Hello, everyone. Microphone check. Can everyone hear me?
Yo, loud and clear, Agnes. How's it going, everybody?
Thank you very much. We'll get started in a minute or two. I think we have everyone who
we require as a speaker. So I also need to just post a tweet about this as well because I forgot
to earlier. So I'll be back on in about 30 seconds to a minute and we'll get started.
Okay, GM, GM, I hope everyone's ready to start because I am now. I just did a tweet about
this as well. I always find it a bit fiddly that you have to kind of get the link for the
space and kind of put it as a reply. Easier links to the spaces. Twitter. And while we're
at it, right, it would be good to not have to do it on my phone. I would like to do this
on my desktop with headphones. So if anyone's listening, that would be very useful. So let's
get started. Welcome to the lookout. My name is Agnes. I'm your host. And today we've got
a fabulous guest, Max Resnick. And we're going to talk about lots of technical things, including
MEV, mechanism design, and, you know, some other things in the blockchain space. Design
choices that different blockchains have made. It's going to be really interesting. You should
all retweet. Well, first of all, first things first, everyone follow me on Twitter first.
Then retweet the tweet that I did about this show so that you can get all your friends
to listen. Also, we have Terry with us. He's going to do an introduction later as well.
He works on DevRel with me, I'd say. So this is the lookout, right? The lookout is an object
in the Dragon Ball Z universe. It's a giant platform that's in geostationary orbit above
the planet where the action takes place. And so that's the kind of metaphor for what this
space does. We're kind of looking down from a higher bird's eye view of the blockchain
industry with people who are building stuff and who are really deep in the technical
aspects of things to talk about the technology and get a deeper technical insight into things.
So as a result of that, we won't be talking about any projects or tokens or trading or
prices or anything like that. It's only technology. You can ask the questions if you want in the
chat, but we're not going to answer them as you all know. I say that every week. It's
just something I have to say. So first things first, my name is Angus. I'm your host. I
already said that. I lead developer relations at Sade. And yeah, so I've been working
on this. This is a second or third Twitter space in the series. It's really gaining momentum.
And I'm really happy that we could bring these amazing speakers on and share them with
you. Terry, you want to say hi quickly as well?
Yeah, for sure. I think, yeah, it's definitely been a good growth on these spaces that we
have to be having. Just having the tech spaces and having amazing guests come on to
speak about innovations and stuff that's happening in the crypto space. Yeah, I
think, yeah, a notable thing to talk about is also like a recent, a recent developer Discord
spaces, which is office hours. I think it's been pretty successful as well. Got quite a
few, say, native staffs coming in to talk about things that we're building. Yesterday,
talked to like a common abstraction, some DB stuff, as well as like someone building a
sniper bar, a lot more to come, right? So that's definitely something we aim for in a very
high level picture. So these tech spaces are going to be really a minute for us to go to
as we go. Just having industry leaders come in and speak about things that the crypto
space should be aware about and what Sade should be looking forward to near future. Say
me too coming as well. It's going to be huge. So yeah, looking forward to see how things
develop from here. Yeah, that's all from me.
Okay, awesome. Thank you, Terry. That's a good thing to mention. We had office hours
yesterday. If anyone here is a developer or interested in building something with say we
have Discord on our Discord server, we run office hours. So you can come speak to the
team and sometimes engineering members of the engineering team. So that's a really good
chance to ask your questions and share what you're working on. Indeed, there was someone who was
building or trying to use some sort of sniper bar. But what Terry didn't mention was some quite
disastrous results. So if you want to find out more about that, you can come to office hours.
Obviously, we'll remind you about that at the end of the space, and we'll drop the links as
well. So today, the schedule as usual, we've done our introductions, we're going to get straight
into it and kind of have the interview portion. So I'm going to have a discussion, Q&A.
Well, so I'm going to be doing the questions, and Max is going to be doing the answers.
We're going to have a discussion about what he's working on and some of these other things,
right? So this idea of MEV, how it happens, how it works on Ethereum, how, you know,
the say blockchain is different, because it's built on different blockchain technology.
And so maybe some other fun stuff, which I've kind of got ready. I've got a good tweet to share
with you to say, wow, look at this, this is crazy. And then after that, we'll have a Q&A section.
So if at any point you've got a question that you want to ask, Max, or have a general thing
that you want to ask both of us, you can put that down. I think there's kind of a chat box
thing that you can, you can, it counts as a reply on the tweet.
