I uncovered another howler concerning Flashbots auctions over the weekend…
Extractors Owning Validators
Myth: Flashbots auctions mitigate the centralization risk of extractors investing profits into owning validators because they no longer need to own validators to extract.
This is not the case. If a searcher makes 5% running a strategy on someone else’s validator and 100% running it on their own validator, they are still incentivized to put their profits into buying validators.
Auctions ensure that the majority of extracted profits go to validators, therefore extractors will make more from running strategies on their own validators and centralization risk has not been mitigated.
This is in addition to the existing risks I highlighted of block builder centralization, censorship-as-a-service and unstaked hijack attacks.
MEV is fundamentally centralizing. You can’t build stuff ontop of a centralized component (lone miners choosing block content) and expect it to decentralize. It’s magical thinking. The only workable option is to decentralize content. I would not expect this idea to be controversial in this community.
From what I’ve heard, just two actors now dominate MEV extraction (Wintermute and Alameda) so it seems like the centralizing effects of unchecked MEV are already building. They will be busy buying up validators with their profits. Whichever of them is the first to establish a censorship market will dominate the other when full-block MEVA arrives.
All this proposal would achieve is to build a collusion network acting against the interests of the network into the network itself.