Problem Description
Blockchains progress by allocating various functions to a diverse set of actors. Among these functions, one of the most critical is the task of determining (”proposing”) the next batch of updates (block) to be appended to the blockchain data structure. This function draws complex economic interest as the space of possible updates at any given time is large and impacts the interest of a large set of actors (e.g. who are participating in financial activities based on the blockchain). Careful selection of the contents of blocks can therefore yield large returns to those who carry out this activity - these are broadly classified as MEV.
From a system design perspective, many competing interests must be balanced. On the one hand, the blockchain network must preserve security properties and market neutrality. Typically, these demand the participation of a diverse set of actors. On the other hand, the economic interests of the network are served by recouping the value that is exposed through this functionality, pointing to mechanisms that allocate the block proposing role to the highest bidder. At the same time, a market between those who seek to update the blockchain (often in a time-sensitive manner) and the block proposer must also be considered as block proposer behaviour can significantly impact overall market welfare.
Determining the optimal mechanism for allocating block proposing rights can be decomposed into two broad questions:
- what is the goal: what are the desiderata and objective function to be maximised?
- what are the tradeoffs that must be navigated?
Although a relatively large body of work has been dedicated to addressing both of these problems, few substantial conclusions have been drawn.
For an introduction to existing literature the following sources may be helpful:
- Overview article containing further references: https://collective.flashbots.net/t/isolating-attesters-from-mev/3837
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