I'll share, I'll share it right now. So people can comment to your questions.
Oh, fantastic. See, this is why you have Terry. He's always the man with the plan. He's got the
answers. So you can, you can kind of post your questions on there. Terry will select the best
ones. And we will answer them at the end. So it's time to get on to the next section.
I'd like to introduce Max, who hopefully has been given speaker privileges. Hopefully he's
listening and can. Yeah, I think. How's, how's my mic doing? Mic check. Okay. Loudly clear.
So the first thing to do is, Max, it'd be great to, if you could say hello,
give a quick introduction to yourself and then I'll ask you about special mech SMG afterwards.
Yeah. Hi everyone. My name is Max Resnick. I'm the head of research at special mechanisms group.
I recently finished a master's degree in econ at MIT a couple of years ago. And I just decided to
instead of going on to a PhD, kind of go directly into crypto and get my hands dirty,
doing some applied mechanism design and game theory and auction research, which is
what I probably would have done if I went into academia right away anyway. But here I get to
do it with real stakes, not just moving symbols around on the paper.
Special mechanisms group or a MEV research organization. We recently got acquired by
consensus. So now we're working closely with a lot of the aspects of the consensus business,
including linear and metamask. And we're doing a bunch of special projects throughout,
but we're also continuing our focus on MEV research. And we work really closely with
PBS, which is kind of the main way that blocks get built on Ethereum today.
So we've done a lot of research on that. Awesome. So that was a great introduction.
I knew, you know, you're the head of research. And if anyone's looked at Max's Twitter bio,
he's got a couple of, he's done a math degree and now he's done a master's degree in econ.
So I knew that I was going to have to do some research myself before this Twitter space.
And indeed I have, I've got some good things to talk about. It's very interesting as well
that you mentioned being able to work with real stakes. I think that's something that
blockchain has really probably presented a whole new world for people who are studying
things like game theory and these sorts of mechanism designs, right? That, you know,
all of a sudden you can kind of put something out there and see most of the time how the
academic models break. And that's something as well that I'd like to ask you about later on
as well, about applying this sort of academic analysis of things in the real world, or well,
as real as the blockchain world can be, right? Because I've seen a couple of people, you know,
people writing papers and presenting models and things, and it'd be good to talk about the
actual outcomes of them as well. And so it was a good intro to SMG as well. Now, I think,
so SMG has a focus on Ethereum, right? But I think in blockchain, even if you're not based on
Ethereum, there's always that kind of secondary focus that you have on Ethereum just because,
you know, there's so much research going on, right? And a lot of the time Ethereum will
be trying things first and learning a lot of lessons that you can draw from. So
reading through the tweets that both you and SMG have posted, it seems like, you know, there's
been a lot of focus on what you called PBS, which is Proposer Builder Separation, right? And
that has to do with MEV. So can we do a quick introduction to MEV for people who are maybe on
here, don't know exactly what that stands for, what it means? Yeah, so I guess there's a little bit of
contention about whether MEV stands for minor extractable value or maximal extractable value.
I prefer minor extractable value, I think it's a little easier to say, but of course,
if you're talking about Ethereum or say, or some other proof of stake network,
minors don't exist. But originally, it was this idea that whoever is the minor in Ethereum proof
of workday can order transactions however they like, and they can include whichever transactions
they like. And that's an opportunity to make a bunch of money either by censoring,
or by charging monopoly rents on your block space, or by reordering transactions to front run users.
All of these are ways to make money from the privilege of ordering transactions.
And so that's, I guess, the broad scope of MEV, but I think it's taken on an additional meaning
to extend to kind of everything that goes on in terms of people who trade and make money on the
blockchain. So even people who aren't directly involved in building blocks and reordering
transactions, but maybe they just run a bot that submits kind of liquidations or something,
those are also classified under MEV. And then should I define PBS? I guess I'll do that since
we're on the topic. PBS is basically a way for validators who aren't super sophisticated,
who don't run their own bots or have their own trading firm in-house to harvest those MEV
premiums that require kind of skill and resources to harvest most effectively. And the
way they do that is they sell the block, the right to build the block. So about 90% of Ethereum
validators do this. So, you know, you land a transaction, there's like a one in nine or
one in 10 chance that it's in an MEV boost block, which is not built by the validator
themselves, but it's built by a builder who bid in the PBS auction and won that auction.
