MEV Projects丨 A Review of Eden Network
What is MEV (Miner Extractable Value)?
In short, MEV is “a measure of the profit a miner (or validator, sequencer, etc.) can make through their ability to arbitrarily include, exclude, or re-order transactions within the blocks they produce.” — Charlie Noyes (Paradigm) A control of the mining power is a control of the sequencing. With more sequencing power, more profit can be extracted by miners.
Currently, MEV is not unique to Ethereum, it can also exist on other public chains such as BSC, Polkadot, Terra, Polygon, xDai etc.
MEV is a profit extractable by miners and it is not a bad thing by itself. It be categorized by different approaches and occasions where MEV is obtained. Arbitrage between protocols, MEV gained from hackers and MEV used to re-order transfers of hacked wallets are good. Sandwich attacks to DEX users, front-running in sales events such as Sushi IDOs, Balancer LBPs, and NFT mints, are bad. Time-bandit re-org attacks are just malicious and can be harmful to Ethereum.
A Brief History of MEV
As early as the year of 2014, members of Ethereum community have complained about front-running miners and such acts have caused concerns in the community. Some Fomo3D miners refused to pack transaction and won the final prize, which can also be seen as an act of MEV extraction. Not until Flashboys 2.0 published a paper in 2019, and later Paradigm described Ethereum as a “Dark Forest” in its articles, did MEV begin to receive some attention. Nevertheless, at that time MEV had not much impact on most users, mainly because active Defi users were still the minority.
In late 2020, Flashbots was discovered and funded by Paradigm. “Flashbots is a research and development organization formed to mitigate the negative externalities and existential risks posed by MEV. They implement a permissionless MEV extraction called MEV-Geth, a sealed-bid block space auction mechanism for communicating transaction order preference. ” — Charlie Noyes (Paradigm)
Flashbots aims to design a more open and democratic MEV market, which could lower bots costs and allow users to utilize MEV without mining through a mempool. However, the result of such design seemed to be an involution among bots, small bots can’t beat large bots and there is less and less room for bots arbitrage. When Flashbots’ participating hashpower reached 70–80%, many small bots maintainers began to give up.
With the DeFi frenzy in 2021, more and more users began to actively use native Ethereum dapps. The existence of MEV affects users and the on-chain transactions on a daily basis. Sandwich attacks becomes common and causes irrevocable losses to DeFi users. In order to lessen the impact of MEV, many anti-MEV applications have also emerged, such as privacy node operating protocols like Taichi Network and BloXroute, improved AMM protocol called A2MM, protocol which supports off-chain limit order named 0xRFQ, Cowswap (using private batch auction between traders), Eden Network, and so on.
MEV projects are worth researching because the potential value of MEV is immense. In fact, it far exceeds the statistics shown on Flashbots. MEV has also emerged on multiple chains, in different formats. It is directly affecting dapp users in majority cases, and the value extracted is the value taken from the users.
MEV essentially supports unfair sequencing of transactions. Unless Ethereum undergoes changes and upgrades of its underlying layer, MEV will continue to exist and develop. Communities has discussed and done research in fair sequencing, privacy technology, and democratized MEV in order to minimize its impact. We should be patient and look forward to progress in the future.
Transaction Orders: Flashbots vs Eden
Flashbots: Firstly, Bundles; Secondly, public mempool transactions. Miners are paid by Eth.
Eden Network: Firstly, Slot tenants, who obtained such slots by bidding with Eden; Secondly, Bundles; Thirdly, Eden stakers; public mempool transactions come at last.
For average users, chances of using Flashbots are not much and they can just pay Eth each time. The most common scenarios in their cases are to avoid sandwich attacks and to re-order packaging transactions.
In order to avoid sandwich attacks, other than using certain Dex applications, a simple and direct approach is to set up a private RPC endpoint. Beta, Taichi Network, and BloXroute provide RPC endpoint for users to interact with, which is more than enough to avoid ordinary sandwich attacks, but cannot avoid sandwich attacks initiated by RPC node providers.
Eden Network cannot help users to avoid all sandwich attacks completely. As an ordinary user of Eden Network, one can stake 100 or more Eden while accessing Eden RPC node for priority transactions and obtain higher sequence weights for public transactions.
For Dex offerings and NFT drops, users can either use Flashbots to outbid other users or use Eden Bundle or Slots. However, it takes 20,000 Eden (about $16,000) to bid Slot3, which is a rather high cost for non-frequent users. Eden Slots are more suitable for on-chain bots running 24 hours a day. The actual feasible way for average users to successfully mint NFT drops or to participate DEX offerings is to just increase gas fee.
As for the most active and frequent users who look to re-order transactions, they are either the mempools that have lots of mining powers themselves, or users of flashbots and Eden Bundles that re-order transactions by bribing miners.
Discovering the Value of Eden Network
On-chain data and all related facts have proved that enormous value can be captured through MEV. Protocols that are able to address and solve MEV-related problems are definitely very valuable and are worthy of investment and participation. As Flashbots described, its primary focus is to enable a permissionless, transparent, and fair ecosystem for MEV extraction. It seems there is no token plan in the near future, which makes it hard for some funds and smart retailors to invest in.
