Darren Kleine

In a DAO community poll, a split vote scenario was enough to hold back a proposed Uniswap V3 fee switch that had seen popular support.



A recent <a href="https://blockworks.co/news/uniswap-governance-fee-proposal">GFX Labs proposal</a> aimed to charge liquidity providers a fraction of fees across Uniswap V3 pools, with earnings then redistributed to the UNI community. Even though a total of <a href="https://blockworks.co/news/uniswap-doesnt-pass-fee-switch">more than 50%</a> of UNI tokens were in favor of turning on fees, it wasn’t enough for the feedback proposal to pass.&nbsp;



The vote in support of fees was split between a range of options, pitted against a singular “no fee” vote. The proposal had shown “pretty broad base support,” according to <a href="https://blockworks.co/podcast/bellcurve/ba2d3456-0160-11ee-bc39-fb2d3ac87bd8">Bell Curve podcast</a> host and Blockworks co-founder Mike Ippolito, but failed by a “relatively slim margin.”



“The whole vote,” Blockworks co-founder Jason Yanowitz says, “was structured incorrectly.”



“If you actually look at the vote,” Yanowitz added, the fee switch failed “even though there are more votes in favor of adding a fee than not adding.”



The exact fraction of the proposed fee was split between three possibilities; 1/5, 1/6 or 1/10, while only a single option to vote against any sort of fee was offered. Yanowitz points out that a total of 22 million UNI voted in favor of turning on some sort of fee, but the 18 million who were opposed to fees ended up winning anyway.



“So there should have been two separate polls here.”



“There should have been a yes or no fee switch,” he says, “and then if it said ‘yes’ for the fee switch, it should have been, how big should the fee switch be?”



A series of polls were planned, Framework Ventures co-founder Michael Anderson noted, first to determine fee options, followed by a second regarding the initial deployment chain and a third determining assets held in treasury.&nbsp;



“The first poll,” Anderson says, should have been “whether or not to go forward with this” rather than choosing between fee options. “And that&#8217;s what they should have been voting on here.”



<h2 class="wp-block-heading">Consensus is building</h2>



Based on the popular vote, Yanowitz says that “the fee switch is getting closer” to acceptance.



Framework Ventures co-founder Vance Spencer concurs, adding “I wouldn&#8217;t say this is a failure.”



“It seems like the consensus is building,” he says. “I think about Uniswap on the path to this fee switch and then what they will do with it, not whether this is gonna happen at all.”



Ippolito suggests one of the reasons fee switches are being held back is that individual delegates at Uniswap may be fearful of personal liability. He explains that a <a href="https://blockworks.co/news/sec-lowers-lbry-fine">recent SEC lawsuit</a> versus LBRY implied that the limited liability protection enjoyed by corporations in America might not extend to DAOs.



“If a fee switch is turned on,” Ippolito says, “then the token ends up looking a lot more like a security than it does today.”



“That hasn&#8217;t been decided yet. That is still in process,” Anderson says.



“The argument put forth is that, in fact, these DAOs are more like unincorporated partnerships,” Anderson says, “which don&#8217;t incur the limited liability protections that you would have with these other legal entity structures.”



Spencer adds, “You should view this as a startup working in the most punitive jurisdiction in the most, probably, punitive potential asset.”



“It&#8217;s pretty interesting, bullish and optimistic that they&#8217;re going down this path despite all of that.”



<h2 class="wp-block-heading">Bad timing?</h2>



Yanowitz says now is not the right time to switch fees on anyway. “Why would you turn on the fee switch right now?” he asks.&nbsp;



“Think about turning on the fee switch in a bull market.”



“That is a huge token catalyst,” he says. “You are just wasting that big opportunity in the bear markets.” 



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG5848266796" width="100%"></iframe>







Another reason, Yanowitz adds, “is you&#8217;re turning on a fee switch at the most risky time in the history of crypto regulation.”



“The legal and tax implications of turning on the fee switch right now are massive,” he says. “Why take that risk?”



Ippolito counters, “One of the advantages of the bear market is that you have cover.”



“The stakes feel much higher when it&#8217;s a bull market and everything is growing super fast and competition feels really fierce,” he says. “This is the period of time that you have to experiment.”



“If you don&#8217;t take risks now, you&#8217;re not gonna do it during the bull market.”



<hr class="wp-block-separator">
Get the day’s top crypto news and insights delivered to your email every evening.&nbsp;<a href="https://cms.blockworks.co/newsletter/?source=end" target="_blank" rel="noreferrer noopener">Subscribe to Blockworks’ free newsletter</a>&nbsp;now.
 
Want alpha sent directly to your inbox? Get degen trade ideas, governance updates, token performance, can’t-miss tweets and more from&nbsp;<a href="https://blockworks.co/newsletter/research" target="_blank" rel="noreferrer noopener">Blockworks Research&#8217;s Daily Debrief</a>.
 
Can&#8217;t wait? Get our news the fastest way possible.&nbsp;<a href="https://t.me/blockworks_news" target="_blank" rel="noreferrer noopener">Join us on Telegram</a> and follow us on <a href="https://news.google.com/publications/CAAqBwgKMPyTxgswn6_dAw" target="_blank" rel="noreferrer noopener">Google News</a>.
<hr class="wp-block-separator">

Uniswap Fee Feedback Vote Failed Because It Was ‘Structured Incorrectly’

Centralization: the hideous enemy of freedom and progress in the realm of distributed ledger technology. It often rears its head as soon as developers encounter scaling challenges.



In decentralized protocols, the fastest way to move from point A to point B often ironically involves resorting to some sort of centralized mechanism. Forget ideals like <a href="https://blockworks.co/tag/censorship">censorship-resistance</a> and independence, devs might cry out, we just want this thing to be quick and cheap!



The quest for further decentralization in the blockchain space continues, but for some elements, Stephane Gosselin says, centralization might not be such a bad thing, after all.



The former co-founder and chief architect of <a href="https://blockworks.co/tag/flashbots">Flashbots</a> and founder of Frontier Research spoke to Blockworks on the <a href="https://www.youtube.com/watch?v=RjSG38e1Zl0">Bell Curve podcast</a> about layer-2 rollups and how centralized sequencers might not be the problem that many fear.



<h2 class="wp-block-heading">All rollup sequencers are centralized</h2>



Let’s get one fact out of the way to begin with: All layer-2 rollups on Ethereum — <a href="https://blockworks.co/news/shared-sequencers-decentralization">every single one of them</a> — use centralized sequencers. 



The sequencer’s job is to process and order transactions into blocks to be added to the chain. It’s cheaper, faster and easier for rollup providers to maintain their own proprietary centralized sequencer system than to farm out the job.



“I&#8217;m still not convinced that that&#8217;s a bad thing,” says Gosselin, “I don&#8217;t think it&#8217;s a done deal to say that, actually, first in, first out sequencers on a layer-2 are a bad thing.”



The usual argument against rollup centralization, Gosselin says, is that it creates a “latency game” that draws centralization toward a specific geographic region. Being concentrated in a particular place leaves a rollup susceptible to censorship and oppressive <a href="https://blockworks.co/tag/regulation">regulation</a> wherever the rollup is deployed, Gosselin says.



“But, still, the question is like, is that actually bad?”



