementing MEV solutions can be complex and potentially risky for the network stability as block size increases and number of validators expand. Utilizing Sentry Nodes as part of the MEV solution offers a way to mitigate these risks and enhance network stability.

Architecture Overview

The architecture focuses on the use of Sentry Nodes, which act as protective barriers for validator nodes, ensuring that the network can sustain denial of service attacks. The key features of this architecture are:

  • No Change to Validator Node: By focusing the MEV implementation on the Sentry Nodes, the validator nodes remain untouched, increasing network stability and safety.
  • Sentry Node Modification: Only the Sentry Nodes need modification, allowing for a more controlled and secure implementation of MEV solutions.
  • Private Connection Between Validator and Sentry Nodes: The validator nodes establish private connections with their corresponding Sentry Nodes, which communicate with other nodes in the public P2P network.
  • Security Through Isolation: The validator node is effectively surrounded by Sentry Nodes, isolating it from direct exposure to the public network and potential attacks.
  • Configuring Direct Send and Pull Mechanisms: Set up the Sentry Nodes to utilize the Push method for transactions to the validator node, while using the Pull method for other nodes in the public P2P network.
  • Monitoring and Maintenance: Implement monitoring tools to keep track of the performance and security of the Sentry Nodes. Regular maintenance and updates are essential to ensure optimal operation.

In the P2P network, transactions can be propagated in two ways:

  • Push: The sending node sends the complete transaction directly to the receiving validator node. This method is quicker and preferred within the BSC network due to the critical 3-second time window for block validation.
  • Pull: The sending node only sends the transaction hash, and the receiving node pulls the transaction from the Sentry Node if it does not exist locally. This method is slower due to the additional back-and-forth communication required.

MEV Builder Integration
The MEV builder can be integrated into sentry node architecture to prioritize the extraction of MEV. By ensuring that the Sentry Nodes only send the transaction hash to the validator node, and having the MEV builder send the complete transaction, the MEV builder gains an advantage in transaction arrival time. This priority allows for more efficient and effective MEV extraction.

Some benefits in Implementation via Sentry Node:

  • Enhanced Security: Sentry Nodes act as a protective barrier around the validator node, shielding it from direct exposure to potential attacks. This isolation is a significant advantage over Flashbots-like solutions, where the validator nodes might be more exposed.
  • Stability: By focusing the MEV implementation on the Sentry Nodes and leaving the validator nodes untouched, the core functionality of the network remains stable. Flashbots-like solutions might require more extensive modifications to the validator nodes in the future, potentially introducing instability.
  • Scalability and Flexibility: Sentry Nodes can be quickly spun up or have their IP addresses changed. This flexibility allows for easier scaling and adaptation to changing network conditions, something that might be more challenging with Flashbots-like solutions.
  • Efficient MEV Extraction: The architecture allows for optimized MEV extraction by prioritizing the MEV builder in transaction arrival time. This efficiency might be harder to achieve in Flashbots-like solutions where the transaction propagation might not be as controlled.
  • Lower Maintenance Costs: Implementing MEV through Sentry Nodes might require fewer changes to the existing network infrastructure compared to Flashbots-like solutions. This can lead to lower long-term upgrade and maintenance costs.
  • Customization: Sentry Nodes offer a more controlled environment where specific optimizations and customizations can be made for MEV extraction. Flashbots-like solutions might not offer the same level of control and customization.
  • Compliance with Existing Network Topology: Many networks already utilize Sentry Nodes for security purposes. Implementing MEV through Sentry Nodes aligns with this existing topology, allowing for a more seamless integration.

The utilization of Sentry Nodes as Web3 in the BSC network for MEV implementation can offer a robust and efficient solution. By focusing the implementation on the Sentry Nodes and integrating the MEV builder, this architecture ensures security, stability, and efficiency. It represents a promising alternative direction for the ongoing development and enhancement of the BSC network, aligning with the broader goals of transparency, profitability, and resilience in the blockchain ecosystem.

Overall

The BSC network faces a complex landscape in implementing MEV solutions, with different approaches offering unique benefits and challenges. Two emerged solutions: the Flashbots-like solution introduced by BloxRoute and the Sentry Node architecture. Both approaches have their merits, but they also present distinct challenges that must be carefully navigated.

The Flashbots-like solution offers a transparent and open-source approach that maximizes profits for all stakeholders. However, it requires significant customization and potentially introduces security vulnerabilities and centralization risks. On the other hand, the Sentry Node architecture emphasizes security and stability by isolating the validator nodes and focusing the MEV implementation on the Sentry Nodes. This approach offers enhanced security, scalability, and efficiency but may also present its own complexities and limitations.

Future Direction and Conclusion

MEV represents a complex interplay between various stakeholders, each seeking to maximize their gains while maintaining network stability and integrity. Several architectural solutions have emerged to address the challenges of MEV, including Flashbots-like solutions and Sentry Node utilization. These approaches leverage diverse expertise and innovative solutions within the community, aiming to create a win-win scenario for all involved.

Transparency is key to building trust and fostering collaboration within the blockchain community. Integrating MEV in a transparent way while ensuring that blockchain explorers allows for clear insights into transaction processes, enabling all stakeholders to understand and participate in the ecosystem more effectively. For more detailed research report on MEV, refer here

The future of MEV within the BSC Ecosystem holds exciting possibilities. From enhancing security and efficiency to boosting transparency and collaboration, MEV is poised to play a central role in the ongoing development of the blockchain space. Validators, searchers, and the wider community stand to benefit from these advancements, as long as the challenges are addressed with care and innovation. The integration of MEV with explorers, in particular, represents a vital step towards a more transparent and resilient network. By embracing a community-driven, collaborative approach, the BSC ecosystem can leverage MEV to its full potential.

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