DeGate x Bihu: What MEV problem does the skyrocketing EDEN solve?
What MEV problem does the skyrocketing EDEN solve?
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This article is translated from Chinese and published with the permission of the author Uncle Jian from 区块链鉴查院. It was first published on 3 September 2021. The views expressed herein are those of the author and do not represent the views of DeGate. The views expressed are not to be taken as financial advice. We thank WuBlockchain for their kind sharing. We appreciate all the support from Bihu.com.
What is the hottest thing in the cryptocurrency world right now? Without a doubt, it’s the NFT and SOL ecosystems.
But instead of talking about the most popular cryptos in this article, we’re going to talk about the leading project in the Ethereum MEV track — Eden Network.
• Price: EDEN has more than doubled in the past 7 days （the past 7 days from publishing this article on 3/9/2021）
• Reminder: AC and SBF both hold, and FTX rushed to EDEN last week
• Investment institutions: Officials have said they will announce the list of investors shortly, and there is widespread speculation that it is Multicoin, an online investment institution, as its partners Kyle Samani and Tushar Jain have frequently liked Eden’s tweets
So what exactly is this project about? What problems of Ethereum does it solve?
First of all, what is MEV?
MEV stands for “Miner Extractable Value”.
To understand it, we need to look back at how a transaction happens on Ethereum.
After a user initiates a transaction, it is not packaged by the miner straight away to be added to the block. The transaction is added to the Mempool and is pending.
Typically, the miner processes and packs the transaction to the block depending on not when the user has submitted it, but on how high the GAS fee is paid by the user- priority is given to transactions with higher has fees.
Mempool is publicly visible, so arbitrageurs can monitor it and then use the GAS fee to manipulate transaction sequencing to profit from robocalls, post-runs, sandwich attacks, etc.
A simple example of the most common sandwich attack on the chain:
Suppose Uncle John has a large purchase on Uniswap, buying ETH with USDC. After he has initiated the transaction, the transaction is placed in Mempool, which is visible to everyone.
How does the bot make money after it detects the transaction?
By raising GAS fees, buying ETH before Uncle John, then selling ETH after Uncle John, and easily earn the difference this way.
The gain from this arbitrage mentioned above is known as MEV.
That is, MEV is a metric that measures any excess profit made by using trade sequencing.
According to MEV-Explore data, a cumulative MEV of over 136,600 ETH has been realized from January 2020 to date, and a whopping 8,800 ETH has been realized in the last 30 days.
The previous and present lives of Eden
There are benign MEVs and there are bad ones.
If it is just arbitrage trading between different decentralized trading platforms such as Uniswap and SushiSwap, it is beneficial for the market, which is a benign MEV.
But a sandwich attack as illustrated above, where users face greater slippage and pay higher costs in trading, is a bad MEV.
Currently, most MEVs on Ethereum are bad.
As a result, several MEV solutions have emerged, with Eden Network being one of them.
Eden Network was formerly known as Archer DAO, which provided the first product to prevent MEV arbitrage attacks, Archer Swap.
Archer Swap was also used by Vitalik Buterin.
Back in the first half of the year, meme tokens went crazy, with many project owners giving airdrops to Vitalik Buterin. On May 13th, he dumped the meme tokens (SHIB, AKITA, etc.) from his wallet.
Initially, he used Uniswap to try to exchange the tokens for ETH, but too many robocalls caused the transactions to fail and cost a lot of GAS before he switched to Archer Swap, where he dumped over $40 million in meme tokens.
Thus, anti-false start, anti-sandwich attack products are needed for Ethereum.
Alright, let’s get back to the project itself.
On July 23rd this year, the Archer DAO community passed a proposal to upgrade the network to the Eden Network, while the original ARCH tokens were migrated 1:1 to EDEN and the economic model was tweaked.
At the beginning of August, the Eden Network was officially launched.
Upgrading from Archer DAO to Eden Network is a transition from a product (a swap) to an ecosystem. So far, Eden officially announced partnerships with SUSHI, keep3r, BAND, ALPAHA, Bancor, etc., serving various DeFi protocols.
How does Eden work?
As we mentioned earlier, transactions submitted on Ethereum are put into a public pool waiting for miners to pick them up.
Because the process is open and transparent, it allows arbitragers to take advantage of it.
Eden’s solution is to put all transactions into Eden’s pool, which Eden orders and then let miners pack them directly.
In this case, the order of Eden’s transactions is divided into four layers, in order: slot tenants, Flashbots’ transaction bundles, users who pledge EDEN, and ordinary users.
▌Layer 1: Tenants with three slots
The slots are publicly auctioned using EDEN tokens, which consumed 3.3% of the tokens in the auction each day.
For example, if you look at the figure below, the first slot tenant used 35,432 EDEN to win the auction, which means it will burn up 1,181 EDEN per day.
SUSHI was previously Eden’s top slot tenant, which means that users can trade with SUSHI without fear of sandwich attacks and robocalls. Of course, this all assumes that the block is mined by a mining pool that is integrated with Eden.
So in fact, the project side bidding for the Eden slot is a way to bring a better experience to its users.
▌Layer 2: The transaction bundle of Flashbots
I’m not going to expand this part.
All you need to know is that Flashbots is also an MEV solution, and Eden Network itself is optimized based on Flashbots technology.
▌Layer 3: Pledging EDEN users
For ordinary users, a pledge of 100 EDEN is enough to protect them from undesirable MEV attacks, and the threshold for use is very low. And the more EDEN you pledge, the higher your rank will be.
With the recent explosion of NFT, GAS wars are a common occurrence. And if you pledge EDEN and use the Eden network, you may spend less than others on GAS fees and still be faster than others.
Here’s a typical example: 33 people at the top of a block obtained priority casting rights to Art Blocks by pledging EDEN.
Currently, there are 1,807 users involved in pledging a total of 4.43 million EDEN.
▌Layer 4: Ordinary Traders
The final layer is the common trader, the transactions in the public pool Mempool, which will be sorted by payment of GAS fees.
If we compare the packaging of transactions in Ethereum to going to a restaurant, then in the past, you had to buy a number from a scalper, and the higher the bid, the smaller the number you would get.
Eden’s solution is to reset a ranking system. You can buy a VIP privilege card from the restaurant, with the privilege card your relatives and friends can benefit from and enjoy the most priority ranking; or you can pay a deposit to the restaurant, the more the deposit the higher the priority, of course, the deposit is refundable.
In this way, I believe you can better understand the operating system of the Eden network.
Currently, 54% of the entire network of Ethereum’s computing power has been integrated with Eden.
So why would miners want to join Eden?
We all know that miners’ income will drop after Ethereum undergoes the EIP-1559 upgrade.
And the supply of EDEN tokens is inflationary, with 60% of the monthly incremental issue going to miners.
The inflation rate, especially in the first month, is very high, and the aim is to subsidize early miners to expand the market.
Uncle John’s summary
Eden’s solution is actually to tokenize the sorting rights of the Ethereum packaged transactions, which then benefits both users and miners.
What Eden wants to do is to be an infrastructure for Ethereum (either now or in the future for Ethereum 2.0) to capture some of Ethereum’s value.
Of course, the number of users pledging EDEN in the future, the amount of Ethereum computing power integrated into Eden’s network, and the number of headline projects willing to partner with Eden will be Eden’s ecosystem moat.
The volume of the MEV track is currently small, but I believe that as DeFi and NFT snapping continue to heat up, the topic of MEV will receive more and more attention and focus from the market, and Eden will face more competitors.