In a bull market, MEV income will amaze everyone❗️
Flashbots has released Mev-Share, marking a new era for the track. MEV revenue is expected to contribute no less than 70% of ETH staking revenue in the bull market, which may be the next LSD level track.
This article will bring you an in-depth analysis of MEV and MEV-Share, as well as an outlook for the MEV track.
MEV & MEV-Share The so-called MEV (Maximal extractable value MEV) refers to the maximum value that the verifier can extract by manipulating the transactions and transaction sequence in the block. For example, in the following transaction to arbitrage the price difference between Uniswap and Sushi, the ICE purchased on Uniswap for 6.17E was sold on Sushi for 8.73E, and then 2.52 E was contributed to the Builder, leaving only 8.73-6.17-2.52-0.01( Gas) = a small profit of 0.03E. Builder is expected to eventually contribute to Validator as well.
The question is, why pay tribute? Because the sorting is determined by the validator (this description is for ease of understanding, not completely accurate), and it is public information that the price on Sushi is higher than that on Uniswap, then naturally a large group of people (Searchers) found this opportunity and rushed to do this Buy and sell, and it is the Validator who holds the power to decide who can be ranked first to make the deal, so naturally Validators account for the majority. As for how Validator maximizes benefits by manipulating this transaction and sorting, it is MEV.
In order for Validator (Miner before Merge) to rank itself at the front, ETH has turned into a dark forest. Searchers have raised gas fees. Multiple Searchers who submit the same transaction can only complete one transaction, resulting in a large waste of resources. Searcher and Miner cooperate privately, and Miner will even directly eliminate the need for middlemen to earn the price difference and submit Searcher to arbitrage transactions and replace them. All in all, this is the picture below
For users who initiate transactions, they are also troubled by problems such as sandwich attacks (commonly known as "sandwiching"). DEX transactions need to set a slippage. For example, the current price of ETH is 1000 USDC, and you set a slippage of 1% to buy, which means that even if you can accept it at 1010 USDC, then Searchers can buy the price at 1008 first, and wait for you to raise the transaction at 1010. You can make a profit by selling the sedan later, so your buying cost becomes higher.
Flashbots quickly grew bigger and stronger under this situation. It gave Searchers an opportunity to reach a private consensus. Everyone decided on the auction of Flashbots without going on the chain first, so as not to waste money. Users who initiate transactions can also submit the transaction to Flashbots instead of broadcasting it publicly to avoid being trapped. After these transaction information becomes unique to Flashbots, the MEV income from these transactions also becomes unique to Flashbots, making it stronger and a win-win operation.
As for MEV-Share, users give their transaction information to Flashbots, and 90% of the MEV revenue generated by this transaction will be returned to the user. Of course, pre-emptive trading is not allowed, so it does not mean that you are trapped and given a share, but that you spent money in vain. For example, when a small DEX transaction directly pulls the price above the market price, others arbitrage after you. You can get 90% of the money you earn.
For example, this old man made a tragic mistake and traded 3CRV worth $2M for $0.05. The arbitrageur bought $2M 3CRV with almost no capital. If he had used MEV-Share, he might have gotten back $1.8M right away.
For all parties:
Users using Flashbots can avoid being trapped and reduce the loss of accidentally spending money.
Flashbots get exclusive information and have greater profit potential than others.
Searchers save money and get more deals with Flashbots
More users bring more exclusive transaction information, more exclusive information brings greater profit space, and greater profit space brings more profit return space to users. In this way, Flashbots can Gain more users and Searchers through economies of scale.
The outlook for the MEV track is as shown below. We can see that since the Merge, EL APR, which is dominated by MEV revenue, has accounted for about 1/3 of stETH's total revenue. At the time when the network was booming, the proportion was close to 70%. When the bull market arrives, it may become normal for MEV income to account for 70% of total Staking income. The market size of this segment is very considerable.
In addition, as mentioned above, this business also has obvious scale effects, so the profits earned by the final leading project may be comparable to LSD, which means that this may also be an LSD-level track. And because MEV revenue grows non-linearly in a bull market, the ceiling is extraordinary.
Since Merge, the number of blocks submitted through Flashbots has accounted for nearly half, and its dominance is even stronger than Lido. After all, although Lido accounts for 70% of LSD, it only accounts for 30% of Staking as a whole. % share.
Flashbots Lianchuang Hasu is also a consultant of Lido and has a relatively strong background, but he has not yet revealed much information about the currency issuance. Mev-share has laid the foundation for flywheel growth. At this time, competitors may also get a share of the pie if they fork and issue coins to compete. However, the technical threshold for this area is relatively high, and it can be said to be as high as LSD Fi.
In addition, Flashbots has not yet achieved trustlessness, and there are many other problems that have yet to be solved, so there is still a lot of space and opportunities left.
Summary The MEV track has broad prospects and is still in its infancy. Flashbots has strong dominance, and Mev-share has laid the foundation for its rapid growth, but there should be many opportunities in the future.
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