SafeStake’s Validator Extracted Value (VEV) Explained
Introduction
The world of blockchain technology is always changing, bringing new ideas and challenges. One such challenge is the extraction of Maximal Extracted Value (MEV) in Ethereum staking.
MEV refers to the profits that validators and other network participants can extract by strategically manipulating transactions.
However, MEV extraction poses significant challenges to the integrity of blockchain transactions, especially in decentralized finance (DeFi) platforms and the execution of Ethereum smart contracts.
To solve these challenges, SafeStake has introduced an innovative solution called Validator Extracted Value (VEV) that will ensure MEV rewards always go directly to the owner of the validator earning them.
What is Validator Extracted Value (VEV)?
SafeStake’s VEV is designed to minimize the negative impact of MEV extraction by guaranteeing that MEV revenues accumulate directly into the validator owner’s account and nowhere else. This ensures a fair distribution of MEV revenues across the network, promoting transparency, decentralization, and profitability for validators.
How Does VEV Work?
With SafeStake’s VEV mechanism, ETH staking becomes more transparent as on-chain data visibility allows for easy verification of revenue distribution.
SafeStake departs from the conventional approach of running a solo node by disabling the configuration of fee recipient parameters at the node level. Instead, we implement a built-in protocol-level function that allows the Node Operator Committee to set a unified fee recipient using the account address of the validator’s owner.
The key here is to establish a unified rate receiver address at the protocol level in a decentralized manner and require that the node operators chosen for the committee agree to this account address before the operator committee is established.
With SafeStake, this process occurs when the validator is registered and the staker chooses the operators for the committee, with operator committee setup immediately following.
By using this approach, SafeStake can guarantee that MEV revenues accumulate directly into the validator owner’s account and nowhere else, smoothing MEV revenue distribution across the network.
Because the agreement between the node operators chosen for the committee to establish a unified account is integrated directly into the node code base, immediate access to the account is ensured and the operator committee setup process can proceed.
This innovation in the Safestake protocol, in contrast to other DVT solutions, establishes a decentralized protocol for MEV-enabled staking where MEV gains always accrue directly to the validator owner’s account. By simplifying the management of fee recipients, SafeStake ensures fair and transparent allocations of MEV revenues across the network.
Benefits of VEV for Validators on Ethereum Staking
By adopting SafeStake’s VEV, validators can significantly improve their profitability compared to traditional MEV extraction strategies. This innovative approach not only mitigates the negative externalities associated with MEV but also strengthens the overall security and robustness of the Ethereum ecosystem.
SafeStake’s Validator Extracted Value (VEV) represents a transformative solution that addresses the challenges posed by MEV extraction in Ethereum and ETH staking.
In short, ETH stakers want to run their validators on nodes that offer the best MEV opportunities.
The great news here is that to participate in MEV capture, SafeStake operators only need to run MEV-Boost on their nodes. Once an operator agrees to participate in MEV capture, stakers running SafeStake validators will be able to see them and the specific relays they are using.
Now, users running SafeStake validators have the option of choosing operators with an open door to the MEV marketplace, allowing them to obtain quotes from selected relays and propose the most lucrative blocks. By combining MEV-Boost with SafeStake’s unique flavor of DVT, validators will be able to increase their income by taking advantage of more MEV opportunities.
Natively empowering validators to get more MEV opportunities right in the base code also enhances the liveliness of the validator’s proposal duty. Why? Having multiple operators sign and broadcast the same duty increases liveliness on the Beacon chain, which is just one of the many benefits a distributed validator provides.
Understanding Maximal Extracted Value (MEV) on Ethereum
Maximal Extracted Value (MEV) refers to the potential profit that miners or validators and other network participants can make by strategically manipulating transaction order and inclusion in block creation. This value comes from being able to prioritize, delay, or block transactions, which gives an advantage in different blockchain protocols.
MEV can be extracted through tactics such as front-running, where a user takes advantage of knowing about pending transactions before others to gain an unfair advantage, and sandwich attacks, which involve strategically placing buy or sell orders to benefit from upcoming price movements. These strategies have a big impact on the integrity of blockchain transactions, especially in decentralized finance (DeFi) platforms and the execution of Ethereum smart contracts.
In practice, before The Merge and Ethereum’s transition from PoW to PoS, bot operators known as seekers sought to extract MEV by paying high fees to increase the likelihood that their transactions would be mined, or by fine-tuning their gas price choices to best time their transactions.
In Ethereum PoS, seekers have been replaced by network-independent finders that run complex blockchain data algorithms to detect profitable MEV opportunities.
Block finders monitor the mempool for opportunities and implement various strategies to maximize profits on each block.
