Papers
Topics
Authors
Recent
Gemini 2.5 Flash
Gemini 2.5 Flash
129 tokens/sec
GPT-4o
28 tokens/sec
Gemini 2.5 Pro Pro
42 tokens/sec
o3 Pro
4 tokens/sec
GPT-4.1 Pro
38 tokens/sec
DeepSeek R1 via Azure Pro
28 tokens/sec
2000 character limit reached

MEV Sharing with Dynamic Extraction Rates (2402.15849v2)

Published 24 Feb 2024 in cs.GT, econ.TH, and math.DS

Abstract: Maximal Extractable Value (MEV) has emerged as a new frontier in the design of blockchain systems. In this paper, we propose making the MEV extraction rate as part of the protocol design space. Our aim is to leverage this parameter to maintain a healthy balance between block producers (who need to be compensated) and users (who need to feel encouraged to transact). We follow the approach introduced by EIP-1559 and design a similar mechanism to dynamically update the MEV extraction rate with the goal of stabilizing it at a target value. We study the properties of this dynamic mechanism and show that, while convergence to the target can be guaranteed for certain parameters, instability, and even chaos, can occur in other cases. Despite these complexities, under general conditions, the system concentrates in a neighborhood of the target equilibrium implying high long-term performance. Our work establishes, the first to our knowledge, dynamic framework for the integral problem of MEV sharing between extractors and users.