Ethereum has been designed, Gosselin says, as a maximally decentralized <a href="https://blockworks.co/tag/layer-1">layer-1</a> with relatively little economic activity on the base layer. Its goal is to settle data without what he describes as “contention” &nbsp; — demand for settling on a specific position — which takes place inside layer-2s instead.



“If you have an architecture where the layer-1 is only settling data blobs and there isn&#8217;t contention, and you have all the activity inside of layer-2s, it reduces the centralization pressure on the layer-1 significantly.”



<h2 class="wp-block-heading">Cross-chain messaging to the rescue</h2>



Cross-chain messaging could save the day, Gosselin says, providing censorship-resistance between layers when needed. “You have some way to push messages out from the layer-2 back into the layer-1, or maybe for it to be interpreted by some other spin-up of that layer-2 somewhere else.”



Through a messaging mechanic like <a href="https://ibcprotocol.org/">IBC</a>, Gosselin says layer-2s would remain censorship-resistant and non-custodial because individual rollup participants can “exit their state and bridge it over to some other roll-up in some other jurisdiction.”



Host Mike Ippolito points out that in such a situation, users would experience significant “market disruption.”



“There would be a period of time where we&#8217;d have to migrate the assets and everything down into the main chain and back up onto another rollup.”



The looming threat of disruption, Ippolito says, could “prevent <a href="https://blockworks.co/tag/tvl">TVL</a> and activity from migrating up to the rollups as much as they otherwise would.”



Gosselin concurs, noting, “the other argument is, well, if you have some way for the state to be able to exit back to the layer-1,” he says, “then you have a lot of contention on the layer-1.”



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG1122973108" width="100%"></iframe>







“And so you have all the same centralization pressure on the layer-1,” he says.



“I don&#8217;t think, by any means, it&#8217;s perfectly solved.”



“At the end of the day, yes, you&#8217;re going to have trade-offs in these different execution environments,” Gosselin admits, but ultimately, app developers just want an interface for connecting and automatically deploying their services.



“These <a href="https://blockworks.co/news/rollups-arent-that-decentralized">shared sequencers</a> or decentralized block builders, cross-chain bridges, are all in the same game of trying to build and provide those services,” he says.



“There&#8217;s <a href="https://blockworks.co/news/blockchain-goes-modular">so many different ways to build these things</a> — and it’s not clear to me where it&#8217;s going to go.”



<hr class="wp-block-separator">
Get the day’s top crypto news and insights delivered to your email every evening.&nbsp;<a href="https://cms.blockworks.co/newsletter/?source=end" target="_blank" rel="noreferrer noopener">Subscribe to Blockworks’ free newsletter</a>&nbsp;now.
 
Want alpha sent directly to your inbox? Get degen trade ideas, governance updates, token performance, can’t-miss tweets and more from&nbsp;<a href="https://blockworks.co/newsletter/research" target="_blank" rel="noreferrer noopener">Blockworks Research&#8217;s Daily Debrief</a>.
 
Can&#8217;t wait? Get our news the fastest way possible.&nbsp;<a href="https://t.me/blockworks_news" target="_blank" rel="noreferrer noopener">Join us on Telegram</a> and follow us on <a href="https://news.google.com/publications/CAAqBwgKMPyTxgswn6_dAw" target="_blank" rel="noreferrer noopener">Google News</a>.
<hr class="wp-block-separator">

Rollup Sequencers Are Centralized — And That’s Fine

Lurking in what is sometimes referred to as the “Dark Forest,” programmed predators seize value from unknowing victims as they attempt to perform blockchain transactions.&nbsp;



The concept of a “Dark Forest” originates from a <a href="https://en.wikipedia.org/wiki/The_Dark_Forest">novel</a> written by Cixin Liu, describing a setting in which the discovery of someone’s location portends their inevitable doom at the hands of sophisticated predators. It is often <a href="https://www.paradigm.xyz/2020/08/ethereum-is-a-dark-forest">compared</a> to Ethereum’s hostile and murky block-building environment.&nbsp;



Hunting for victims in Ethereum’s public <a href="https://blockworks.co/news/flashbots-frontrunning-protection">mempool</a>, automated searchers prey on transaction orders as they are discovered in a practice called <a href="https://blockworks.co/tag/mev">MEV</a>, extracting value from their targets’ activities through frontruns and <a href="https://blockworks.co/news/sandwich-attack-mev-ethereum">sandwich attacks</a>.



In an interview with Blockworks on a recent <a href="https://www.youtube.com/watch?v=pMhc3MHip5k">Bell Curve podcast</a>, Hasu, strategy lead at <a href="https://blockworks.co/tag/flashbots">Flashbots</a>, spoke with host Mike Ippolito about the necessity of building privacy mechanisms to protect users from MEV exploits.



<h2 class="wp-block-heading">The quest for privacy</h2>



“I would say there are three different camps in <a href="https://blockworks.co/tag/crypto">crypto</a>, when it comes to privacy, that have very different motivations,” Hasu says. First on his list is the “ideologically-driven crowd,” motivated primarily by the principle of privacy as a human right.



Secondly, Hasu says, a more “academic camp” of curious, privacy-focused crypto researchers study <a href="https://blockworks.co/news/zero-knowledge-rollups-ethereum">zero knowledge</a>, cryptography, and trusted execution environments in their quest for improving privacy.



“They are in it,” he says, “for the intellectual challenge.”



The third camp consists of mechanism and market structure designers, Hasu explains, who strive for privacy to build “<a href="https://blockworks.co/news/building-credible-neutrality-mev">credible mechanisms</a> that work.” As strategy lead at Flashbots, Hasu identifies himself as one such builder.



Privacy, Hasu says, is “extremely important when you want to build a good market structure.” This is especially the case in the MEV supply chain, he says. “Privacy is very important because there&#8217;s a lot of informational value in the bids.”



“Just seeing the intent of a person, what they want to do,” he says, gives the searcher “a financial edge because you can frontrun them” and “do harm to them.”



Hasu believes that privacy is also crucial for successful collaboration in the building process. “We want validation and block production to be decentralized.”&nbsp;



Centralized actors who could monopolize the MEV supply chain would wield extraordinary power, he says. Instead, he advocates for a broader distribution of smaller searchers and block builders to collaborate in the block-building process.



“This collaboration doesn&#8217;t work without strong privacy because you always have to be very aware that others can steal your bundles and steal money from you.”



“Privacy is of fundamental importance for the MEV supply chain,” Hasu says, noting, “We couldn&#8217;t achieve our goals” without solving “the privacy puzzle.”



<h2 class="wp-block-heading">MEV-Share</h2>



Ippolito mentions the privacy innovations of Flashbots’ <a href="https://docs.flashbots.net/flashbots-protect/rpc/mev-share">MEV-Share</a> tool as an example, which enables users to “directly control which parts of their transaction they wish to share with searchers.”



Hasu explains that with MEV-Share, searchers are limited in their ability to see information about user orders, protecting the transactions from <a href="https://blockworks.co/news/mev-searcher-battle-for-profit">MEV exploitation</a>.



“We reveal some amount of information, not enough to frontrun, but just enough to constrain the search space, so that searchers are not completely blind.”



The block builders in this system, Hasu explains, are in charge of “running this simulation and matching the orders.”&nbsp;



“For searchers, it&#8217;s a completely new paradigm,” he says. “Searching on private data is not what they&#8217;re used to, but we think it yields fundamentally better outcomes for users.”