For example, MEV-Boost, Flashbot’s open-source middleware implementation of a block finder, is run by Ethereum validators. It provides access to a block-building marketplace and allows validators to increase their staking rewards by taking advantage of MEV opportunities.
Here, the thought process is that validators will get a share of the total MEV amount as searchers are willing to pay high gas fees in exchange for a higher probability that their profitable transactions will be included in a certain block.
The effects of MEV extraction go beyond individual profit reasons and also affect how reliable and fair blockchain operations are.
By controlling transaction order and inclusion in blocks, MEV creates issues with transparency, security, and equal opportunities in decentralized networks. It is important for stakeholders to understand how MEV works in order to address its potential negative effects on the network.
If you would like to learn more about MEV, read the following article:
Ethereum Censorship and SafeStake: MEV, OFAC, and Flashbots (Part I) | by Daniejjimenez
Key Characteristics of SafeStake’s Validator Extracted Value (VEV)
SafeStake’s Validator Extracted Value (VEV) introduces a new way to solve the problems caused by MEV extraction in Ethereum’s Proof of Stake (PoS) consensus mechanism.
This innovative concept has several key characteristics that make it different from traditional MEV extraction methods:
- Transparent Protocol: SafeStake’s VEV works within a transparent protocol, making on-chain data about MEV revenues visible and verifiable. This transparency improves the fairness of the staking process and helps build trust among network participants.
- Decentralization: By ensuring that MEV revenues go directly to the validator owner’s account, SafeStake promotes a decentralized distribution of MEV revenues across the Ethereum network. SafeStake promotes validator participation in MEV capture, improving protocol integrity and efficency.
- Profitability: SafeStake’s VEV mechanism greatly increases the profitability of validators compared to traditional MEV extraction methods. By securing MEV revenues for validator owners, SafeStake creates stronger financial incentives for participating in Ethereum’s PoS ecosystem.
- Empowering Solo and Institutional Stakers: SafeStake’s VEV protocol will empower Solo and Retail stakers and attract larger institutional staking by offering more opportunities to maximize ETH staking rewards via MEV.
With its strong feature, SafeStake makes it easy and secure for validator owners to extract and receive their share of MEV revenues. This efficient process aligns with the goals of Ethereum’s staking ecosystem.
Improving Validator Rewards through the Validator Extracted Value (VEV) Mechanism
SafeStake ensures that MEV revenues are only deposited into the validator owner’s account, providing a fair distribution of these revenues across the network. This feature enhances financial security for validators and strengthens the stability of Ethereum’s PoS consensus mechanism.
According to dotpics.info data, the share of MEV-Boost blocks equates to a block-building market currently exceeding 400K ETH.
These numbers illustrate just how lucrative MEV capture has become and that it is an essential part of the Ethereum staking process. In short, ETH stakers want to run their validators on nodes that offer the best MEV opportunities.
As Ethereum continues to grow, SafeStake’s VEV stands out as an innovative solution that tackles the challenges of MEV extraction. It brings transparency, decentralization, and increased profitability to validators in the Ethereum PoS framework.
Innovating Validator Extracted Value (VEV) to Address Extracted Value in Ethereum
Within the context of Ethereum PoS, Validator Extracted Value (VEV) emerges as a novel feature to address the challenges posed by MEV extraction.
Highlighting the unique attributes of VEV and its potential to outperform traditional MEV extraction methods in DVT protocols is crucial when comparing VEV and MEV within the staking ecosystem.
VEV’s Unique Role in Staking Ecosystem
- VEV introduces a novel approach to value extraction within Ethereum’s PoS framework, offering a more transparent and equitable mechanism for validators to capture MEV revenues.
- Unlike conventional MEV extraction methods, VEV aligns with the principles of decentralization and fairness, providing a structured framework for distributing extracted value across the network.
Advantages Over Traditional MEV Extraction
- VEV’s inherent design mitigates concerns related to centralized control over MEV revenues, fostering a more inclusive and democratic distribution model.
- By guaranteeing that MEV revenues accumulate directly into the validator owner’s account, VEV ensures a smoother and more equitable distribution of extracted value, contributing to a more sustainable economic model for Ethereum PoS.
In essence, VEV represents a significant departure from traditional MEV extraction practices, embodying a forward-looking approach that aligns with the evolving dynamics of Ethereum’s decentralized ecosystem.
Harmonizing Ethereum’s Economic Landscape: Validator vs Maximized Extracted Value
To understand the relationship between VEV and MEV in Ethereum’s shift to Proof of Stake (PoS), let’s explore how they fit into the network’s incentive structure despite their differences:
- VEV: Smoothing MEV Revenue Distribution: VEV, introduced by SafeStake, has a specific goal that is ensuring that MEV revenues go directly to the validator owner’s account. This approach helps distribute MEV earnings more evenly across the entire network.