And consequently, the block was built based on what they wanted to do.
Yes. And then so that's MEV boost, right? So you can you can auction,
you're right to build the block, somebody else can pay you for it. And then okay, yeah. So I'm
currently still trying to get my head around a lot of this stuff. Every time I try and go into MEV,
I realize how complicated it is. One time I was at a conference and I got the elevator to the
wrong floor. And I kind of, I came out in the middle of a flash bots kind of, you know, community
kind of public forum discussion about what they should be doing. And I just thought, I don't
know what any of these guys are talking about. It's interesting. So one of the things that I've
been reading about is the idea of timing games as well. So I wanted to ask what you think about
timing games to explain to everyone. A timing game is where, and so we might be able to link this
back as well to PBS and MEV boost, but timing games on the Ethereum network refers to when,
is it the the proposer takes longer to propose the block, which then means that they have more time
to be able to collect transactions and order them in a way which is favorable to them, right?
Yeah, that's exactly right. And I guess the way it actually works in practice is that the proposer
delays calling the MEV boost auction. So instead of running the auction over 12 seconds, they run it
over 13 seconds or 14 seconds. And it turns out in 14 seconds, the price moves a little bit more
on Binance and there's more transactions like you said. And so you just make slightly more money.
The problem is there's an attestation deadline and there's some randomness when you submit
your block, basically, due to the topology of the network. So when you submit your block
to the attesters, it has to come in before the attestation deadline. Otherwise the block
is invalid, doesn't get attested to, and we basically don't have a block, which is bad for
the Ethereum network. And every validator has kind of some noise distribution when they
are submitting their block. So the later you announce, the more likely you are to
fall past that attestation deadline. And in the vanilla client implementation,
they're supposed to announce their block right at the start of the slot.
But of course they can unilaterally deviate from that and just announce it slightly later.
The problem is then they're more likely to miss their slot because they missed the
attestation deadline due to randomness. But if everybody kind of moves one second later,
everybody has exactly the same slot time, still 12 seconds because they've added one second,
but the previous guy took one second from them. And then you basically end up with exactly the
same scenario where people have the same slot times, but you have like slightly increased
probability of failure. So that's kind of the problem with timing games.
Yeah, I've seen a couple of opinions that, and so there's some interesting game
theoretics here that we can get into, which I think is something that you'll enjoy
talking about. I've seen a couple of opinions that say timing games are negative for the network
because they can result in more missed blocks. They push the time on. So basically you're stealing
time from the next proposer who is then stealing it for the next one. So it kind of has this
knock-on effect, but it's rational for you to play timing games because it's advantageous to you
in your slot to propose. So what do you think? Are there solutions for this?
Another interesting aspect as well before I throw this question to you is it's basically
because you mentioned that there's randomness in the response times due to the network
and the hardware people are running etc.
One of the other aspects is that it's very difficult to
distinguish if someone's playing a timing game versus just a random delay or an unintentional delay.
So then can you see that this will have some sort of solution or will they need to
you know go back to the drawing board and really think this through?
Well there's one kind of simple fix and let me describe the fix and then I can
describe the people who are in opposition to it. So if you increase the penalty for missing your slot
then you will have less missed slots, right? And people people have to call earlier even
if they're rational in playing timing games they'll have to call earlier because
it's more painful to miss the attestation deadline so they have to call earlier to be safer.
Right now we don't have a missed slot penalty. All you do on Ethereum is you kind of miss your
reward for proposing a block which is almost negligible relative to
like the MEV rewards I would say. Basically you have almost a thousand dollars of fees
in the average block but only $50 of that actually ends up in the hands of the proposer
because most of that's burned due to EIP 1559 and so missing a block loses you like the $50 on
average but loses the network almost a thousand dollars on average. So my suggestion would be let's
bring up the missed slot penalty to the level at which missing a slot harms the network.