The predecessor of Eden Network is ArcherDao. It was a mempool infrastructure. Back then, the participating mining power of ArcherDao was low. In early August of this year, the Flashbots’ participating hashrate had reached 72%. When ArcherDao announced its branding upgrade plan, sensitive users have became aware of an opportunity before Eden’s official token switch.
People like it when there is a flip, just think about ETH and Sushi (when ETH flip BTC, when Sushi flip Uni, imagine what if Eden flip Flashbots). Eden was no compete with Flashbots when it was ArcherDao. In the Kingdom of MEV, its King is the one with most mining power. Whichever protocol controls the most mining power is the leading project in this space. In the early days of Eden Network, its participating hashrate and valuation were much lower than that of Flashbots. But Eden Network gives way more incentive. Hypothetically, if most miners are profit-seeking oriented, then the participating hashrate of Eden will have a considerable yet rational surge. By then, Eden’s valuation should be reconsidered.
MEV projects’ profitability and the potential of Eden Network are confirmed, the next step is to analyze the Eden token distribution and on-chain behavior of Eden holders. Some institutions’ positions, such as Alameda Research and ThreeArrowsCapital can be seen on Nansen. Part of their on-chain activities can also be retrospectively analyzed. Eden holders provided initial liquidity at Sushiswap at a relatively higher price. On the same day the APY for eden-eth LP mining rewards was about 900%. After analyzing Eden’s emission rates and miners’ sale acts of mining rewards, I started to buy Eden around the time when its production rate was decreased.
There was some FOMO buy after Arch was 1:1 switched by Eden, Arch went up to $5 from $1.5. However, due to sale of LP mining rewards, short-term profit sales, and the daily selling pressure coming from miners, Eden later droppd to $1.7. At that time the institutional holders who also act as liquidity providers actually lost a lot of ETH, but instead received a large amount of Eden rewards.
By continuous analysis of Eden’s large LP holders, I realized that 80% of the liquidity was provided by a small number of addresses. These LPs share the same interests and are unlikely to dump on each other. After analyzing the large-selling orders, I found out that the selling pressure only came from miners.
In Mid-August, 600,000 Eden was transferred into Andre Cronje’s address. In the hope that his influence would bring more attention on Eden, also that fact that Eden Network’s participating hashrate has reached 50%, which is a very significant and material change. I bought more Eden.
On September 8th, Eden Network announced a $17.4 Million fundraise. At the date Eden was priced at $8–9, with the fully diluted market cap of approximately $2 Billion, which I guess is a valuation much higher than that of Flashbots. From then on till the date I write this article, I personally do not hold any Eden token.
Other Voice from the Market
There is always some opposing voice when a new stuff come out. Sushi was once criticized as a theft of Uniswap’s interest. There are quite a lot of discussions of Eden too.
Undoubtedly the biggest winners are the Eden team and its investors, miners get the second place. Most miners are profit-driven, they only hope to make more profit and are rather indifferent to the idea of an open and democratic market. How MEV is or will be utilized, or by whom are not really their concern.
There is also this GreEden-Geth, with which miner can switch between Eden Network and Flashbots in order to obtain the most rewards. It is like what Matcha to DEX, it is an aggregator of Geth, which helps miners to achieve the most profit.
Voice 1: Robert Miller from Flashbots criticized that Eden’s system is not transparent. “The Eden team claims high hashrate, but on-chain only 6% of blocks contain any slot txs and only 5% follow the whitepaper’s ordering rules.” “…miners are switching away from producing Eden blocks because of the opportunity costs of including low-fee transactions from Eden stakers when gas prices are high.” https://twitter.com/bertcmiller/status/1435686477359419395
Voice 2. Whether Eden’s incentive has increased miner’s profit, and whether Eden’s system protects users and minimize MEV. Grug Capital and Jimmy’s article made a very good analysis on these issues. It also mentioned how mempool withhold Eden rewards from miners and their greedy switches among different Geth.
Conclusion
MEV projects worth more attention and research. How miners and bots fight over hashpower and users, arguments and confrontation between venture capitals, MEV-related technology progress, and observation of secondary markets are all very interesting. In my opinion, this approach of value discovery is also applicable to decentralized derivatives and the ETH2 Staking projects.
To me and many others, I believe, whether Eden Network solves the impact of MEV on ordinary users is not the major issue here. Eden Network solves the problem that ordinary investors cannot invest in MEV projects. All the defects mentioned and complained will be addressed and hopefully solved. The competition between Flashbots and Eden has just begun. They both will exist in the in the Ethereum ecosystem, and will encounter Lido, a strong rival after Ethereum’s update into PoS.
Will continue to watch out for new projects re MEV and look for opportunities to participate. I personally do not hold any token mentioned in this article. No investment recommended and this article does not offer any investment advice.
Citation:
Flash Boys 2.0: Frontrunning, Transaction Reordering, and Consensus Instability in Decentralized Exchanges https://arxiv.org/abs/1904.05234
A Snake in the Garden https://hackmd.io/fvLQzbwVR-qZizmJvSnjOQ
MEV and me https://paradigm.xyz/2021/02/mev-and-me
MEV auctions considered harmful https://medium.com/@VitalikButerin/i-feel-like-this-post-is-addressing-an-argument-that-isnt-the-actual-argument-that-mev-auction-b3c5e8fc1021
MEV.wtf Virtual Summit https://hackmd.io/ivUzk3piQEG8ALzCGbxlag