- Traditional MEV Extraction vs. VEV: In contrast to VEV, traditional methods of extracting MEV often involve competitive and potentially adversarial tactics among network participants who try to maximize their gains from transactions.
The Role of VEV & MEV in Ethereum’s Economic Model
In Ethereum’s PoS, both VEV and MEV play important roles in shaping its economic model:
- Coexistence: MEV represents the value extracted by participants through transaction sequencing strategies, while VEV ensures a fairer distribution of these earnings to validators.
- Incentive Structure: The fact that both VEV and MEV can exist within Ethereum’s PoS framework highlights the need to align economic incentives with network security and integrity.
- Economic Viability: By bridging the gap between VEV and MEV, Ethereum can create a more inclusive approach to distributing value while reducing potential conflicts caused by MEV extraction.
Exploring the Benefits: SafeStake’s VEV Mechanism
SafeStake’s Validator Extracted Value (VEV) offers a range of compelling benefits that contribute to the overall advancement of Ethereum’s staking ecosystem.
- Enhanced Transparency: SafeStake’s VEV mechanism ensures enhanced transparency in ETH staking by providing on-chain data visibility and verifiability. Validators and network participants can easily track and validate the distribution of MEV revenues, fostering trust and accountability within the network.
- Decentralization of Validator Power: Through its VEV mechanism, SafeStake contributes to the decentralization of validator power in the Ethereum network. By ensuring a fair and equitable distribution of MEV revenues across validators, SafeStake promotes a more balanced and decentralized ecosystem, reducing the concentration of power within a select few stakeholders.
- Improved Profitability for Validators: SafeStake’s VEV offers a significant advantage in terms of profitability for validators when compared to traditional MEV extraction strategies. By guaranteeing that MEV revenues accumulate directly into the validator owner’s account, SafeStake smoothens MEV revenue distribution across the network, ultimately improving the profitability of validators and incentivizing active participation in the staking process.
Mitigating MEV Exploitation with VEV: Towards a More Secure Ethereum Ecosystem
MEV exploitation has been a significant concern within the Ethereum ecosystem. To address this issue, various approaches have been proposed to minimize the incentives for MEV extraction and create a more secure and robust Ethereum network. Two prominent strategies that have gained attention are fair sequencing services (FSS) and off-chain transaction techniques like batching.
While these approaches have shown promise in mitigating MEV exploitation, SafeStake’s Validator Extracted Value (VEV) introduces another layer of protection by reducing the incentives for such extraction in the first place. By guaranteeing MEV revenues directly to validator owners through the VEV mechanism, SafeStake aligns the interests of validators with those of the network, thereby contributing to a more secure and robust Ethereum ecosystem.
By combining existing approaches like fair sequencing services and off-chain transactions with innovative solutions like VEV, Ethereum can effectively mitigate MEV exploitation and create an environment that fosters trust, fairness, and security for all participants.
Conclusion
The introduction of SafeStake’s Validator Extracted Value (VEV) represents a significant step forward in addressing the challenges posed by Maximal Extracted Value (MEV) in Ethereum and ETH staking.
By guaranteeing that MEV revenues accumulate directly into the validator owner’s account and nowhere else, SafeStake’s VEV mechanism ensures a fair and equitable distribution of MEV revenues across the network. This innovative solution offers several key benefits that contribute to the long-term viability of Ethereum as a leading blockchain platform:
- Transparency: SafeStake’s VEV mechanism enhances transparency in ETH staking through on-chain data visibility and verifiability. Validators can easily track their MEV revenue accumulation, providing them with a clear understanding of their earnings.
- Decentralization: SafeStake’s VEV contributes to the decentralization of validator power in the Ethereum network. By providing a fair distribution of MEV revenues, it ensures that all validators have an equal opportunity to benefit from their participation in the network.
- Profitability: Compared to traditional MEV extraction strategies, SafeStake’s VEV mechanism improves the profitability of validators. With guaranteed MEV revenues, validators can confidently invest in their operations and expect a steady stream of income.
SafeStake’s VEV represents an important innovation in mitigating the negative externalities associated with MEV while ensuring a more secure and robust Ethereum ecosystem. By adopting solutions like VEV, we can pave the way for a sustainable future for Ethereum as a leading blockchain platform.
About SafeStake
SafeStake is a pioneering technology company focused on revolutionizing Ethereum staking. With its cutting-edge, decentralized Distributed Validator Technology (DVT), SafeStake provides an ultra-secure, fault-tolerant environment for Ethereum validators, maximizing staking rewards and minimizing penalties. SafeStake is committed to driving the growth, innovation, and decentralization of the Ethereum network while ensuring the security and prosperity of its participants.