Definition Search Book Streamline Icon: https://streamlinehq.com
References (42)
  1. A. Ang and A. Timmermann. Regime changes and financial markets. Annual Review of Financial Economics, 4(1):313–337, 2012.
  2. EIP-1559: Fee market change for ETH 1.0 chain. Published online: https://eips.ethereum.org/EIPS/eip-1559, 2019.
  3. Maximizing Extractable Value from Automated Market Makers. In I. Eyal and J. Garay, editors, Financial Cryptography and Data Security, pages 3–19, Cham, 2022. Springer International Publishing.
  4. Clockwork finance: Automated analysis of economic security in smart contracts. In 2023 IEEE Symposium on Security and Privacy (SP), pages 2499–2516, Los Alamitos, CA, USA, may 2023. IEEE Computer Society.
  5. K. Burns and B. Hasselblatt. The Sharkovsky Theorem: A Natural Direct Proof. The American Mathematical Monthly, 118(3):pp. 229–244, 2011.
  6. V. Buterin. Ethereum: A next-generation smart contract and decentralized application platform, 2013.
  7. T. Chitra and K. Kulkarni. Improving Proof of Stake Economic Security via MEV Redistribution. In Proceedings of the 2022 ACM CCS Workshop on Decentralized Finance and Security, DeFi’22, page 1–7, New York, NY, USA, 2022. Association for Computing Machinery.
  8. Learning in markets: Greed leads to chaos but following the price is right. In Zhi-Hua Zhou, editor, Proceedings of the Thirtieth International Joint Conference on Artificial Intelligence, IJCAI-21, pages 111–117, Montreal, Canada, 8 2021. International Joint Conferences on Artificial Intelligence Organization. Main Track.
  9. Designing Multidimensional Blockchain Fee Markets. In 5th Conference on Advances in Financial Technologies (AFT 2023), volume 282 of Leibniz International Proceedings in Informatics (LIPIcs), pages 4:1–4:23, Dagstuhl, Germany, 2023. Schloss Dagstuhl – Leibniz-Zentrum für Informatik.
  10. Flash boys 2.0: Frontrunning in decentralized exchanges, miner extractable value, and consensus instability. In 2020 IEEE Symposium on Security and Privacy (SP), pages 910–927, San Francisco, CA, USA, 2020. IEEE.
  11. Efficiency-revenue trade-offs in auctions. In A. Czumaj, K. Mehlhorn, A. Pitts, and R. Wattenhofer, editors, Automata, Languages, and Programming, pages 488–499, Berlin, Heidelberg, 2012. Springer.
  12. Flashbots. MEV-Boost, 2022.
  13. Flashbots. The Future of MEV is SUAVE, 2022.
  14. Flashbots. MEV-Explore, 2023.
  15. Flashbots. MEV-Share: programmably private orderflow to share MEV with users, 2023.
  16. Ethereum Foundation. Maximal Extractable Value (MEV), 2023.
  17. T. Galla and J.D. Farmer. Complex dynamics in learning complicated games. Proceedings of the National Academy of Sciences, 110(4):1232–1236, 2013.
  18. L.M. Goodman. Tezos—a self-amending crypto-ledger white paper, 2014.
  19. L. Heimbach and R. Wattenhofer. Eliminating sandwich attacks with the help of game theory. In Proceedings of the 2022 ACM on Asia Conference on Computer and Communications Security, ASIA CCS ’22, page 153–167, New York, NY, USA, 2022. Association for Computing Machinery.
  20. An analysis of the market risk to participants in the compound protocol. In Third International Symposium on Foundations and Applications of Blockchain (FAB ‘20), page online, Santa Cruz, California, USA, 2020. Schloss Dagstuhl.
  21. Towards a Theory of Maximal Extractable Value I: Constant Function Market Makers, 2023.
  22. Order-fair consensus in the permissionless setting. In Proceedings of the 9th ACM on ASIA Public-Key Cryptography Workshop, APKC ’22, page 3–14, New York, NY, USA, 2022. Association for Computing Machinery.
  23. Themis: Fast, strong order-fairness in byzantine consensus. Cryptology ePrint Archive, Paper 2021/1465, 2021.
  24. Ouroboros: A provably secure proof-of-stake blockchain protocol. In Jonathan Katz and Hovav Shacham, editors, Advances in Cryptology – CRYPTO 2017, pages 357–388, Cham, 2017. Springer International Publishing.
  25. Order-Fairness for Byzantine Consensus. In Advances in Cryptology – CRYPTO 2020: 40th Annual International Cryptology Conference, CRYPTO 2020, Santa Barbara, CA, USA, August 17–21, 2020, Proceedings, Part III, page 451–480, Berlin, Heidelberg, 2020. Springer-Verlag.
  26. Dynamical Analysis of the EIP-1559 Ethereum Fee Market. In Proceedings of the 3rd ACM Conference on Advances in Financial Technologies, AFT ’21, page 114–126, New York, NY, USA, 2021. Association for Computing Machinery.
  27. Optimality despite chaos in fee markets. Financial Cryptography and Data Secutiry ’23, Springer International Publishing, 2022.
  28. PREStO: A Systematic Framework for Blockchain Consensus Protocols. IEEE Transactions on Engineering Management, 67:1028–1044, 2019.
  29. A. Likhodedov and T. Sandholm. Mechanism for Optimally Trading Off Revenue and Efficiency in Multi-unit Auctions. In P. Faratin, D. C. Parkes, J. A. Rodríguez-Aguilar, and W. E. Walsh, editors, Agent-Mediated Electronic Commerce V. Designing Mechanisms and Systems, pages 92–108, Berlin, Heidelberg, 2004. Springer Berlin Heidelberg.
  30. Period Three Implies Chaos. The American Mathematical Monthly, 82(10):985–992, 1975.
  31. B. Monnot. Notes on Proposer-Builder Separation (PBS), 2022.
  32. B. Monnot. Unbundling PBS: Towards protocol-enforced proposer commitments (PEPC), 2022.
  33. Unity is Strength: A Formalization of Cross-Domain Maximal Extractable Value, 2021.
  34. G. Piliouras and J.S. Shamma. Optimization despite Chaos: Convex Relaxations to Complex Limit Sets via Poincaré Recurrence. In Proceedings of the Twenty-Fifth Annual ACM-SIAM Symposium on Discrete Algorithms, SODA ’14, page 861–873, USA, 2014. Society for Industrial and Applied Mathematics.
  35. G. Piliouras and F-Y. Yu. Multi-agent performative prediction: From global stability and optimality to chaos. In Proceedings of the 24th ACM Conference on Economics and Computation, EC ’23, page 1047–1074, New York, NY, USA, 2023. Association for Computing Machinery.
  36. An Empirical Study of DeFi Liquidations: Incentives, Risks, and Instabilities. In Proceedings of the 21st ACM Internet Measurement Conference, IMC ’21, page 336–350, New York, NY, USA, 2021. Association for Computing Machinery.
  37. Quantifying Blockchain Extractable Value: How dark is the forest? In 2022 IEEE Symposium on Security and Privacy (SP), pages 198–214, Los Alamitos, CA, USA, may 2022. IEEE Computer Society.
  38. T. Roughgarden. Transaction Fee Mechanism Design for the Ethereum Blockchain: An Economic Analysis of EIP-1559, 2020.
  39. T. Roughgarden. Transaction Fee Mechanism Design. In Proceedings of the 22nd ACM Conference on Economics and Computation, EC ’21, page 792, New York, NY, USA, 2021. Association for Computing Machinery.
  40. Transaction Fees on a Honeymoon: Ethereum’s EIP-1559 One Month Later. In 2021 IEEE International Conference on Blockchain (Blockchain), pages 196–204, Los Alamitos, CA, USA, 2021. IEEE Computer Society.
  41. A. N. Sharkovsky. Coexistence of cycles of continuous mapping of the line into itself. Ukrainian Mathematical Journal, 16:61–71, 1964.
  42. SoK: Decentralized Finance (DeFi). In Proceedings of the 4th ACM Conference on Advances in Financial Technologies, AFT ’22, page 30–46, New York, NY, USA, 2023. Association for Computing Machinery.
Citations (1)
View on Semantic Scholar

Summary

We haven't generated a summary for this paper yet.

Ai Sparkles Streamline Icon: https://streamlinehq.com Summarize Now
X Twitter Logo Streamline Icon: https://streamlinehq.com

Tweets