<hr class="wp-block-separator">
Get the day’s top crypto news and insights delivered to your email every evening.&nbsp;<a href="https://cms.blockworks.co/newsletter/?source=end" target="_blank" rel="noreferrer noopener">Subscribe to Blockworks’ free newsletter</a>&nbsp;now.
 
Want alpha sent directly to your inbox? Get degen trade ideas, governance updates, token performance, can’t-miss tweets and more from&nbsp;<a href="https://blockworks.co/newsletter/research" target="_blank" rel="noreferrer noopener">Blockworks Research&#8217;s Daily Debrief</a>.
 
Can&#8217;t wait? Get our news the fastest way possible.&nbsp;<a href="https://t.me/blockworks_news" target="_blank" rel="noreferrer noopener">Join us on Telegram</a> and follow us on <a href="https://news.google.com/publications/CAAqBwgKMPyTxgswn6_dAw" target="_blank" rel="noreferrer noopener">Google News</a>.
<hr class="wp-block-separator">

MEV and the Dark Forest: Why We Need Privacy in Blockchain

Imagine heading to a casino and sitting down for a game of blackjack. The card game works as usual, with an important exception: one other player at the table gets to look at everybody’s cards before deciding what they should do.



Would you play?



It’s pretty obvious that the all-seeing player would have an enormous advantage against the rest of the table. Chances are, nobody would want to play under these conditions.&nbsp;



Not only should a game involving other people’s money be fair, or ‘neutral’ in nature, it must also exhibit observable credibility. Without credibility, even if the game is fair, no one would be willing to participate. This issue of <a href="https://inevitableeth.com/home/concepts/credible-neutrality">credible neutrality</a> and MEV poses a unique challenge for blockchain protocols.



MEV, or “<a href="https://blockworks.co/tag/mev">maximum extractable value</a>,” is the constant effort by participants in a <a href="https://blockworks.co/tag/blockchain">blockchain</a> protocol to exploit the system in ways that gather value at the expense of users. It often involves certain actors seeking out the intentions of users and taking advantage of that knowledge to extract value, much like the omniscient blackjack player.



Over the past few years, developers in the <a href="https://blockworks.co/tag/ethereum">Ethereum</a> ecosystem have been considering methods to ensure credible neutrality, as explained by Vitalik Buterin <a href="https://nakamoto.com/credible-neutrality/">in 2020</a>, throughout the transactional process.



It’s no easy task. <a href="https://blockworks.co/tag/flashbots">Flashbots</a> researcher Quintus Kilbourn and Ethereum Foundation researcher Barnabe Monnot spoke to Blockworks on the <a href="https://www.youtube.com/watch?v=4t7qbv4Wzn4">Bell Curve podcast</a> about this issue. They explored the challenges of achieving credible neutrality through the separation of tasks that would otherwise enable unauthorized sneak peaks at transaction activity.



The simplest method to ensure credible neutrality is for transactions to be blindly processed as they arrive from users. The key problem that arises with this approach is spam. Users will simply fire as many transactions into the system as they can to hopefully, with some luck, be prioritized. It’s extremely inefficient and can <a href="https://blockworks.co/news/solana-spam-problem">seriously bog down a network</a>.&nbsp;



The other possibility is to use an auction system of some sort to bid for transaction priority. This is where things get quite a bit more complicated. What kind of auction, where it happens, and who sees what at which point in the process, determines the neutrality of the bidding and whether it’s credible.&nbsp;



Kilbourn suggests a “more general auction layer that can be programmed to facilitate more specific kinds of auctions” could be a useful approach.&nbsp;



“You allow people to compete and propose different kinds of mechanisms,” he says, “but still capture the specificity of different kinds of auction needs.”



Different utilities require different sorts of auctions, Kilbourn says. “The kind of auction which is best for DEX trades looks a bit different from the auction that works well for NFTs,” for example.&nbsp;



Monnot wonders if such auction mechanisms should be baked into the protocol or remain independent. “Should the protocol then be involved? My perspective is that when it does, we are kind of locking in a certain type of allocation mechanism and perhaps we don&#8217;t want to do that.”&nbsp;



“Perhaps we want to preserve the optionality of innovation in terms of the auctions or even the market structures might change over time. So we want to give ourselves as much room to be agile and to let the market kind of figure out the best mechanisms for that.”



<h2 class="wp-block-heading">SUAVE</h2>



A broader solution to the problem of credible neutrality for any blockchain is being built into Flashbots’ <a href="https://writings.flashbots.net/the-future-of-mev-is-suave/">SUAVE</a>, the “Single Unifying Auction for Value Expression.” By breaking down the block-building process, SUAVE “allows crypto to stay decentralized,” according to Flashbots.&nbsp;



SUAVE is designed to allow “users to transact with the best execution, while reducing the economic centralization pressure on each domain,” by separating blockchain tasks that would normally encourage MEV exploitation.



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG9793790587" width="100%"></iframe>







But it’s very difficult to anticipate how MEV will evolve in the future, Kilbourn says.&nbsp;



“If you want to be really realistic about it, there are a couple of ways that things can go from here.”



“There&#8217;s maybe some worst case route <a href="https://blockworks.co/news/rollups-speed-or-decentralization">where things centralize</a>, but just enough so that there&#8217;s no real reaction from the community,” he says. “You still have a high degree of centralization, but it&#8217;s minimally acceptable.”



“That&#8217;s really the world we&#8217;re trying to avoid.”



“We want to facilitate collaboration between the different users who need to end up in a block,” Kilbourn says. 



The goal then, Kilbourn says, is “to provide [users] the tools to share their trade, share their information without being <a href="https://blockworks.co/news/validator-frontruns-mev-bots">front run</a> or screwed over, but also give them the power to really express, ‘Hey, give me the best possible trade at this point in the block.’”



<hr class="wp-block-separator">
Get the day’s top crypto news and insights delivered to your email every evening.&nbsp;<a href="https://cms.blockworks.co/newsletter/?source=end" target="_blank" rel="noreferrer noopener">Subscribe to Blockworks’ free newsletter</a>&nbsp;now.
 
Want alpha sent directly to your inbox? Get degen trade ideas, governance updates, token performance, can’t-miss tweets and more from&nbsp;<a href="https://blockworks.co/newsletter/research" target="_blank" rel="noreferrer noopener">Blockworks Research&#8217;s Daily Debrief</a>.
 
Can&#8217;t wait? Get our news the fastest way possible.&nbsp;<a href="https://t.me/blockworks_news" target="_blank" rel="noreferrer noopener">Join us on Telegram</a> and follow us on <a href="https://news.google.com/publications/CAAqBwgKMPyTxgswn6_dAw" target="_blank" rel="noreferrer noopener">Google News</a>.
<hr class="wp-block-separator">

Building Credible Neutrality in the MEV Battleground

When it comes to personal cryptocurrency investments, privacy should rank pretty highly on the priority list of traders.&nbsp;



That’s typically especially the case for decentralized exchange — or <a href="https://blockworks.co/tag/dex">DEX</a> — users who don&#8217;t want to be the victims of <a href="https://blockworks.co/news/mev-who-should-profit">frontrunning or other sorts of nefarious tactics</a> that eke out value from their order flow over time.



