It’s My MEV and I Want It Now - Tom Schmidt

Introduction

Tom, a general partner at Dragonfly, discusses the Mev space from a VC's perspective. He talks about the mechanism design research and how to incentivize people to participate in options.

Mev Space from a VC's Perspective

• Tom is a general partner at Dragonfly, a global crypto venture fund.

• The mechanism design research has been great but there needs to be incentives for people to participate in options.

• The market needs to recognize the outcome that we want versus what the market decides.

• Preventing any single actor from seizing a part of the Mev stack is important.

Mev Supply Chain

Tom discusses how the current state of the world is changing over time and how it affects Mev supply chain. He also talks about centralization and positive flywheel.

Private Mempool

• A private mempool necessitates a change in how Mev and Meb supply chain is structured.

• 3.8% of total transactions aren't going through public mempool or are going through some other method that breaks our mental model of the world.

Centralization

• There is inherent centralization and positive flywheel of private order flow.

• Builder centralization is already happening.

Encouraging Decentralization

• We need to encourage privatizing workflow today to make it public again.

Safon's Mev Supply Chain

Tom talks about Safon's Mev supply chain and where all the activity is happening in the Mev space.

Leverage

• The further back you go in the supply chain, the more leverage that party has.

Transaction Formation

• Transactions are formed by sending a signature request to the wallet to the webview provider.

Understanding Order Flow in Ethereum

In this section, the speaker discusses the different components of the order flow life cycle and how they interact with each other.

Components of Order Flow

• The order flow has started to break down due to different components wanting to increasingly work for themselves.

• Different stacks conceptualize why they deserve the order flow and why they're trying to go after it.

• RPC providers are a common way of entering the supply chain, but it's a tough entry point for new companies and projects.

• Heartbeat is going down the route of convincing people to use their RPC by selling them on some sort of security angle.

• Another way is to sell directly to wallets since they have more leverage and integrate with them directly.

Approaches for Improving Order Flow

• One approach is having simulation tools that act as Norton Antivirus by scanning every single transaction before it hits the public mempool.

• Another approach is creating rpcs that go after ease of use, such as Gas Hawk which models out gas price fluctuation and sends transactions when gas prices are lower.

• Flash path protect or 1inch Rabbit Hole wait to make sure users aren't paying for sales transactions and can pay in arbitrary fees.

Challenges in Improving Order Flow

• It's hard to get people to switch over if they can't even switch over at all.

Monetization Strategies for Wallets

In this section, the speaker discusses how wallets can monetize their services and the importance of order flow.

Order Flow and Mev Extraction

• Not all order flow is created equal. Order flow from a bot entity or toxic order flow may not generate much MEV.

• Catering to people who are less price-sensitive and time-sensitive can generate more MEV.

• Wallets have leverage over which LPC endpoint an order is sent to, making them valuable in the ecosystem.

• Swallowing up RPC providers instead of having their own layer on top of them can provide UX security benefits as well as extract MEV before it hits the public mempool.

Alternate Sources of Monetization

• Wallets are looking for alternate sources of monetization since not everyone can have a money printer like Mirror Mask Swap.

• Charging on swap products is a better monetization strategy than extracting MEV.

Dapps and Intent-Based Transactions

This section covers how dapps kick off transactions and how Sushi has partnered with Manifold to extract EV from intent-based transactions.

Intent-Based Transactions

• Dapps initiate transactions by asking wallets to sign an intent-based transaction.

• The transaction itself can be an intent-based transaction that represents the user's intention without entering the wallet or a conventional Ethereum transaction that enters the wallet.

• Signing text instead of seeing what you're signing can be confusing for users.

Sushi Guard

• Sushi has partnered with Manifold to create Sushi Guard, which extracts EV from intent-based transactions before they hit the public mempool.

• The wallet doesn't see these transactions, so RPC providers don't either.

Understanding the Importance of Protocol and UI Layers

In this section, the speaker discusses how the protocol layer and UI layer are important in generating transactions. The percentage of volume going through first-party or third-party interfaces determines the leverage a user has in choosing where orders are routed.

Importance of First-Party Interfaces

• The protocol layer and UI layer are crucial in generating transactions.

• If a majority of volume is going through an aggregator or third party, users have less leverage in choosing where orders are routed.

• Having a great site or creating your own wallet/app gives more leverage to choose where order flow is generated.

Toxic Order Flow on Uniswap

This section discusses toxic order flow on Uniswap as a rough proxy for the percentage of volume not going through user interfaces but being generated programmatically or going through some sort of third party.

Toxic Order Flow on Uniswap

• Toxic order flow on Uniswap is a rough proxy for the percentage of volume not going through user interfaces.

• Building products that assume people can find transactions in public mempools may not be sustainable as land underneath Ned world is shifting rapidly.

Making Open Auction Fair to Users

This section talks about making open auctions fair to users instead of relying on benevolence to avoid malicious activities.

Making Open Auction Fair to Users

• It's essential to make open auctions fair to users instead of relying on benevolence.

• A world where most transactions go through self-extraction would be undesirable.

• Competitive pressures across different players are necessary to push the MEV generated back to users.

• The private mempool problem is growing, and more research is needed to quantify it.

Looking Ahead

This section discusses how people further up the supply chain have more power, and everyone is trying to move further up. It's essential to make it economically reasonable for them to give up their order flow and participate in an open auction.

People Further Up the Supply Chain Have More Power

• People further up the supply chain have more power, and everyone is trying to move further up.

• It's essential to make it economically reasonable for them to give up their order flow and participate in an open auction.

• Discussions should focus on making open auctions fair instead of assuming they will happen.

Introduction

The speaker concludes their presentation and offers to answer any questions before moving on to the next topic.

Conclusion of Presentation

• The speaker concludes their presentation and offers to answer any questions.

• They mention that they are running behind schedule and will need to move on quickly.

Transition to Next Topic

The speaker transitions to the next topic, which will be presented by Quintess.

Introduction of Next Speaker

• The speaker thanks viewers for their attention and mentions that they will now turn it over to Quintess.

• They mention that Quintess will be presenting on the topic of cats.