So something like 50 million gas times the base fee at the time and that would just be like
basically saying if you miss a slot then you're harming people because they want to get their
transactions into the block and you missed it so we're going to penalize you at the rate
that it's valuable to the network. I think that makes sense the way that you've explained it
is so when you when you miss the block proposal slot you don't get to include the block in the
chain right? Right it just gets skipped basically and so it goes to the all the kind of
transactions have to wait another 12 seconds till the next proposer proposes. Yeah so that is that's
net that degrades the network performance for users right for people who aren't trying to
basically get the maximum amount of squeeze the most juice from it so then over 10 blocks or
something say you miss five blocks or even if you miss nine blocks but the one block you hit
right with really good MEV you're gonna make it all back you know you lose $450 for
nine missed slots but then when you hit the tenth one you gain you know more than that so it kind
of makes sense for them to do it and so but under your proposal they would you know have much more
to lose by missing these slots so that makes sense. Yeah I mean it's not exactly like it's
not the magnitude that you said with like missing nine slot I mean if you miss nine slots the
benefit is not there but it's more like you're missing slightly more slots when you call later
because you're slightly more likely to come past the attestation deadline and so you're kind of
doing that literally calculus of you know how do I maximize my rewards by calling later
but not push myself over and so the balancing act of not calling too late is actually
the penalty for missing the slot and so if you increase that penalty people call earlier.
Well according to game theory as you said right sometimes it goes differently in the real world
but I think it's a reasonable hypothesis to start working on the basis of so
now that's that's been a really good introduction I think and I've already learned more about how
MEV works on Ethereum just talking to you. I think what I wanted to do now was go slightly off the
beaten track it seems to me that there are people working on MEV in various forms in the Cosmos
ecosystem but I was wanting to talk to you and here's where we yeah this may be something
that nobody's ever considered before or discussed. Now the thing about say is say is very fast
and it also runs on Cosmos SDK from my and I will caveat this my understanding of Cosmos SDK is
limited so I'm by no means a protocol expert on Cosmos so if anyone is listening and says
you know I've got things completely wrong request to speak or mention the comments
and you can tell me we do have some Cosmos experts people who are building the protocol
coming up on the space in future coming soon in weeks in the next couple of months so
definitely follow me on Twitter now announce when we have those people on but so now Max what I want
to say to you is the Cosmos SDK the way it works out the box and these are kind of tweakable
parameters but the block fees are shared amongst the validators but kind of unequally so you wouldn't
get the whole block reward it's kind of shared out amongst everyone but if you you would still
know so the MEV opportunity is still there for validators but I don't think there's
quite the same incentive for the validators to do MEV for participants right so in Ethereum
there's ways to basically get your transaction to the top of a block right by giving
tipping to the validator right adding to the Coinbase I believe that's how they do it
and so in Cosmos SDK it's not as direct a transfer so if you give a massive transaction fee
the block fees are shared amongst validators according some parameters which include their
kind of their voting weight in the proof of stake network so how many tokens people have
staked to these these these validators as they're called and then also if if you hit
like a massive block reward I think
you only get there's something where it's like
but you get five percent of the block reward five to ten percent of the block reward that
you build and then the next validator gets more of it so what I was wondering was
in that landscape where MEV people who are looking to take advantage of MEV if they can't
basically tip the validators as reliably how do you think that affects the the validator's behavior
if they can kind of if they can enable MEV for participants but they can take advantage of the
the upside over which is the block rewards in as direct a fashion do you think that changes
the game theory logic of the situation yeah so if that was the only way that you could
send a transfer between somebody who wants to get their transaction on chain
and somebody who's building a block then it certainly would be it would change the incentives
I mean if you multiply the incentives by 0.05 then people are going to be investing less money into
extracting MEV but that mechanism that Cosmos SDK has of sharing the rewards is actually not
side contract proof so whoever is the proposer can spin up their own
secondary kind of market where people pay them to place them however they want in the block
and that is like maybe social slashable if you have a small validator set
but it doesn't I mean I would say that mechanism doesn't really work for a decentralized network
in the later stages because it's not incentive compatible like the
the validator can run their own version of a client and make a lot more money
does that make sense my critique of it is basically the validator just sells the
block space in an external market and they get all of the fees from the external market
and completely bypass the sharing
that does I think your critique does make sense it reminds me actually someone mentioned that
when you said social slashing someone said when we were talking earlier about timing games and how
they were kind of net bad for the network someone said well we should we should hold large validators