Setting aside the moral principles of <a href="https://blockworks.co/tag/privacy">privacy</a>, the practical side of the equation is certainly important.&nbsp;



A lack of built-in privacy mechanisms has resulted in <a href="https://blockworks.co/news/exploit-teaches-relay-providers-lesson">significant losses to DEX users</a> over recent months, especially when it comes to traders falling victim to <a href="https://twitter.com/blockworksres/status/1648712037533634560?s=20">MEV attacks</a>.



DEX traders live in a strange world, stuck somewhere between the transparency of distributed ledgers and the desire for privacy to guard against related potential exploits.&nbsp;



The founder of Penumbra Labs, Henry de Valence, spoke to Blockworks about the dichotomy between the public and private side of things on the <a href="https://www.youtube.com/watch?v=O58l235TnxQ">Bell Curve podcast</a> on Tuesday.&nbsp;



Building a privacy-focused DEX in the <a href="https://blockworks.co/tag/cosmos">Cosmos</a> ecosystem, de Valence says that Penumbra “looks quite different” than other chains.&nbsp;



“It has this extra dimension of which data is private and which data isn&#8217;t.”



“What does it mean to build a private DEX?” de Valence asks. “Does that mean, make literally everything private, run everything inside of <a href="https://www.blockworksresearch.com/research/silent-protocol-enabling-confidential-defi-on-ethereum">Snarks</a>, don&#8217;t disclose anything at any time to anyone? No, because it turns out, that&#8217;s not actually useful.”



The reason any blockchain is useful, he says, is because of its shared public state. For example, the reason <a href="https://blockworks.co/tag/ethereum">Ethereum</a> is so useful, he says, is because “it has this accumulated mass of users and state that can all be interacted with.”



<h2 class="wp-block-heading">The same privacy story as TradFi</h2>



The challenge then, de Valence says, is determining how to manage interactions between the public shared state and the private per-user state. The goal is to replicate “the same privacy story as <a href="https://blockworks.co/tag/tradfi">TradFi</a> or traditional finance, “where somebody can&#8217;t log on to my brokerage account.”&nbsp;



The fact that, unlike traditional finance, it’s entirely possible in DeFi to build a dashboard that publicly discloses personal information like profit and loss performance is “insane,” de Valence says.&nbsp;



One of the challenges of maintaining the benefits of <a href="https://blockworks.co/tag/defi">DeFi</a>, like real-time transparency of the system, is “how do you keep that for the aggregate pieces but retain privacy for each individual user&#8217;s contribution to that overall shared state?”



Penumbra’s architecture, de Valence says, has “a pretty explicit segmentation” between the public aggregate state and the private per-user state.



The DEX runs on a “frequent batch auction-style model,” de Valence explains, for interactions between the public and private state.&nbsp;



“It&#8217;s a lot easier if you do that as part of a batch,” he says. “The way that you achieve privacy on a blockchain is by moving all of the execution off-chain, onto the end user device and having them submit like, ‘Here&#8217;s a proof of this new state that I&#8217;ve constructed.’”



This results in an asynchronous model, de Valence says, whereby the swap exists in a sort of frozen state, after which the chain figures out the execution price to resume the computation.



“Once you&#8217;re in that kind of async model, it&#8217;s just much easier to think about it in a batched way.”&nbsp;



<h2 class="wp-block-heading">Future possibilities for on-chain privacy</h2>



De Valence talks about future possibilities for improving privacy with “flow encryption,” which, he says, is a way to encrypt parts of a transaction while interacting with the public state.



“Like, I want to make a trade, right?&nbsp;



Flow encryption, de Valence explains, allows for “sorts of flows of value between different parts of the system.”



“Here&#8217;s value that&#8217;s flowing into a batch swap or here&#8217;s value that&#8217;s flowing into delegations to some validator or so on,” he says. “We want to be able to have the system see only the aggregate, but not be able to see any individual user&#8217;s contribution to that flow.”



A trader can prepare an encrypted contribution to a batch swap in a transaction. “Once all of those transactions get included in a block, the validators can sum up all of the encrypted contributions of everybody&#8217;s batch swaps, and then decrypt only the batch total.”



Everyone in the same batch enjoys “much stronger long-term privacy, because the only data that&#8217;s publicly revealed is the aggregate of all of our user intent.”



In this manner, de Valence says, the service provides “private coordination between all the users of the system without even them having to interact with each other.”



<h2 class="wp-block-heading">Privacy limitations on Ethereum</h2>



On Ethereum as opposed to Cosmos, de Valence explains, privacy mechanics described as ‘threshold encryption’ allow for a transaction&#8217;s contents and effects to be concealed up until the point where it’s included in a block. “And then at that point, you decrypt it and the whole system can see exactly what the transaction does in order to execute it.”



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG5263404043" width="100%"></iframe>







“And so as a user, that threshold encryption is not giving you any long-term privacy. It&#8217;s only giving you privacy up until the point that your transaction is included in a block.”



On Penumbra, de Valence points out that the amount any malicious actor can learn by illicitly decrypting transactions is much less. “You don&#8217;t get to learn like, ‘Hey, here&#8217;s exactly this particular account that&#8217;s doing stuff.’ You don&#8217;t get to see any other details other than like, this is the contribution.”



De Valence says <a href="https://blockworks.co/news/mev-searcher-battle-for-profit">current MEV exploits</a>, such as rearranging blocks to exploit excess information disclosure, are “just the tip of the iceberg of possible kinds of adversarial behavior that you could do on-chain.”



“If I can see your entire history of your trading strategy, I can probably get a lot of information to use against you.”



<hr class="wp-block-separator">
Get the day’s top crypto news and insights delivered to your email every evening.&nbsp;<a href="https://cms.blockworks.co/newsletter/?source=end" target="_blank" rel="noreferrer noopener">Subscribe to Blockworks’ free newsletter</a>&nbsp;now.
 
Want alpha sent directly to your inbox? Get degen trade ideas, governance updates, token performance, can’t-miss tweets and more from&nbsp;<a href="https://blockworks.co/newsletter/research" target="_blank" rel="noreferrer noopener">Blockworks Research&#8217;s Daily Debrief</a>.
 
Can&#8217;t wait? Get our news the fastest way possible.&nbsp;<a href="https://t.me/blockworks_news" target="_blank" rel="noreferrer noopener">Join us on Telegram</a> and follow us on <a href="https://news.google.com/publications/CAAqBwgKMPyTxgswn6_dAw" target="_blank" rel="noreferrer noopener">Google News</a>.
<hr class="wp-block-separator">

Privacy and Public Transparency: Can a DEX Provide Both?

From its inception, the founders of the Solana network envisioned a decentralized, speedy and scalable applications platform. The network’s developers sought unique solutions to problems that cropped up on other protocols, particularly contrasting their strategies against the dominant competitor, Ethereum.



Even though the two systems are different from each other, they both face one major challenge: MEV. It’s the unrelenting effort by certain participants to extract wealth — the “<a href="https://blockworks.co/tag/mev">Maximum Extractable Value</a>” — from the network’s activity in a manner that can be detrimental to users.



MEV activity on <a href="https://blockworks.co/tag/ethereum" target="_blank" rel="noreferrer noopener">Ethereum</a> has been a fast and furious battle for some time, with solutions to combat harmful exploitation, like <a href="https://blockworks.co/tag/flashbots">Flashbots</a>, arising in response. While Solana can proudly claim to have averted several MEV issues via its design, it has struggled to avoid at least one crucial problem: spam.



