foreign
[Music]
welcome to my talk today I'm going to
talk about a different way to design
automated market makers in a way that
hopefully is going to capture the Mev
that currently is being lost to Miners
and other parties
by the way is a an online chain exchange
that protects you against Meb so what is
Mev or maximum effect of value
currently block Builders have the
responsibility of updating the state of
the blockchain so how is this done by
including excluding ordering
transactions in a block and for this
they get paid fees transaction fees and
Rewards whoever there are other ways
where that that you can use to get money
out of the block building process so one
very common attack is called the
sandwich attack in which
uh use a transaction is exploited to
extract Mev so let's say that a user is
creating a transaction once included in
a block to sell on an automated Market
maker 100it or 100 000 usdc so as it's
usually customary there is an extra
slippage added in case the price moves
between when the when the transaction is
created and executed and normally it
shouldn't really matter the user should
take the expected price however the
point of sandwiching is actually using
the slippage against the user so how
does it work the block Builder creates
two transactions one before and one
after the first transactions this first
transaction buys usdc and moves the
price of the amm to the minimum that
would be accepted by the user the user
trades anyway because this is according
to the slippage still valid and then
finally the block Builder can sell back
the usdc at the new price
basically this is a safe bet for the
block Builder because the state update
is controlled by the by them but that's
not everything there is to it so now
we'll talk about an issue for the use
for a user transaction but also we don't
need to have a transaction to have Mev
one new mechanism of tracking value is
called loss versus versus rebalancing
and it works more or less as follows so
let's say that we have an amm on chain
and its state is currently well we have
a market price what we need is more or
less equivalent to 1400 die this could
be any market price not necessarily on
chain so it could be for example a
centralized exchange anywhere and let's
say that at the same time an amm is
willing to give a 1400 die for one eat
the same price some time passes no
transactions occur on chain however the
market price change unclear why could be
some centralized Marketplace to change
the price so suddenly there is
an Arbitrage opportunity that can be
exploited so the amm doesn't know
anything about the market price but if
you can execute the transaction and you
are guaranteed that is going to be
finalized you can take this Arbitrage
opportunity and this is more or less the
essence of loss versus rebalancing the
difference in from different information
that the amm and the market has so if
the IMM had perfect information the IMM
would be very happy to use the current
market price however this is not the
case and this money loss is basically
the cost of providing liquidity on an
amm currently so important to notice is
that also that this is not impermanent
loss so it doesn't really depend on how
on the relative change in value of the
two of assets in the amm this was by the
way part of recent research while it's
in rough Garden so there are related
papers eventually I'm going to give you
more information
but that's it how can we avoid this
so let's actually try to build an amm
that avoid that captures Mev so we start
from any amm let's say uh uh constant
product amm like uniswap and on top of
it we create a mechanism where we can
auction the the right of executing the
first trade on the on the exchange
so there is going to be a lead also
called lead Searcher which is the
highest bidder that is going to take the
right to execute the first transaction
as we see this is a good way to capture
this lvr and the important thing here is
that the proceeds don't go too well go
to the liquidity providers and this is
the Mev that otherwise would be
extracted by miners so how can this
actually work
so to do this we simply we simply say
that no user can trade until their lead
Searcher has actually traded first
so you can see if the leads if the
researcher actual trades then all the
transactions go through otherwise if the
block is organized differently then the
trade reverts not really this requires
cooperation with the block Builder so
the idea is that the block Builder is
aware of the structure of the of the
cons of the concept of the amm and
orders everything accordingly
however
uh there is an incentive that is needed
and the incentive would be the gas used
by the transaction if the transaction
reverts immediately is going to use less
gas
and in particular this would help the
miner having an advantage the the block
Builder having an advantage on Mev only
Mev auction so let's analyze some costs
so first prophets the prophets are
estimated to be nine dollars per block
how are they estimated so they're the
Eden network is a network that works in
a fairly similar way so it also auctions
off the right to the first lot in a
block
and this is more or less the the uh more
or less the blue The Profit that comes
from the hidden network which is
comparable to our structure the costs
are estimated to be three dollars per
block which is basically the extra gas
cost to enforce the rules that we just
decided and not that obvious this is
based on 40G way
Gus price however it would be much lower
so already like with this simple scheme
we would have uh theoretical captured
Mev of six uh dollars per block so I
also want to point out that even if the
extracted profit now for the amm is six
dollars in principle it could be much
higher so in this graph I wanted to show
the average block reward comparing
flashbots which extracts Mev and other
parties which don't so you can see in
the last two months it's actually fairly
consistently 0.1 each reward more which
is actually about
more than one hundred dollars per block
so this is actually a fairly large
amount and it could also be extracted
with different mechanisms or the
mechanisms of amms okay so in conclusion
we have that amms have hidden fees
because of Mev both for users and for
liquidity providers in currently in
Current Designs well the these fees go
to arbitrary and block builders however
we can do better and we can try to
design our amms in a way that
distributes fees differently and this is
what I hope to transmit with this stock
so all of this is work in progress is
being worked on I would invite you if
you're interested to join the discussion
and please any opinion is welcome if you
are building an amm please extract all
the med
and
after this thank you and
thank you again
[Applause]