and people with public profiles to account for this if they do it in a social way and I thought
well that's not very blockchain is it because social you know responsibility is a good idea but
in reality if you're a validator and you can squeeze mev out of things then you can pay more
rewards get more votes and kind of cement your position right and so it's kind of a
positive feedback positively reinforcing feedback cycle right if you are a validator able to take
control take advantage of that so I think it's a valid criticism I also just to follow up on that
what does the social slashing look like when Lida which is a consortium of many
validator operators one of them P2P says openly on Twitter we're doing timing games
do we penalize Lida do we penalize P2P what's supposed to happen in that scenario
and if we don't do anything about it then they're stealing slot time from everybody else
right so it's very hard to enforce socially it's also very hard to like unless they announce hey
we're doing timing games it could just be that they moved their node operations from Frankfurt to
AWS or something in in Virginia like it could be anything unless they announce it on Twitter
in which case we can go back and look and well what a surprise they announced that they're doing
timing games and they're doing it but I think it's it's much harder to do social slashing
especially when you have like these big consortiums of node operators like Lido
that does add a layer of complexity to it doesn't it so I wanted to ask as well you mentioned there
about moving your hardware between different data centers different geographical locations
one of the things I think is quite interesting to think about so Ethereum is the the first
you know seen as the OG for a lot of these kind of governance type and game theory type
problems right and a lot of this research and Ethereum as well as seen in the blockchain world
as slow right so obviously like Bitcoin and Ethereum the two biggest blockchains that people
know about but they are slow for transaction times and so efforts have been made to speed them up but
when we're talking slow Ethereum block time is 12 seconds right yeah 12 seconds 12 seconds
so now when we talk about Cosmos Cosmos has a different consensus mechanism it's got a different
validator kind of well by default it's kind of got a different setup of of the validators and how
they interact with each other how they build blocks the order in which they do it and so Tenderman
has a 200 millisecond block proposal window so I was wanting to ask and discuss right
how does that change the the kind of the operations of people who are looking to
identify and capitalize on MEV opportunities and also you know we can maybe talk a bit about
timing games as well whether that works because 200 milliseconds is five twelve sixty times less
you know than than 12 seconds right so you've got a lot less time on a Tenderman blockchain
to be doing these sorts of things identifying the opportunities and also
um you know pushing things back if you want to if you want to do timing games and maximize the
window that you have so yeah do you do you have any thoughts on that do you think 200 milliseconds
is enough time to inspect to identify MEV opportunities so is it 200 millisecond
proposal window or 200 millisecond block time I thought it was four seconds in Tenderman core but
right so I have been looking at a diagram which says 200 milliseconds proposal time so there's
a the in Tenderman and you know what I'll get Terry to share this image um in the tweet so so
in Tenderman core or like stock there's been a slight modification on on the say blockchain
which kind of paralyzes two of these phases but Tenderman I think has a one second
like end-to-end from proposal to commit um block time and 200 milliseconds is proposed
there's a pre-vote and a pre-commit phase then there's time for um people to to process
the changes that have been um voted on and then there's the commitment uh phase so so the proposal
window is 200 milliseconds in um Tenderman core and on on that note as well so say had block times of
like 350 390 milliseconds um because of all the optimization that's been done
but I think on other Cosmos blockchains it might be slightly longer but it's still we're still
looking at 200 milliseconds block proposal time yeah so I guess like it's uh if you look at
Ethereum right we have a 12-second block time but there's kind of a proposal window between
the start of the slot which is I would call it zero seconds and four seconds in the attestation
deadline uh so if you look at that that's like a third of the block time in terms of flexibility
in the proposal window and if you have a one second block time with 200 millisecond um
proposal window that's one fifth so it's still like a relatively high fraction of the block time
and 200 milliseconds is actually an eternity for these bots and for high-frequency training
like that is a really long time objectively for what they do in in tradify so I don't think it
really affects much it's a slightly smaller window flexibility but you probably will still see
timing games in any proof of stake network because you've just basically left free money on the table
which is proposed slightly later and they will do that just like we see um selfish mining which is
another form of strategic delay of the announcement in proof of work networks everywhere proof of work
networks exist that's a good point and so that was sort of what I was um afraid of hearing which
is that you know that's an eternity for hft people so for those of you who aren't familiar hft stands
for high-frequency trading and in the traditional finance world they are there's a great book
that's a good introduction and a fun thing to read called flash boys by michael louis and so
um high-frequency trading is is kind of the the technical um
vanguard of of traditional financial markets people who figured out that if they can be the first
