MEV Panel: Privacy, Cross-chain, and the Future

At Blockswap’s Multichain ERC20 event at ETHDenver, MEV experts gathered to discuss the existing and future state of Maximal Extractable Value (MEV). Among them were, Sebastian Burgel of HOPR, Eyal Markovich from Bloxroute, Matt Deible representing Odos, gman from Rook, and Matt Shams of Blockswap. This article will dive into insights extracted from this panel, including the potential challenges, strategies, and future MEV landscape.

Watch the full panel here:

Key Points

• Industry leaders shared their insights on the present and future states of MEV.
• Cross-Chain MEV is a developing topic which holds a lot of nuance.
• Privacy in DeFi is critical and could be improved upon through a few processes.

Cross-Chain MEV Challenges

Cross-chain MEV looks attractive at first. There are obvious arbitrage opportunities when you notice the glaring price differences of the same asset across chains. However, several roadblocks remind us why cross-chain MEV is not common practice.

The most obvious challenge in cross-chain arbitrage is the transaction fee required when bridging between chains. This is where many people stop and realize it is not as easy as it looks. But even then, it is only the tip of the iceberg.

“Inventory management across different chains… not guaranteed… not atomic… risk of things failing” — gman, Rook

Another challenge in cross-chain MEV arises with the need for liquidity on multiple chains, between centralized and decentralized exchanges, and executing transactions simultaneously. The need to simultaneously have transactions happen creates a risk. If only one step of an arbitrage path is executed, the searcher could end up stuck with a potentially unfavorable market position rather than capturing the MEV from the arbitrage play.

“Cross chain arbitrage there is a lot of risk as a searcher that you are taking because if on Ethereum you have some protection from bundles or reverted transactions will not get mined so you are protected, on other chains you’re not protected” -Eyal, BloXroute

Eyal from Bloxroute is emphasizing the unique vulnerability intrinsic to cross-chain arbitrage, specifically the lack of ensuring both chains execute in sync. While operating on a single chain offers some degree of protection through transaction bundles and ensuring reverted transactions don’t enter the blockchain, these safeguards do not exist when executing two seperate transactions that each may or may not reach finality separately. This lack of universal protection heightens the risk, further complicating cross-chain MEV. Although where there are challenges, there is also opportunity. Let’s see about that next.

CeFi DeFi Opportunities

“during a slot within Ethereum… a 12 second slot, you can have hundreds of trades that are happening on CeFi” -Eyal, BloXroute

Despite numerous challenges, there are strategies and opportunities that searchers can use to harness MEV. One method involves using centralized finance (CeFi) insights to augment MEV in the decentralized finance (DeFi) landscape. Searchers can obtain a strategic edge by harnessing the continuous stream of buy and sell orders in CeFi’s order book, and comparing it to Ethereum’s 12-second block addition intervals.

This data from CeFi exchanges can be helpful when simulating transactions in the mempool, which is essentially forecasting the future state of the blockchain to find MEV extraction opportunities and block construction. In the future, a well designed system for cross chain MEV can help searchers manage their risks more effectively and improve their chances of capturing cross-chain MEV.

Privacy

“Any sort of decentralized infrastructure leaves this huge trail of metadata behind, it can be used against you” — Sebastian, HOPR

Privacy is becoming an increasingly critical issue in MEV due RPC providers being uniquely positioned to front run the transaction pool.. Sebastian Burgel, an expert on privacy, spoke at Blockswap’s ETHDenver event about how lack of data privacy can turn problematic, as companies can harvest this data or governments might demand it.

Sebastian raises an important point about the current state of privacy in MEV, stating, “the only way I can currently submit a private transaction is by sending it to Flashbots.” What he is implying here is that there is an element of trust in the current MEV supply chain that could become problematic.

The Future in DeFi

The future of privacy in DeFi is uncertain. On one hand, there are protocols being developed to enhance privacy; on the other, there are entities who are doing everything they can to scrape data from DeFi users.

“Searchers continuously need to up their game by de-risking… by having more data, having better predictive models” — Sebastian, HOPR

Searchers could refine their strategies by leveraging additional data to mitigate risks and develop superior predictive models. Creating these models could come at the expense of using data that a user might prefer to be private.

The future might also see the emergence of private mempool systems, potentially inclusive of transaction data across chains. If this was created, it would grant users greater control over their data.

“As the (Cross-Chain) field continues to develop… it’ll start to resemble single chain arbitrage capture more” — Matt, Odos

Matt from Odos envisions that as cross-chain operations mature, they may increasingly adopt traits familiar to single-chain arbitrage. This progression could herald the next evolution in cross-chain MEV, bringing unique opportunities and challenges that we have yet to see.

Conclusion

The discussions at ETHDenver presented an in-depth look at the intricacies of the MEV landscape. As the MEV field matures, we can anticipate various outcomes, testament to the ever-evolving nature of cross-chain interactions, privacy standards, and DeFi at large.

These insights provide some ideas that we can look out for in the future. To hear more about these exciting conversations, watch the full ETHDenver MEV panel here.

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