Co-founder of Jito Labs, Lucas Bruder and co-founder of Ellipsis Labs, Eugene Chen spoke to Blockworks on the <a href="https://www.youtube.com/watch?v=IknurQzmVhY">Bell Curve podcast</a> about their efforts to mitigate Solana’s spam problem.



Following the MEV timeline, Solana is at a more primitive stage than Ethereum, Chen says. Most validators on Solana are benevolent in practice whereas the <a href="https://blockworks.co/news/mev-searcher-battle-for-profit">Ethereum MEV environment can be pretty ruthless</a>, “which is kind of a luxury, but not something that we can depend on forever.”



“MEV on Solana today is quite similar to what it looked like on Ethereum in 2019 or early 2020, pre-Flashbots, when MEV was just starting to become a problem,” Chen observes.



He believes that <a href="https://blockworks.co/tag/solana" target="_blank" rel="noreferrer noopener">Solana</a> developers today have a huge advantage, as they can learn from the “ton of fundamental MEV research” that’s already taken place in Ethereum’s development.



<h2 class="wp-block-heading">The statistics don’t lie</h2>



Bruder illustrates the spam problem with a few statistics, noting that in recent observations, 60% of computing power was spent on arbitrages — rapidly repeated trade orders hammering the network in an effort to push through profitable transactions.&nbsp;



“And there is a 98% failure rate. So, you know, 98% of arbitrage transactions are failing on Solana.” This strategy wouldn’t be feasible on Ethereum due to gas costs but on Solana, more than half of all “compute units” are spent executing failed transactions, Bruder says.



“Right now, the best way to land a transaction is spamming,” he says.



“It&#8217;s like a hundredth of a penny to send a trade, not including priority fees, if you attach those. So it&#8217;s super cheap to do it.”



Part of the challenge is that, unlike Ethereum, Solana does not use discrete time windows. Instead, it’s a continuous flow of transactions. The Jito-Solana client addresses the spam problem by introducing a Flashbots-like bundle mechanism where transactions sit in a “pseudo-mempool” for roughly 200 milliseconds. Searchers can then bid for priority to be sent to validators.



<h2 class="wp-block-heading">Slowing down time</h2>



“What you’re doing,” Flashbots strategy lead Hasu comments, “is you&#8217;re actually slowing down time.”



“You&#8217;re turning it from continuous time into discrete time. So there&#8217;s actually a waiting period for transactions to accumulate.”



Bruder adds that “packets essentially flow through a relay that any validator can run,” so it can’t censor transactions through any sort of centralized preferential treatment.



“Basically, it&#8217;s like an all-or-nothing commit sequence similar to Flashbots,” he says.



“We modified the validator,” Bruder says, “so that it knows how to process a bundle in this multi-threaded context and it will execute it atomically.”&nbsp;



Bruder notes this offers “a very strong selling point for searchers that are kind of just spamming and crossing their fingers that it will land.”



The bundle is prioritized via “a special transaction pipeline” that is less congested, offering stronger ordering guarantees, skipping the buffer, and executing as quickly as possible as soon as the auction is over.



“The main thing,” Bruder says, “is that you offer a better ordering guarantee and the chance to skip the pipeline.”



<h2 class="wp-block-heading">Adoption is growing</h2>



“We&#8217;ll probably see something <a href="https://blockworks.co/news/new-flashbots-upgrade-could-revolutionize-crypto-markets-after-the-merge">similar to Flashbots</a> where if someone has alpha, they&#8217;ll probably just go through the normal channel,” Bruder concedes. But when activity starts being contested, it may become a sort of “fee war,” at which point participants can “start to extract things more efficiently using bundles.”



While Bruder admits it’s been difficult to get things started, adoption for the Jito solution is increasing. “We&#8217;re seeing a lot of bundles landing today.” 



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG6858877792" width="100%"></iframe>







“We&#8217;re currently at 24% of Solana stake running the client and there&#8217;s 115 validators running the client.” Anyone from “super small validators” to “staking facilities” are using the client — it’s “a wide range,” he notes.



Hasu, impressed by the numbers, remarks, “when you said that you have 24% of stake adopted, I thought you would say more like two percent, because you previously said it&#8217;s been very hard.”



“But I mean, 24% is really impressive, right?”



“The first 20% is super hard,” Hasu says encouragingly, “and then the next 80% is probably gonna be very easy for you guys.”



<hr class="wp-block-separator">
Get the day’s top crypto news and insights delivered to your email every evening.&nbsp;<a href="https://cms.blockworks.co/newsletter/?source=end" target="_blank" rel="noreferrer noopener">Subscribe to Blockworks’ free newsletter</a>&nbsp;now.
 
Want alpha sent directly to your inbox? Get degen trade ideas, governance updates, token performance, can’t-miss tweets and more from&nbsp;<a href="https://blockworks.co/newsletter/research" target="_blank" rel="noreferrer noopener">Blockworks Research&#8217;s Daily Debrief</a>.
 
Can&#8217;t wait? Get our news the fastest way possible.&nbsp;<a href="https://t.me/blockworks_news" target="_blank" rel="noreferrer noopener">Join us on Telegram</a> and follow us on <a href="https://news.google.com/publications/CAAqBwgKMPyTxgswn6_dAw" target="_blank" rel="noreferrer noopener">Google News</a>.
<hr class="wp-block-separator">

Solana Has a Spam Problem. Can It Be Fixed?

Anyone following <a href="https://blockworks.co/news/exploit-teaches-relay-providers-lesson">recent drama</a> concerning the workings of the <a href="https://blockworks.co/tag/ethereum">Ethereum</a> ecosystem might reasonably imagine that the notion of MEV is a new phenomenon. It turns out, it’s a story as ancient as human greed itself.&nbsp;



OK, maybe not quite that old, but older than you might expect.



One example can be traced back to an event in the year 1834, often referred to as the world’s first cyberattack.



“Wait. A cyberattack… in 1834?” one might ask incredulously. Seems like a bit of a stretch. The details of the story vary from <a href="https://www.youtube.com/watch?v=cPeVsniB7b0">one account</a> to <a href="https://www.inc.com/magazine/19990915/13554.html">another</a>, but the gist of it can be summed up as such:&nbsp;



A pair of brothers — François and Joseph Blanc — discovered a clever method to front-run government bonds trading in Paris, France. Upon receiving news days later via postal services, Bordeaux stock exchange traders would follow the previously-set patterns in Paris.&nbsp;



The brothers came up with an ingenious trick to learn of the trades before anyone else in the town did — and earned enormous profits by doing so.



A government-operated semaphore telegraph system involving a series of signaling towers and telescopes could relay messages across the countryside in hours rather than days. Problem being, the operation was exclusive to government communications.&nbsp;



But a little bribery landed the brothers a couple of accomplices — one of whom dropped what appeared to be errors into government-directed messages — and one of whom deciphered these “errors” down the line as coded secrets about trades as they took place back in Paris.&nbsp;



The scheme worked phenomenally, at least for about two years. The brothers were eventually caught when one fell ill. As a result of his illness, he was forced to share the ploy with others who could act in his place, according to some accounts. Upon learning of the trick, these third-parties allegedly revealed it to authorities, who then took action to end the arrangement for good. The Blancs were never punished for their actions however, because no laws existed to protect against such trading behavior.