order if they can get to the exchanges first if they can put themselves between people who want
to buy and where they're buying or people who want to buy and sell then they can make free
money essentially right so um as max was saying if they're that's leaving money on the table if
i can buy something from that someone wants to sell for one dollar and then i can go over and
sell it to someone else for two dollars then i've that's a guaranteed one dollar profit right um
and so then if you can have a computer system that's fast enough to get in between all these
people um then you can kind of make guaranteed money right and lots of it so in traditional
finance hft was kind of uh some of the highest paid um and kind of most closely kept most
secretive people in the industry and so one of the things i actually wanted to note down as well
that i wanted to kind of discuss is that um you know in traditional finance high-frequency trading
has sometimes been described as an arms race because uh it's basically whoever gets their fastest
wins so everyone's got incentives to get faster and faster but the faster that these uh hft
operators can trade it kind of doesn't really benefit the markets in general um they're just
getting faster to be faster than each other and continue to to make lots of money so i was wondering
what your take is on is are we seeing that kind of pattern play out in blockchain um is it an
inevitability that there's going to be people who can arbitrage and make money from these opportunities
should we embrace that see if we can get them to kind of contribute to something to the network
in a positive way or should we try to kind of oppose that put places in systems in place to
stop them being able to make so much money so yeah are we just re-running the traditional finance
hft arms race on turbo or do you think we've got a chance to do something different here
using blockchains i think it might actually be worse on blockchains so first let me say i think
the narrative that hft spending and latency doesn't help the efficiency of the market
in a in a central limit order book is actually not entirely true it's partly true like when you
go from 13 milliseconds with a microwave tower to 12 seconds with fiber to 11 seconds with fiber that
that ignores the curvature of the earth and like drills through it
that is spending that is probably not helping too much but if you look at
like the overall trajectory of hft towards faster and faster it does provide something
hey what it provides is in a central limit order book you have makers and takers the market makers
put their orders out the takers kind of try to snipe those orders when the price uh is favorable
to them basically because of the race between the takers they take the stale maker orders off
the book sooner and that actually is better for the makers because right when your order looks
bad it gets sniped and you lose almost nothing and the faster that happens the less you lose
and so in a central limit order book actually latency does help the efficiency of the system
it reduces the deadweight loss to adverse selection and makes markets work better in a central limit
order book so there's some reason that we need like fast latency now in a blockchain setting
we don't have that price time priority auction so what are we really spending the latency on
basically there's still adverse selection from latency games like so they still have to do it
but there's no corresponding price time priority auction that turns that latency into something
productive for the market so i think we're starting to see latency if you look at the
pbs bids you're starting to see an increased investment in latency and later bidding in
faster bidding and it's not clear that actually does anything good for the network it might just
be completely deadweight loss in this case whereas in a central limit order book at least we get
some benefit from it that is a really interesting answer i guess my knowledge of traditional
financial markets has always been somewhat limited i've never worked in them they wouldn't have me
i've got my hair's too long i've got a beard i wouldn't wear a suit so they wouldn't let me in
but that's an interesting yeah um perspective on it and i think it's something that again right
i think in blockchain some of the most technical most adept people do work on these sorts of
things like mev for example because there's so much as you said money on the table there's
so much there that you can but you've got to be good right it's like mev is not the kind of thing
that you could do unless you were kind of really really sharp and knowledgeable about a bunch of
different things so i think i'm definitely interested to see the research that's going on
by smg by other participants the ethereum foundation for example funds a lot of these people to
to to do this protocol level research i think it's going to be really interesting to see
how that shakes out identifying you know what the best designs are and what the trade-offs are
between different designs i think one of the the things that i wanted to bring up
as well and so this is kind of getting into the weeds a bit we've not really gone over the
mechanisms with which mev people like mev extractors actually make make their money right
how they how they get their value and so this is something the kind of thing that you can
research independently right so there's different kinds of trades that you can do
if you have the ability to put trades in a certain order in a block then there's ways that you can
kind of guarantee yourself a profit from from doing certain trades but there was one tweet that
i wanted to bring up by a guy called coffee coin right coffee x coin i saw it it was like a month
or two old now but i saw it and i thought this is something that i really don't really understand
um and so i wanted to bring this up i'll post the link into the chat um but basically it's been
posted i guess it's been posted oh you've posted it already terry this is why you have a guy like
