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a friend just asked me: "what is flashbots?"
in the interest of sharing info, i'll turn my response into a thread
in the interest of sharing info, i'll turn my response into a thread
Flashbots is organization working on research and development around "miner extractable value" in Ethereum: https://github.com/flashbots/pm
Miner extractable value (MEV) is what happens when a block producer (like a miner, or validator in ethereum after the merge) has exclusive access to order transactions in a block
This access gives them some privileges that most other users on the network don't have and this can usually be used for the block producer to extract some profit
A great example is "front-running" a uniswap trade -- let's say i notice some mispricing in a uniswap pool for some token pair. i go to execute the arbitrage trade and expect to collect the differential -- a block producer can see my trade and insert their own ahead of mine.
because transactions are executed serially inside one block, the block producers trade can happen before mine and could generally capture the full arbitrage opportunity (so that my transaction either fails or just has no profit left to capture)
there are much more complex examples as well but hopefully that gives you a sense for the idea
flashbots says: 'hey MEV is a thing, what are we doing to do about it?' and so they are leading several efforts to better understand MEV on ethereum and the possible risks
when you dig into it, the implications of MEV are actually quite profound as it provides extra incentives for a block producer that now interact w/ the typical incentives of the block subsidy + regular transaction fees
one systemic concern is the situation where MEV is actually greater than the block reward (+ regular fees) as then the next block producer is actually incentivized to make a competing block on a fork that just replays the block the first block producer made
this leads to consensus instability! and is something we want to minimize at most costs
so there are all these bigger issues we realize w/ MEV the more we (as a research community) look into it and flashbots is an attempt to try to navigate these issues for the better
for example, they have a fork of geth, mev-geth, that streamlines capturing MEV for users and i think the idea is to help steer community defaults in a way that encourages the less disruptive forms of MEV...
... (compared to the status quo where bots battle over these opportunities in the public transaction pool and lead to inflated gas prices for everyone else)