<h2 class="wp-block-heading">“All is fair in love and MEV”</h2>



Traders today continue this sort of system-gaming, only with internet cables and computers instead of semaphore towers and telescopes.&nbsp;



MEV searchers are at the nexus of this activity in today’s blockchain economies — and code is the only law they need to consider.&nbsp;



On a recent <a href="https://www.youtube.com/watch?v=NqM9PNPQFMs">Bell Curve podcast</a>, Dialectic co-founder Dean Eigenman and independent MEV searcher Anish Agnihotri spoke to Blockworks about the ruthlessly competitive environment of <a href="https://blockworks.co/tag/mev">MEV</a> in blockchain protocols.



“All is fair in love and MEV,” Eigenman observes.



Much of the day’s work is scouring for data and optimizing code that can give his team an edge, he says. And unlike the multi-hour telegraph journeys of information, these advantages are in the milliseconds over high-speed networks.&nbsp;



It often boils down to a fierce battle between parties, all trying to seize the maximum extractable value, he explains. After examining their smart contracts and analyzing the way competitors send transactions, Eigenman’s approach is often to “push them out” in a war of attrition, causing opponents to give up when their methods are no longer profitable.



Smaller competitors don’t enjoy the same 24/7 coverage and are unable to optimize their strategies to react to everything that&#8217;s happening on the network, Eigenman explains. “Whereas, we do. I like to burn out competition and corner them as much as possible.”



In addition to reducing network latency, “you inevitably have to do optimizations elsewhere,” he says, “making sure your code is the fastest.”



<h2 class="wp-block-heading">The same formula, centuries later&nbsp;</h2>



Agnihotri compares blockchain MEV practices to advancements in traditional finance. “What works in the traditional world with centralized exchanges is basically a one-to-one mapping to how it is in MEV.”



It still comes down to getting information before competitors, Agnihotri says. In the world of <a href="https://www.investopedia.com/terms/h/high-frequency-trading.asp">HFT</a> (high-frequency-trading) in traditional finance, factors that contribute to winning are optimized code and efficient networking stacks, as well as “how quickly can you ingest transactions, how quickly can you emit orders, how quickly can you cancel orders, and how much exclusive order flow you have from venues like Robinhood.”



“That&#8217;s identical to what makes you successful in crypto,” Agnihotri says, “save for perhaps your crypto nativity and how deep you can go into protocols.”



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG3134573639" width="100%"></iframe>







“Other than that, it&#8217;s: How close am I to the sequencer? How quickly can I ingest transactions? How much of the validator network do I see? How close to them am I? Do I have exclusive order flow from some dapps?”



“So yeah, for me, it&#8217;s mostly the same thing.”&nbsp;



“In the end,” Eigenham says, “I think that a lot of this stuff is going to professionalize.”&nbsp;



“A lot of strategies from Trad-Fi are going to roll over into how some of this stuff is done.”



“MEV today is reapplying the same things that HFT and the traditional world has seen 10, 15 years ago,” Agnihotri observes, “but just doing it in a more decentralized and publicly auditable way.”



<hr class="wp-block-separator">
Get the day’s top crypto news and insights delivered to your email every evening.&nbsp;<a href="https://cms.blockworks.co/newsletter/?source=end" target="_blank" rel="noreferrer noopener">Subscribe to Blockworks’ free newsletter</a>&nbsp;now.
 
Want alpha sent directly to your inbox? Get degen trade ideas, governance updates, token performance, can’t-miss tweets and more from&nbsp;<a href="https://blockworks.co/newsletter/research" target="_blank" rel="noreferrer noopener">Blockworks Research&#8217;s Daily Debrief</a>.
 
Can&#8217;t wait? Get our news the fastest way possible.&nbsp;<a href="https://t.me/blockworks_news" target="_blank" rel="noreferrer noopener">Join us on Telegram</a> and follow us on <a href="https://news.google.com/publications/CAAqBwgKMPyTxgswn6_dAw" target="_blank" rel="noreferrer noopener">Google News</a>.
<hr class="wp-block-separator">

MEV Searchers: The Ruthless Battle for Profit 

Innovation in blockchain technology is largely driven by a singular goal: <a href="https://blockworks.co/news/measuring-decentralization-is-your-crypto-decentralized">decentralization</a>.



After all, if the broad decentralization of data wasn’t the primary goal of all of this work, everybody could just share a giant spreadsheet on a centralized database somewhere à la Web2. That would be much faster and easier than any sort of distributed ledger solution.



Herein lies the problem: People want to use distributed technology, but with the conveniences of a centralized service. User demands create an insatiable craving for more speed and efficiency.



The centralized elements that are implemented to achieve this level of performance are often quietly tucked away, like a skeleton in the closet, to be dealt with — hopefully — at a later date.&nbsp;



The two goals of decentralization and speed seem to be diametrically opposed. You often can’t get one without sacrificing the other.



Layer-2 <a href="https://blockworks.co/tag/rollups">rollups</a> are touted as a potential solution to this conflict, but the emphasis in development and demand — at least for now — seems to fall squarely on the side of faster transactions, sweeping the problem of centralization under the rug. It’s a sort of “we’ll cross that layer-2 bridge when we get to it” attitude.



DBA co-founder Jon Charbonneau and <a href="https://blockworks.co/news/new-flashbots-upgrade-could-revolutionize-crypto-markets-after-the-merge">Flashbots</a> Product Steward Robert Miller spoke to Blockworks about the problem of focusing on speed at the expense of decentralization on the <a href="https://www.youtube.com/watch?v=b3o2YP6sxpg">Bell Curve podcast</a>.



Charbonneau suggests that in the near future, “there&#8217;s going to be meaningful pressure to decentralize, whether that is on a technical/social level” or “on a regulatory level.”



“There are probably some [regulatory] questions when you&#8217;re the only person operating this thing,” he quips.



The simplest way to increase decentralization, Charbonneau says, is to “strap a consensus set on there.”



“You have some form of <a href="https://ethereum.org/nl/roadmap/pbs/">PBS</a> — some form of auction between these validators who are on the rollups — and we know that&#8217;s a system that works reasonably well.”&nbsp;



“So my guess is we start to see that across a lot of roll-ups over the next year, plus.”



<h2 class="wp-block-heading">Let’s do this at the speed of light</h2>



Miller presents the challenge of squaring tools for decentralization like “existing consensus sets, auctions like PBS, which generally take a little bit more latency” with the “desire for super-low block times on rollups.”



“As far as the latency,” Charbonneau replies, “I understand that some rollups care a lot more about that than I care about that.”



“Low latency, certainly well below Ethereum L1 block times — yeah — users want that. Does it have to be 300 milliseconds, 400 milliseconds? No, I don&#8217;t really think it does.”



“I think it&#8217;s fine if your blocks are a second or whatever,” he says.&nbsp;



“I really don&#8217;t notice the difference, quite frankly, as a user. I don&#8217;t get the obsession with, ‘let&#8217;s do this literally at the speed of light.’”



<h2 class="wp-block-heading">Too close for comfort</h2>



Of course, <a href="https://blockworks.co/news/mev-who-should-profit">certain MEV participants</a> are obsessed with shaving milliseconds off transaction times to edge out competitors in pursuit of profit, which can lead to another problem.