terry on board terry's already posted a link to the tweet somewhere so it's hopefully it should be in
the chat um and so i just found this really interesting i wanted to ask you max if you knew
about this um there's two instances here someone's done this kind of um looks like a multi-step
right i'll run through it quickly but you don't have to um follow along with me he's in a block
um someone's listed uh a make so is it mutant ape yacht club so one of these nfts right
at 5.1 eth fully staked with 2042 eight coin so then this bot bundled seven transactions
it bought the nft on openc for 5.1 eth withdrew the staked eight coins uh then it moved the eight
coins to uniswap swap the eight coins to ethereum via one inch so then they get 1.4 eth roughly uh
for that they approve uh the nft to flooring protocol fragment it sell the tokens in the nfc
in the flooring protocol for 4.9 eth and then it says here calls a custom contract unverified as
is typical for mev contract this contract ensures the calls were profitable so it's
kind of doing a check saying does this all make sense um it checks the the the balances of of eth
wrapped eth and the blur pool balances um to to basically make sure that you've you're in profit
um and then sends the transaction value to block dot coinbase to tip the validator so then they
sent uh 1.0 to eth to tip the validator so they've done seven transactions in a bundle
right doing all these um things that i've just described and then they tip the validator
like 90 percent of the gain and then they get a 0.15 eth profit so what i want to ask is
i mean first of all is is that a fairly typical thing that you see in mev or is that quite exotic
because to me it sounds like it's pretty exotic and also is that a typical amount to tip the
validator or is that also a kind of game theoretic thing where you know how much you
you want to tip the lowest amount possible but still get your transactions included so
how how do you make that decision and is that something that's automated or do you have to kind of
eyeball it so to speak i mean certainly like i i don't know how sophisticated the bidding strategies
are um last time i asked somebody about this not for this specific trade was basically
not it's not super well thought out yet but that's because they have like better higher roi things to
spend their time on um but the the basic idea of sending 90 percent of profit to the validator
especially for even though this might look exotic i i assume this is probably like
multiple bots on this strategy otherwise you wouldn't have to tip that much so it's a
competitive auction basically the validator has the right to put whichever transaction first and
you have to basically pay the validator or the builder or some proxy for the validator
in order to be first before the other bots so my guess would be that even though this looks like
it might be quite exotic it's basically somebody's sold like this is probably something that there's
multiple bots for and they're basically just inhibiting more against each other and eventually
that alpha is all going to to go to zero and most of it's going to go to the validator and this is
true across all meb strategies is basically the pbs auction is quite good at directing meb profits
to validators aha so therein lies the incentive you want to be running a validator to get the meb
profits um exactly that's that's that's and this is like even though this looks like a lot of
actions like in terms of difficulty of the trade it's just not that hard right it's just like
somebody forgot to claim their ape coin tokens right and so this probably happens all the time
whereas there's other trades that are that are statistical arbitrage strategies that require
you know a lot of knowledge and even though those on chain looks simple but behind the
hood are actually more complicated than this even like this has a lot of on chain parts but the
stuff that is like the simplest like you look at a block and like it's just one swap on the
you know ethusdc pool the largest pool that's actually the most going on behind the scenes
that's a that's an interesting paradox i suppose more transactions is actually a simpler
trade one transaction very complicated strategy um i was gonna ask as well so on ethereum right
so say you're the the validator that puts that transaction through most of the time it would be
someone running a validator on in like a pool right or so but if you just run your own validator you
get to hit that block do you just get that tip you get the whole fact for ethereum tip
yep yeah you do this is called the meb lottery so there's some blocks that are like
the highest i've seen was over a million dollars it's like 500 eth i think was the curve
attacker or something like that and somehow all the front running bots picked it up and
and bid it up if i recall correctly what happened and it was like over 500 eth block
and it was over a million dollars and if you were i think it went to lido or something but
if you were a solo staker who got that you would just conquer a million dollars
that is not bad for a day's work um i mean i guess you could run a pool a bit like a lottery right
as well so you could make a pool and then say everyone who contributes the pool uh gets a ticket
and then you know the pool rewards every epoch like every week or every month just goes to one
person you know one validator rather than just distributing it equally there's an idea for you
anyone who's listening you can build a validator pool um that operates more like a lottery and
also there was some alpha there as well um earlier which is you know seems like bidding um
bidding strategies aren't that sophisticated so maybe that's an area for work if anyone's
inclined you could uh you know do some research and figure out the optimal bidding strategies to
to get your your blocks included um so also i want to say say savant has got their hand up
and so we're going to bring them on and say i think it's a question but it might be a comment
