MEVconomics for Modular Blockchain Stacks - John Adler

Introduction

The speaker introduces the topic of MEV economics for modular blockchain stacks and outlines the components of any blockchain protocol.

Components of a Blockchain Protocol

• A blockchain protocol has a leader selection algorithm that determines who is permitted to produce new blocks.

• A simple resistance mechanism is needed to prevent someone from spamming potential candidate leaders.

• A block validity function or state transition function determines the rules around the validity of executing a block independently of who produced it.

• A fortress rule allows nodes to distinguish between two otherwise valid chains.

Theorems and Corollaries

The speaker discusses two important theorems related to decentralized blockchains and their implications for MEV capture.

Theorem 1: Leader Cannot Hold Chain Alone

• In any decentralized blockchain, it's required that a leader cannot hold the chain on their own. If they can, they effectively have control over it and can destroy it.

Corollary: Actor Can Become Leader with Sufficient Civil Resistance Mechanism

• If an actor is given access to sufficient civil resistance mechanism amount, they should be able to become a leader for one block in some finite time. As long as this is true, then the system is permissionless.

Importance of Leader Selection

The speaker explains why leader selection is important in preventing MEV capture by leaders.

Leaders Can Capture MEV Directly or Indirectly

• Leaders can capture MEV either directly or indirectly through things like arbitrage funds running sandwich attacks.

Manipulating Leader Selection Is Difficult

• Generally, it's hard to manipulate who is going to be the leader because the leader is tied to a civil resistance mechanism.

Mev in the Modular Blockchain Stack

In this section, the speaker discusses how Mev (Maximal Extractable Value) can be a concern in a modular blockchain context. They introduce the concept of a multi-chain world and explain why cross-domain or horizontal Mev is an important problem. The focus of the talk is on exploring vertical Mev, which refers to the relationship between roll-ups and data layers.

Introduction to Modular Blockchain

• The speaker introduces the concept of a modular world where there are shared data layers that provide high data bandwidth and multiple execution layers or roll-ups.

• The speaker mentions Celestia and Ethereum as examples of shared data layers and Sovereign and Scroll Austria as examples of execution layers.

• The speaker explains that in this multi-chain world, cross-domain or horizontal Mev is a concern due to arbitrage opportunities within different execution layers or domains.

Vertical MEV in Roll-Ups

• The speaker introduces the concept of vertical Mev, which refers to the relationship between roll-ups and data layers.

• They explain that while there may not be any relationship between these two in terms of arbitrage opportunities, leveraging the data layer for security is important.

• The speaker highlights that vertical Mev is different from horizontal Mev since it's not cross-domain but rather a vertical relationship.

• They mention their tongue-in-cheek first law of crypto dynamics: "Mev cannot be added or removed; it can only be moved from one layer to another."

Later Selection Algorithm for Roll-Ups

• To build an execution layer like a roll-up on top of a data layer, a mechanism to produce new blocks and a leader selection algorithm is needed.

• The speaker explains that leveraging the data layer for ordering is important to avoid synchronization issues between different consensus protocols.

• They mention that decentralizing sequencers is a convenient way to introduce a token and strong liveness guarantees are also desired.

Avoiding Waste in Data Layers

In this section, the speaker discusses how waste can occur in data layers and the importance of avoiding it. They also mention that Mev should be isolated as much as possible to individual execution layers.

Contention and Mev Bleeding Down

• Contention between transactions can lead to waste in data layers.

• Mev bleeding down to the base layer is not desirable because it creates centralization pressure on validators to extract them.

• Isolating Mev as much as possible to individual execution layers is preferred.

Leader Selection Algorithms

This section covers potential leader selection algorithms for Roll-Ups on top of a data layer. The speaker goes over two examples: first come first serve and tendermint style leader rotation.

First Come First Serve

• Leaders are decided by an auction on the base layer, which introduces PJ for who gets to be the leader.

• Useless transactions still go on-chain, wasting block space without providing value to end-users.

Tendermint Style Leader Rotation

• Uses only state within the roll-up and tendermint's leader selection protocol.

• Safety rather than liveness performing protocol makes it challenging to have good liveness.

Introduction to Celestia and Data Layer

In this section, the speaker introduces Celestia and the data layer. They discuss a priority field that can be validated by block producers to order blobs.

Priority Field for Ordering Blobs

• Celestia introduces a priority field that can be validated by block producers to order blobs.

• The priority field serves to order the blobs instead of just using their position in the block.

Issues with Priority Field

• The priority field degenerates into being isomorphic to first come first serve.

• The auction is done out of band and opaque, which may be even worse.

Base Roll-Ups

In this section, the speaker discusses base roll-ups and how they are based on previous work from 2019. They also talk about Mev boost and its use in preventing waste.

Base Roll-Ups Based on Previous Work

• Base roll-ups are based on previous work from 2019 called minimal viable merge consensus.

• Mev boost is used to prevent waste but introduces additional trust assumptions since it isn't completely trustless.

Issues with Base Roll-Ups

• Despite preventing waste, base roll-ups still have issues such as the use of an auction to select the leader.

• Mev still lays down despite introducing Mev boost.

Tie-In with MEV Economics

In this section, the speaker talks about how base roll-ups tie into MEV economics. They also give credit to members of the Celestia team who worked hard on these ideas and proposals.

Tie-In with MEV Economics

• The speaker is asked to add a slide on how base roll-ups tie into MEV economics.

• They mention that MEV economics is bleeding across vertical blockchain stock.

Credit to Celestia Team

• Members of the Celestia team and others worked hard on the ideas and proposals discussed in this presentation.

• The speaker encourages following these people on social media for further reading.

Further Reading

In this section, the speaker provides links to prior art, proposals, intuitions, counterpoints, etc. for further reading.

Links for Further Reading

• The speaker provides a bunch of links for further reading on prior art, proposals, intuitions, counterpoints, etc.