Read more: <a href="https://blockworks.co/news/mev-who-should-profit">MEV: Who Should Profit From a Protocol’s Economic Activity?</a>



Miller points out one key issue in the latency game that derives from a simple fact: The closer participants are to each other, the quicker the network experience will be. “If you have an ordering protocol on your rollup that incentivizes latency gains,” he says, “the structure of the market you&#8217;re incentivizing is all actors to eventually co-locate in one place.”



“You may not get a rollup that has a single sequencer controlled by a single party,” he says, “but you may get a rollup that is controlled by a single data center in a single jurisdiction somewhere subject to a single set of laws, which is a huge surface area for regulation risk.”



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG9983516568" width="100%"></iframe>







“It&#8217;s only one step worse than having a single sequencer — having your entire chain co-locating in a single Amazon or similar data center somewhere else within the world.”



“What we really want,” Miller continues, is “to have these systems geographically distributed across the world in many different places, such that no single sequencer is able to impose its utility function on the network and arbitrarily censor a set of transactions.”



“I don&#8217;t know what is the best, but I do worry that this desire that users have for super-fast block times,” he says, “would lead to geographically centralized chains, which would lead to <a href="https://blockworks.co/news/is-ethereum-censorship-a-concern-post-merge">censorship</a> over time.”&nbsp;



“And that&#8217;s sort of what I&#8217;m seeing in the future.”



<hr class="wp-block-separator">
Get the day’s top crypto news and insights delivered to your email every evening.&nbsp;<a href="https://cms.blockworks.co/newsletter/?source=end" target="_blank" rel="noreferrer noopener">Subscribe to Blockworks’ free newsletter</a>&nbsp;now.
 
Want alpha sent directly to your inbox? Get degen trade ideas, governance updates, token performance, can’t-miss tweets and more from&nbsp;<a href="https://blockworks.co/newsletter/research" target="_blank" rel="noreferrer noopener">Blockworks Research&#8217;s Daily Debrief</a>.
 
Can&#8217;t wait? Get our news the fastest way possible.&nbsp;<a href="https://t.me/blockworks_news" target="_blank" rel="noreferrer noopener">Join us on Telegram</a> and follow us on <a href="https://news.google.com/publications/CAAqBwgKMPyTxgswn6_dAw" target="_blank" rel="noreferrer noopener">Google News</a>.
<hr class="wp-block-separator">

Rollups: Is It All About Speed? Or Are We Forgetting Something?

A greenlight on Apple’s App Store – the stamp of approval for trustworthy mobile apps – implies mainstream acceptance and utility on a scale few platforms can provide. Crypto apps in particular have found App Store status to be especially elusive due to the platform’s protective stance and stringent expectations.&nbsp;



It’s been a few days since <a href="https://blockworks.co/news/uniswap-mobile-app-in-apple-store">Apple greenlit Uniswap’s mobile app</a> — a long-sought boon to accessibility and visibility that will likely result in an in-flow of users, both new and experienced.



Co-hosts Mike Ippolito and Jason Yanowitz, Michael Anderson and Myles O’Neil at the <a href="https://blockworks.co/podcast/bellcurve/7e2ce352-dadc-11ed-abe9-cf7adbd39cbb">Bell Curve podcast</a> decided to dig into the mobile experience and discuss their first impressions.&nbsp;



O’Neil was the guinea pig for the experiment, testing out the app for himself.



“As far as I can tell,” he says, “they did put out what they advertised.”



He is quick to note that the mobile app doesn&#8217;t provide a noticeably better experience than existing wallets for sophisticated crypto-native users. “But it also doesn&#8217;t necessarily simplify the experience enough for brand new crypto users.”



O’Neil feels that the app is aimed squarely at a new audience, despite the mixed experience and complexities of self-custody and decentralization.



“This is going after retail.”&nbsp;



He suggests the app seems to be designed for “mainstream retail that might have been using a <a href="https://blockworks.co/tag/coinbase" target="_blank" rel="noreferrer noopener">Coinbase</a> or an <a href="https://blockworks.co/tag/ftx" target="_blank" rel="noreferrer noopener">FTX</a> in the last cycle.”&nbsp;



On the plus side, O’Neil says, “wallet creation is very easy.”&nbsp;



“The fiat on-ramp process,” he says, “is pretty straightforward and simple.”



<h2 class="wp-block-heading">Pain points</h2>



But a few pain points stand in the way, he says.&nbsp;



“When you&#8217;re onboarding from <a href="https://blockworks.co/tag/moonpay" target="_blank" rel="noreferrer noopener">MoonPay</a>, it gives you all these different networks.” The wallet supports mainnet <a href="https://blockworks.co/tag/ethereum">Ethereum</a> in addition to layer-2 networks <a href="https://blockworks.co/tag/arbitrum">Arbitrum</a>, <a href="https://blockworks.co/tag/optimism">Optimism</a>, and <a href="https://blockworks.co/tag/polygon">Polygon</a>, so “each token has four different versions,” he says.&nbsp;



Imagining himself as a new user, O’Neil wonders, “Is there something I should know about if I onboard to Optimism?” This choice is likely to cause confusion, he says. Certain tokens are only available on certain networks, adding to the complications.



O’Neil tested out the trading experience, hunting down Lido as his first acquisition. “Fortunately, Lido was in the Optimism asset list, but I noticed that the Optimism asset list is a lot smaller than the Ethereum asset list.”



“A brand new crypto user might not know why, right?”



Any experienced trader would know that <a href="https://blockworks.co/price/eth" target="_blank" rel="noreferrer noopener">ETH</a> is required to pay gas fees, but this might not be obvious to someone trying to trade tokens for the first time, O’Neil explains. “I&#8217;d be like, ‘What does that mean? That&#8217;s annoying.’”&nbsp;



“Now it&#8217;s telling me that I don&#8217;t have enough ETH in my wallet to pay for the transaction fees.”&nbsp;



“I&#8217;m stuck going back to square one with the fiat on-ramp,” he laments, having to purchase ETH from fiat to have gas to spend on transactions.&nbsp;



“That part wasn’t clear to me.”



“Going back to square one; if I was a new user, I would&#8217;ve probably churned right there. I don&#8217;t want to go through that again.”



<h2 class="wp-block-heading">Abstract away the networks</h2>



O’Neil suggests abstracting away all the networks and different types of assets, with just “one version of every asset that shows up,” removing any “differentiation about networks.”



The app could instead run through an aggregator similar to services offered by platforms like 1inch and Paraswap. Using such a tool, the app could quietly look at all the Uniswap markets and find the most efficient path to a desired trade, hiding the messy bits from the experience.



“And whether that&#8217;s Lido sitting on Optimism or Lido sitting on Arbitrum or L1, I don&#8217;t really care. I have exposure to Lido now. I got what I wanted.”



Problems, however, could crop up with over-simplification. Such an abstraction of networks could potentially allow a user to accidentally send their tokens to the wrong chain in the future, causing a loss of funds. Unexpected fees could be incurred if multiple transactions across chains are concealed.&nbsp;



<h2 class="wp-block-heading">No man’s land</h2>



Despite the complexities and nuances of the self-custodied service and its applications, O’Neil focuses on the themes of ease-of-use and mainstream acceptance.



