Hazard discusses the MEV Dark Forest with Ian Andrews, the CMO of Chainalysis.
In this episode of Public Key, our host, Ian Andrews (CMO at Chainalysis) is joined by the podcast’s first anonymous guest. Nicknamed “Hazard”, the CEO of Rook, demystifies the “Dark Forest” of one of the greatest challenges of the Ethereum, MEV, which stands for maximal extractable value. Hazard clarifies extremely technical concepts around frontrunning, sandwich attacks, and flashbots.
"The best way to think about Flashbots is that they ensure that no one miner (or mining pool) is going to receive MEV that’s being captured. They democratize it in the sense that they kind of spread it around. […] It’s been quite successful." - hazard [17:55m]
"If you actually look at the numbers, there’s this outflow from users who are trading, or providing liquidity, or whatever — just doing productive activities on the blockchain — or from protocols trying to do the same thing.
"All this value gets extracted down to… today, miners; in the future, block producers and other kinds of systems. There’s this sort of leak… there’s value that’s flowing out of the system, away from the market participants, and into… the hands of miners, generally. This is… a bigger systemic issue.
"This user got sandwiched, front-run…" — that’s what everybody worries about — but the bigger issue is the ecosystem. We’ve built a system that basically has a leak in it. We need to fix that. Otherwise it’s not going to be super attractive for users over the long term." - hazard [21:45m]
"A lot of people think that we have an answer today. Or they think that maybe Flashbots is the answer, or that maybe we can fix this at the protocol level. Flashbots has never pretended to be an answer to this in the sense of stopping the leak. What they do is make sure the leak doesn’t go into any one mining pool. They make sure it doesn’t concentrate, because… the decentralization of the network would be at risk. But they don’t stop the leak. […]
"The work to stop the leak is really hard to do. This is probably the most intense area of active research right now. So there are a lot of really smart people thinking about this." - hazard [23:00m]
"Our perspective at Rook is a little bit different. We believe that… most of the MEV that’s being extracted actually belongs to the user. One way or another, it comes from market participants. An ideal system would ensure that this inefficiency [is] minimized. […]
"MEV starts at the application layer, which is where users and smart contracts are doing their thing, and then it is brought down by searchers or automated agents into this area where miners and block creators are doing their thing (the consensus layer). We think the work to eliminate this inefficiency needs to happen at the application layer." - hazard [24:20m]
"There’s been a buzzword going around about “MEV-aware protocol design,” and a lot of what we do is building products that enable that to happen, and align incentives so the users of these protocols that generate the MEV… are actually able to extract that MEV themselves. […] They’re able to retain that value that would have been lost." - hazard [25:20m]
"Today we’re the only ones who can do this, but I think it’s important to be thinking in this direction, because you can’t build a system as amazing as Ethereum and expect users to just kind of go along with the fact that there’s a bunch of money being taken out of their pockets." - hazard [32:20m]