Targeting Zero MEV - A Content Layer Solution

I would prefer to take it futher and have no auction at all (whether GPA or MEVA). In this situation, you keep the EIP 1559 base fee to reflect overall demand and mitigate DDOS, but eradicate the tip (thanks @barnabe).

It is way better for users because:

  • no need to set/guess tx fees (which users dislike and which EIP 1559 is trying to address)
  • visible guarantees of order execution (tx order is quickly visible in the content layer before entering the block)
  • exploitative MEV is greatly reduced (simplest content layer=limited MEV auctions possible) or eradicated (enc/fair ordered content layer)
  • low gas costs

The low gas costs observation is potentially huge and is only just occuring to me. I am actively researching it and would love to stimulate a debate around it.

Essentially, any auction (whether GPA or MEVA) creates MEV by allowing users to bid on transaction order. In doing so we are not only auctioning off tx execution, we are also auctioning off tx priority (which is far more valuable as the MEV crisis has shown).

It is this extra value that makes it worth attackers bidding up gas costs to extract MEV. Users that are not trying to extract MEV then have to raise their bids to compete with the very attackers that are exploiting them.

Put simply, not only do auctions corrupt transaction order, they also raise gas costs (I suspect by a lot- I aim to quantify this).

Yeah what I am proposing is a systemic change. High gas prices and MEV are systemic problems.

Thoughts?

Seconding this. Very little of traditional HFT revenue is purely extractive in the same way that the front-running sandwich bots on DeFi are. The sizable bulk of HFT activity is market making, cross-venue arbitrage, or statistical arbitrage based on signals in the microstructure. In all those cases, the HFT entity is increasing liquidity and/or improving market efficiency through price discovery.

Sandwich front-runners contribute neither. There’s no permanent price impact, because the price ends at the same price as it would have without the attack. The closest analog to something traditional HFT actually does is the back runners which arb the price between different liquidity pools. Yes, HFT might contribute element of order flow prediction in the statistical sense. But it’s nothing like the way sandwich front-runners directly. In a traditional exchange order visibility and execution are atomic at the exchange gateway level, so there’s no way to know an order will arrive before it’s already filled. (The Michael Lewis book covered a very small corner case, where very large traders were sweeping liquidity at multiple venues with multiple orders, which were only predictable in the non-determistic statistical sense.)

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Great detail @Mister-Meeseeks.

Sadly not even that. It isn’t healthy price discovery if you can create or exacerbate a price imbalance by reordering/censoring txs.

Miners and MEVA winners literally create arbitrage and backrunning opportunities that would not otherwise exist and then risklessly exploit them.

And the final insult, average users that just want to get their txs executed have to compete on tx costs with the very people that have pushed the gas price up in order to rip them off (see my post above).

This is really, really interesting. If we consider transaction ordering to be a separate layer of consensus, the answer to “can we eliminate MEV” seems to be yes. As a trivial example, if we used a light-weight PoW sidechain that restricts each block to only contain 1 transaction as the content consensus layer for our main chain, the transaction ordering would be decentralized. I feel this framework opens up some new and interesting design space for developing a practical MEV-free blockchain.