Q&A on the Flashbots Eth2 Working Group

NOV 30 2021

Q: Hey Viktor! What is Flashbots, and what are they working to solve?

Flashbots is a research and development organization working to mitigate the negative externalities of Maximal Extractable Value (MEV), and to avoid the existential risks MEV could cause to state‐rich blockchains like Ethereum. Although only founded earlier this year, Flashbots quickly gained support from more than 90% of the hash rate on Ethereum and today is the only viable MEV solution on the market.

Flashbots’ goal is to minimize MEV and ensure that any remaining MEV is accessible via democratized, credibly neutral infrastructure. Instead of relying on individual relationships — generally only accessible to the largest players in the space — to create inroads for sending transactions directly to block producers, those who have implemented Flashbots can send transactions directly to Flashbots’ protected, private endpoint, from which they are sent directly to the block producers who work with Flashbots.

Flashbots can be thought of in two analogies — as a transaction fast lane and a private mempool.

Flashbots functions as a transaction fast lane by enabling competitive transactions, such as those performing liquidations or arbitrage in DeFi protocols, to avoid the public mempool. They instead compete for inclusion in Ethereum blocks within the Flashbots system. By utilizing Flashbots instead of the public mempool, they avoid having priority gas auctions (PGAs) and failed transactions, which frees up block space and lowers transaction fees for all other users and applications.

Secondly, Flashbots functions as a private mempool. Users can avoid being negatively impacted by MEV by sending their transactions to Flashbots instead of the public mempool, where it becomes vulnerable to MEV actions such as frontrunning. No one other than Flashbots and the block producers see these transactions before they go on‐chain.

Q: Can you give a high-level overview of what MEV is, and why it’s important to address it now in light of the coming eth1<>eth2 merge?

Maximal Extractable Value (MEV) is the maximum amount of value that can be extracted through reordering, censoring, or inserting transactions within blocks being produced. Some forms of MEV are healthy and necessary, such as liquidations or arbitrage, while others are less so, such as frontrunning.

Stephane from Flashbots made a great graphic (below) on why it’s important that a protocol like Ethereum handles MEV in the right way, and the possible consequences of not doing so.

Source

It’s especially crucial to address MEV as Ethereum transitions to PoS because of the dynamics of block producer participation within the PoS framework. On PoW‐based Ethereum today, mining pools are participating in the Flashbots system on behalf of individual miners. However, on eth2, there is no pooling of validators in the same way, and there are many hobbyists running validators.

As such, the Flashbots system needs to be re‐designed with these new dynamics in mind to enable individual validators to participate without breaking the trust and privacy necessary for searchers. The initial proposal for the Flashbots eth2 architecture, called MEV‐Boost, is available for feedback on ETHResearch and the Working Group is moving forward to integrate and test the solution with eth2 clients.

Q: Tell us about the Flashbots Eth2 Working Group. What are the group’s purpose and goals?

I’ve been working with the Flashbots team on eth2 for the last six months, especially around supporting their research and go‐to‐market tactics. I proposed creating the Flashbots Eth2 Working Group at the Flashbots offsite to address these challenges by helping to get more validators on board with Flashbots, and received (what felt surprising at the time) very positive feedback.

With the coming eth1<>eth2 merge and switch to PoS, I noticed that Flashbots faces two challenges:

• Instead of miners, Flashbots will need to work with validators, who make up a heterogeneous group with diverse incentives and considerations, such as brand, regulatory, compliance, etc. that need to be factored into the Flashbots product design.

• The switch in block producers from miners to validators drops Flashbots’ network penetration from 90%+ to 0, which will put MEV activity back on mainnet, thereby creating a worse and more expensive experience for users, dapps, and searchers &(independent network participants who run algorithms and bots to identify and submit profitable MEV opportunities).

I was fortunate to work with Tina, Stephane, and Daniel from the Flashbots team on recruiting members and launching this Working Group to address these challenges. Daniel, especially, has been my closest partner and co‐lead on the Flashbots side, and will be leading the initiative going forward.

Bison Trails [now part of Coinbase Cloud] intends to support Flashbots on Ethereum post‐merge, and to enable our eth2 staking customers to opt into supporting Flashbots in order to begin earning rewards from MEV activities. We’re proud to be a founding member and are excited to support Flashbots and the Working Group.

Q: What is the makeup of this group, what are member responsibilities, and how will it operate moving forward?

The Working Group has broad membership among entities involved in eth2 validation, including enthusiast representation from EthStaker, institutions like Bitcoin Suisse, and professional validators like Bison Trails [Coinbase Cloud]. There are 17 members total and we expect more will join in the coming weeks

All of us are working with the Flashbots team because we intend to run Flashbots on Ethereum post‐merge. We will be giving feedback on the proposed solution architecture, sharing our requirements, and testing software ahead of the merge.

The nice bit is that although we’re all part of the same Working Group, it is less about collaboration between competitors, and more about working together to improve Flashbots — something that the entire Ethereum community benefits from.

Q: Can anyone else join? How can folks who are interested in supporting this mission get involved?

Now that the Working Group is live, I will be transitioning to the role of a regular member and Daniel will take full ownership of operations. If you’re a company/entity and would like to join, please reach out to daniel@flashbots.net. For small‐scale or enthusiast validators, the best way to get involved would be to join the ETHStaker community to receive the benefits of Working Group membership.