Miner Extractive Value. This phrase represents one of the most significant fundamental risks that exist for blockchain systems. The original idea of blockchain was to have incentives for miners (or other consensus participants responsible for ordering transactions) to earn income based on the initial block subsidy introduced by each new block, along with the fees that users pay to confirm their transactions.

These two sources of income are no longer the only ones that motivate miners. There are now more complex contracts and protocols that facilitate the creation and exchange of various assets hosted on the blockchain. Such contracts, at their core, provide open access for everyone. If you have the required asset and can meet the terms of the exchange, any user can unilaterally interact with the contract or protocol to exchange the asset.

Since miners ultimately decide which transactions to include in blocks, this gives them privileged access to “intersections” in interactions with such contracts and protocols. This creates significant problems, depending on the difficulty associated with successfully extracting value from different contracts or protocols.

This creates significant centralization pressure on mining as contracts and protocols become increasingly complex. Miners can collect all this value, but they need to analyze the current state of these contracts to do so. The more complex the contract, the more difficult and expensive it is to analyze, which increases centralization pressure on miners.

This has a negative impact on resistance to censorship.

Separation of the Proposer and the Builder

Ethereum is a prime example of MEV that didn't work. Due to the high complexity of contracts deployed on Ethereum, the volume of MEV created on that chain was very significant. Naturally, there were attempts to find a solution to this problem.

The Proposer Builder Separation was designed to reduce the risks of MEV centralization by creating a distinction between the two roles involved in the blockchain’s promotion. Builders (block template creators) are responsible for actually assembling transactions into blocks, while Proposers (miners/stakers) choose between available block templates to select the most profitable one. The idea is that we can allow centralization to influence template producers, but protect miners/stakers from it. As long as there is a competitive market for template production, everything should be safe.

However, in practice, this is not the case. The reality is that there are only a few competitive Builders, and when the most profitable template producers decide to censor something, it is effectively censored by every miner/staker who chooses to use those profitable block templates. Given that it is not economically feasible not to choose the most profitable template, this does not really solve the risk of censorship.

MEVpool

The idea behind MEVpool by Matt Corallo and 7d5x9 is an attempt to adapt the PBS proposal to Bitcoin in a way that actually reduces the risk of censorship.

The key difference between PBS and MEVpool is that the outsourcing of template construction is not complete; in MEVpool, miners still create the final block template themselves. They simply outsource the process of selecting a subset of transactions that optimize MEV extraction, including those found in the block templates they create. This allows miners to maximize their share of MEV while retaining the freedom to include any transactions they wish, as opposed to the binary choice of accepting censorship to maximize profits or foregoing profits to prevent censorship in PBS.

The proposal calls for setting up market relays to host order books where MEV extractors can post their proposed transactions and the fees they will pay miners for including them in a block. They will allow an extractor to specify the conditions under which they will be willing to pay to enter a transaction, i.e. only if they are the first transaction to interact with a particular contract in a block. The marketplaces will also support sealed or unsealed orders, where sealed requests are orders that are not revealed to the miner until they have mined a block.

How does it work? All miners need is a transaction hash to include in the Merkle tree to start mining; they don’t need the full transaction until they find a valid block and start broadcasting it. But they do need to know that the transaction is valid. This is the job of market relayers.

There are two ways they can do this. The first and easiest way is to be a fully trusted third party. MEV extractors will send their transactions to relay operators, and miners will connect to these relays. They will then request a list of sealed and unsealed orders from the marketplace operator, including the hashes needed to include the sealed orders, and have the custom software create a block template. Once they successfully find a valid block header, they will send the block minus the missing data to the relay.

The relayer will then include the full sealed transactions, broadcast the block itself, and then pass the full sealed transactions to the miner so that it can also broadcast the block. Throughout this process, the MEV extractor fee will be held in escrow by the market relayer and released to the miner once it finds a valid

Source: cryptonews.net