MEVA and aPriori
VeradiVerdict - Issue #310
The prerequisite for any healthy market is regulation. Financial regulation allows for seamless capital exchange, antitrust laws control rent seeking, and IP laws encourage innovation. On blockchains, since everything is code, those who build the code build the laws.
This power is especially prevalent when looking at the very bottom of the blockchain stack: blockbuilders. The stakeholders that compete to build blocks make or break the blockchain itself; if block production stalls or incentives encourage predatory behavior, the integrity of the chain crumbles and users disappear. For example, when Solana faced an outage, users were unable to perform any transactions, meaning they could not deposit or withdraw tokens.
Blockbuilders are those that physically take transactions out of a mempool and build transaction blocks that they then propagate to other blocks to reach consensus for the state of the blockchain. The design of how the stakeholders in the block building process interact with each other depends on companies that build these systems. On Ethereum, Flashbots (a Pantera portfolio company) is the go-to. On Solana, Jito is king. And when Monad launches, aPriori will dominate.
MEVA
The umbrella term that is used to describe the problems these companies seek to solve is “MEV” or “maximal extractable value”. In a nutshell, the individuals that order these blocks into transactions are incentivized to order them to maximize the fees they generate, which means they might reorder transactions maliciously to maximize their own profits and increase costs for users.
The design goals that Miner Extractable Value Auction Infrastructure (MEVA) aim to solve are gas fee stability, competition, and concentration. Most of this boils down to incentives; if the stakeholders are financially compensated for adding positive externalities (or removing negative externalities) to block building, then they will do so. However, there is no perfect harmony.
On Ethereum, where block times are around 12 seconds, all stakeholders have the time to access all transactions and simulate all of them in order to maximize their profits. With this in mind, the current gold standard approach on Ethereum is Proposer-Builder Separation (PBS). This setup separates the process into 5 stakeholders: users, block producers, relays, block proposers, and searchers. By separating the block welfare value with multiple stakeholders, they are all incentivized to share information with each other, which allows for competitive block building, while ensuring blocks stay profitable (which minimizes failed transactions). This has its own issues though; block producers have become centralized with the top two builders capturing more than half of the value from block building. Apps have also realized that they can capture their own MEV through mechanisms like MEV taxes, allowing them to participate in the transaction ordering process and reclaim value that would otherwise go to block proposers.
Monad
Monad is an upcoming new chain that will be the most performant EVM-Compatible layer 1 blockchain ever, with 10,000 transactions per second, 1-second block times, single-slot finality, and low-hardware requirements. One of the innovations that makes this possible is separating the execution and consensus layer, which allows the current block to run its consensus while the previous block is executed. Monad Labs raised $225 million and are poised to be the next big L1, having already amassed more than 300k followers on Twitter.
This brings up three design challenges:
Indeterminism in state:
Since execution of the previous block does not complete before consensus of the next one, there is no “current” state.
Limited time window to simulate full blocks:
The indeterminate state and the 1 second block time means block builders may not have the time to simulate full blocks of transactions and order them to optimize for profits.
Execution uncertainty:
The probabilistic nature of transaction ordering means the current architecture may lead to bundles of transactions reverting on-chain, causing higher failed transaction rates which hurt users.
Solving these means designing an architecture that is cheap and has a low transaction failure rate for users, while ensuring that the stakeholders in block building remain profitable.
Team
The founding team is uniquely positioned to be successful:
Ray, CEO/Co-Founder, Prev Special Projects at Jump Crypto, Contributor at Pyth Network, Quant Trader at Flow Traders
Olivia, CTO, Prev Senior Engineer at Coinbase, Investments at Bridgewater
Ed, Research, prev Data Scientist at VCRED, Project Leader at Los Alamos National Labs
The rest of the team has backgrounds in high frequency trading, quantitative hedge funds, and other top crypto companies.
Liquid Staking
aPriori plans to take advantage of the infrastructure they’ve built to launch liquid staking onto those that run their MEVA. Jito does just this, allowing users to stake SOL and earn some of the rewards that the validators that use Jito earn. Jito has a Fully Diluted Value (FDV) of $2 billion and monthly revenues of over 800k.
Testnet Launch
When the Monad testnet goes live and some final integrations, aPriori will launch the liquid staking protocol on Monad testnet. aPriori is also planning to release an initial version of MEVA system during Monad testnet, focusing on:
onboarding searchers and block builders to access the block space auction,
facilitating validator experimentation and stress testing client software.
Designing MEVA is a fundamental part of the inner plumbing of any blockchain. Monad’s hyper parallelized EVM L1 is a new ecosystem and requires constant innovation to ensure a positive user experience and profitable blockbuilders. The team has the experience, drive, and vision to continue doing so.
During this testnet phase, the team invites all parties to participate in testing and provide feedback as they work towards mainnet readiness and further roadmap items like sandwich protection rpcs and an analytics dashboard.
To read more about aPriori’s design thinking, check out this article. To read more about MEVA on Ethereum, read Flashbots’ research here.
- Paul Veradittakit
DIGESTS
Uniswap’s Model Is a Science Project That Could Kill DeFi
Serious questions remain about the sustainability of DeFi leader’s business model and those of similar automated market makers, says Eric Waisanen, CEO and Co-Founder of Astrovault.
How DAO Crowdfunding Could Revolutionize Sports
Crowdsourced strategies can introduce a diversity of perspectives, leading to more innovative and adaptable game plans, writes a high school senior and sports fanatic.
BUSINESS
FTX Dotcom Creditors Vote Massively in Favor of Reorganizing Plan
The plan promises to return 118% of claims in cash to most creditors, who represent about $6.83 billion in claims by value.
U.S. Crypto Industry Will Follow a Different Path From Rest of World: BitMEX Group CEO
BitMex does not operate in the U.S. and is positioned more in Asia than any other part of the world.
REGULATION
Bitcoin Miner Sues Judge and Prosecutor, Claiming It's Been Targeted by Noise Laws
NewRays, a crypto mining company, is suing a number of defendants claiming that they made noise legislation to specifically target the firm.
U.S. Judge Sides With SEC in Case Against Crypto Wallet Rivetz Over Sale of Unregistered Securities
United States District Judge Mark Mastroianni granted the SEC's motion for a summary judgement.
NEW PRODUCTS AND HOT DEALS
Avalanche Unveils $40M Grant Program Ahead of 'Avalanche9000' Upgrade
The program, called Retro9000, is supposed to encourage developers to build on Avalanche ahead of a much-anticipated upgrade known as Avalanche9000.
Metaplanet Adds $6.6 Million in Bitcoin to Its Corporate Treasury
The company's Bitcoin holdings have swelled to $24 million, almost 20% of its $125 million market capitalization, according to BitcoinTreasuries.net.
LETS MEET UP
New York City, October 7
Bangkok, Devcon 2024, November 12-14
New York City, December 12
Walks and coffee meetings in San Francisco throughout the year!
ABOUT ME
Hi, I’m Paul Veradittakit, a Managing Partner at Pantera Capital, one of the oldest and largest institutional investors focused on investing in blockchain companies and cryptocurrencies. I’ve been in the industry since 2014, and the firm invests in equity, early stage token projects, and liquid cryptocurrencies on exchanges. I focus on early-stage investments and share my thoughts on what’s going on in the industry in this weekly newsletter.