but yeah on you go yeah thank you ingus uh just a comment i hope everyone can hear me it's
what you just described is essentially what uh judo network or the judo team has
accomplished over on salon it's pretty pretty funny which part the lottery or the bidding
strategies uh but the bidding they have took them a while to integrate it uh but at a high level
this is also a proof of state network but the issue there was uh before judo introduced the this
priority bundle um auction i guess where validators can run a judo node and they're incentivized
via these tips uh to kind of prioritize transactions before that it was uh spam and
even to this day you see a lot of spam uh just transactions that are that fail and because the
the incentive is very high to just send these transactions if they fail like you're looking at
point 0002 sole uh loss maybe so you can send like a thousand of them and hope one hits
that's that's been the strategy for forever and to this day people still run that and i could see
that i mean i i do not see that on say happening um i guess i don't want to derail the current
conversation but um yeah that's interesting and i think um so max have you ever taken a look at
anything in the salana ecosystem or you mainly focused on arthurium yeah i looked at what's
going on recently with uh this spam problem one of the proposed solutions is to charge for
charge like exponentially more if you're trying to access state that everybody else is trying to
access so if you have um you know some phoenix pool that everybody else is trying to access
for their optimistic you know arbitrage opportunity or whatever then you charge them more um i think one
of the issues with this is the kind of valuable contracts the valuable state
that facilitates exchange might get expensive to use because of like the opportunistic arbitrage
bots um that's a little bit of an issue i mean there's tons of like
just little specifics like you you actually need to charge people more if they use more compute
on salana that doesn't necessarily happen right now it's one of the reasons that those
optimistic bots are running rampant so i would suggest like getting the basics down
for salana and then trying to do fancy stuff after that uh because once you get the basics down like
charging people for compute then you uh you can see what is needed in terms of like fancy
uh state state bloat price state pricing state bloat pricing on ethereum for example or like
access congestion pricing on salana um i know it suggests this for a lot of cosmos chains too is
just basically get the basics down and then start you know going off in your research telegram chat
so is that uh is that this local fee markets thing that salana has or has been experimenting with
um i think i think those two are slightly different i think the local fee markets is
is related to their parallel block production where they might have like like actually local
as in geographically local if if my recollection is correct but i mean again there's like a lot of
like complicated proposals just get the basics down and then we could talk about the the complicated
well yeah this is one of the things that i do find as someone doing developer relations it kind of
requires um a wide a wide but shallow look um a lot of things in blockchain so when there are
these topics that go a bit more in depth it can quickly get quite overwhelming unless you've got
you know several hours to to devote to researching this stuff um but i think the other thing is as
well this is one of those things again where max can have this kind of
very useful perspective right is is the kind of the game theory of running a blockchain we start
off in history with with bitcoin and ethereum and that kind of is the proof of concept um but then
after that adding all these different ways of doing things and features and functionalities
they all have trade-offs and so one of the things about these high performance blockchains
which have you know higher tps and throughput is you know how do you deal with spam what happens
when the network does get congested how do you kind of prioritize things uh and i think as well
if you run a blockchain and it just works that's not really enough these days is it so you have
to keep innovating so you have to keep doing research and figuring out newer ways to do things
and yeah um i think that's a good place to kind of wrap up because we could have another whole
hour discussion about you know the game theory of of trying to figure out how to
uh charge people right for for network usage um what would what would be a fair way what
would be a good way for users what would be better for the to keep the infrastructure
providers incentivized so that's uh you know maybe we'll have you on again sometime max um
and we can discuss that but but for now though we are at time uh i'd like to say a massive thank
you to max for coming on uh thanks to everyone for for hopping on and asking a question thank
you to everyone listening i told you earlier that i was going to say come to developer office hours
we're going to post the link um and yeah if you're interested in building stuff uh join the
discord come to the office hours it's on wednesday follow me on twitter i'll tell you about next
episodes of the lookout coming it's every thursday around this time and yeah follow say network
follow terry follow max um keep up to date and also let us know if you have suggestions
for people that you want to hear from or topics that you want to hear discussed
on the space in future thanks so much everyone max do you have any final parting comments
no thanks for having me on uh be sure to follow the smg twitter account as well if you want to see
more about some of the topics that we discussed today we post a lot of kind of highly information
packed gifts that that will keep you up to speed on what's going on on ethereum l plus one on that
their uh graphics are very informative and and well made so thanks everyone see you next week goodbye