The mobile app currently exists in a “no man’s land,” O’Neil says, “where it&#8217;s not necessarily catering to the sophisticated crypto-native users,” but “it needs a couple more improvements to really compete with a centralized exchange app for newbies.”



Yanowitz questions O’Neil’s assumption that the app is designed with crypto rookies in mind. “A new user to crypto who owns no bitcoin and no ETH — I don&#8217;t think they&#8217;re going direct to <a href="https://blockworks.co/tag/uniswap">Uniswap</a>.”



Due to its decentralized nature, Uniswap requires a more advanced user than simpler centralized apps, such as Coinbase, in order to be used safely. Yanowitz asserts that the app primarily offers a crypto-native mobile experience for more experienced traders.



<iframe loading="lazy" frameborder="0" height="200" scrolling="no" src="https://playlist.megaphone.fm/?e=BWG6922545298" width="100%"></iframe>







“That&#8217;s fair,” but “the main objective,” O’Neil reasons, “is to capture retail flow with this app” so it should look more like mainstream products, like the Robinhood trading app, for example.



When compared to the centralized exchange demographic, the existing <a href="https://blockworks.co/tag/dex">DEX</a> user base is “a relatively small bubble” O’Neil counters.



Tapping into the centralized exchange user base provides a significantly larger audience, he says. “That&#8217;s at least a hundred million people right there.”



“Maybe this is their onboarding experience.”



<hr class="wp-block-separator">
Get the day’s top crypto news and insights delivered to your email every evening.&nbsp;<a href="https://cms.blockworks.co/newsletter/?source=end" target="_blank" rel="noreferrer noopener">Subscribe to Blockworks’ free newsletter</a>&nbsp;now.
 
Want alpha sent directly to your inbox? Get degen trade ideas, governance updates, token performance, can’t-miss tweets and more from&nbsp;<a href="https://blockworks.co/newsletter/research" target="_blank" rel="noreferrer noopener">Blockworks Research&#8217;s Daily Debrief</a>.
 
Can&#8217;t wait? Get our news the fastest way possible.&nbsp;<a href="https://t.me/blockworks_news" target="_blank" rel="noreferrer noopener">Join us on Telegram</a> and follow us on <a href="https://news.google.com/publications/CAAqBwgKMPyTxgswn6_dAw" target="_blank" rel="noreferrer noopener">Google News</a>.
<hr class="wp-block-separator">

Do Not Pass Go? Greenlit Uniswap Mobile App Caught Between Worlds

It’s an ongoing question that must be faced in the core design of any blockchain protocol: Who stands to profit the most?



Maximum extractable value, or MEV, is a bit of a behind-the-scenes game — it’s all about finding a way to get the most value out of a protocol’s activity. Participants in the system are constantly looking for angles that will extract the most value — and not necessarily in a manner that benefits the majority of users.



On a recent <a href="https://blockworks.co/podcast/bellcurve/fb061a56-d2d0-11ed-95b1-4707d3503d32">Bell Curve podcast</a> with Mike Ippolito and Hasu, guest Justin Drake, a researcher at the Ethereum Foundation, argues that the system should prioritize those “closest to Ethereum” — holders and proposers — rather than let value be leeched out by those further on the fringes. He says that a misalignment currently exists, but is confident that — at least in the case of <a href="https://blockworks.co/tag/ethereum" target="_blank" rel="noreferrer noopener">Ethereum</a> — developers can design MEV so that most of it benefits core users rather than those trying to game the system.&nbsp;



<h2 class="wp-block-heading">Mitigating MEV</h2>



Other protocols, such as <a href="https://blockworks.co/tag/solana" target="_blank" rel="noreferrer noopener">Solana</a>, attempt to solve the MEV problem through <a href="https://chainstack.com/what-is-mev-and-how-does-solana-solves-its-mev-issues/">different mechanics</a>, but run into problems of their own. Solana nodes do not have a mempool to be attacked and charge standardized gas fees, for example. But even these solutions don’t prevent arbitrage trading bots from running rampant on the protocol and congesting the network. Solana also fails to escape the problem of <a href="https://blockworks.co/news/validator-frontruns-mev-bots">sandwich trading</a>, which squeezes the average trader into losing value on trades due to slippage.



Almost all the alternatives that are being promoted are just a matter of choosing different priorities, suggests Bell Curve podcast guest Tarun Chitra, founder and CEO of Gauntlet Networks. “All you’re doing is preferencing a different type of actor in the system,” he said.



Fair ordering protocols, for example, set preferences for different applications over one another instead of different users. Chitra explains what he believes is the fairest approach to MEV, boiling it down to a straightforward choice: “Do you want to discriminate,” he asks, “at the user level or at the application level? Your particular design choices will inevitably leak down to doing some form of discrimination.”&nbsp;



What matters then, Chitra says, is transparency — designing protocols to ensure that fair allocation is determined in a transparent and trustworthy manner. “If you have that transparency, then you can think about redistribution in a credible way.”



When asked about the topic, Zaki Manian, co-founder of Sommelier protocol, offered his general philosophy for handling MEV effectively: “Mitigate what MEV you can, capture what you can of what remains, and then maximize tools for allocating what’s left at the application layer.”&nbsp;



Encryption-based solutions, Manian says, can go a long way towards eliminating undesirable MEV opportunities. Following this, mechanisms that “capture MEV at the protocol level” and off-chain sequencers can fairly allocate any remaining MEV, “even across different chains or rollups.”



Guest Justin Drake, a researcher at the Ethereum Foundation, asks, “How much of the MEV initially originates from somewhere and can be given back to the originator? Maybe it’s way more than we expect.” The problems of MEV can be fixed, Drake argues, by removing what he calls economic distortions — front-running, sandwich trades, reorganization and so forth — with clever design.



One example is the <a href="https://blockworks.co/tag/flashbots">Flashbots</a> MEV relay. As explained on <a href="https://ethereum.org/en/developers/docs/mev/">Ethereum.org</a>, it prevents transaction front-running by allowing searchers to submit transactions without revealing them to the public mempool. Front-running was once the primary cause of a notorious problem with MEV extraction — extreme gas prices — but implementing Flashbots successfully reduced fees.



“These clever designs include inclusion lists, encrypted mempools, <a href="https://docs.flashbots.net/flashbots-mev-boost/architecture-overview/risks">enshrined PBS</a>, and a slew of other designs like MEV burn, as well,” Drake says. The issue, then, is not so much a philosophical question of who should profit most, he concludes, it’s about effectively designing protocols with aligned incentives that benefit the system.



<hr class="wp-block-separator">Get every episode of Bell Curve as soon as it’s out!Bell Curve breaks down the most important themes in crypto for people who, like us, are confined to the middle of the bell curve. Each season explores a different thesis that we&#8217;ll test and refine through debate with crypto&#8217;s best. <a href="https://open.spotify.com/show/3uMWirMj2hc7IQYEUeBTyT?si=05ac3a154ee944e3" target="_blank" rel="noreferrer noopener">Subscribe on Spotify</a> | <a href="https://podcasts.apple.com/us/podcast/bell-curve/id1641356619" target="_blank" rel="noreferrer noopener">Apple Podcasts</a> | or<a href="https://blockworks.co/podcast/bellcurve" target="_blank" rel="noreferrer noopener"> view all previous episodes</a>&nbsp;. <hr class="wp-block-separator">