New flashbots upgrade could revolutionize crypto markets after the merger

New flashbots upgrade could revolutionize crypto markets after the merger

It is difficult to find a traditional finance parallel for flash bots. And this is because you represent a radical departure from financial culture and practice on Wall Street. They are not the leading whistleblower and they are not the high frequency dealers (HFT).

This cat-and-mouse hunt was manipulated behind a dark veil of technological innovation-where the high frequency trade was always two steps ahead of the whistleblower and the regulatory authority.

The creators of flash bots saw a similar pattern in how traders exploited the maximum extractable value (MEV). But instead of calling individual actors, they turned on the light. It will not necessarily stop the front running ' As a result of the MEV-Boost-upgrades, Figment, A leading institutional staking service provider , the rewards of the validers will be up to 50%. We sat down with Figment to learn more about this paradigm shift. But before we explain how this new model works, we have to understand where the old failed.

The old paradigm: a culture of secrecy

Robert Ellison, Head of Staking Marketing at Figment, performed the Front Running on Wall Street from 2009 as a parallel example for some of today's practices. A precise examination of the struggle between these leaders and their whistleblovers shows why and how the traditional paradigm was incorrect.

In 2009 Richard Gates had HFT companies pioneering the WSJ and officially leaked to the SEC in 2010. At that time, companies set up servers alongside stock exchanges and used the strategically placed fiber optic cables from SREAD Network to work the fastest. This competitive advantage gave dealers the opportunity to manipulate the market on a large scale. Although this practice was only applied in 2 % of companies, it made 73 % of the inventory volume.

In 2010 Gates told the SEC that he had been the victim of this practice. He claimed that the Credit Suisse, the operator of a Dark Pool called Crossfinder, deliberately gives HFT dealers unfair advantages over retailers such as him. In his complaint, he announced rumors that Credit Suisse would market its pool to these dealers by saying: "We have sheep in the stable. They just have to come and slaughter them."

In 2015, Gates requested a whistleblower reward that would grant him between 10 % and 30 % of a SEC comparison against Credit Suisse. And later this year the Credit Suisse agreed to pay $ 84.3 million in fines.

But at this point in time, high frequency dealers and exchanges were transferred to new strategies. For example the markets " PJM interconnection llc .

This example shows that the incentives for whistleblower the SEC are too susceptible to exploitation and its bureaucracy to make sensible changes. The system for extracting the maximum value (MEV) from Ethereum transactions exposes the network of very similar types of front running operations, and how the dealers on Wall Street constantly develop new tactics. But as you will see, Flashbots offers a solution that is philosophically opposed to the old paradigm.

pioneer MEV explained

according to Ethereum.org " maximum value (mev) relates to the maximum value that refers from block production beyond the standard blockage and the gas fees can be extracted by enclosing, excluding, excluding and changing the order of the transactions in one block. ”

third, so-called MEV seekers, have developed algorithms who are looking for MEV options in the transaction pool. Miner who select their possibilities then share part of the profit in return. Beyonds have developed their own algorithms that systematically use data in public order books and mempools to line up.

other trades in a decentralized stock exchange (Dex) precedes how Z Uniswap gives the leader an advantage. In the case of a so-called sandwich trade, the front runner initially calculates the resulting price campaign of the trades in the queue to determine profitability, a trade with a higher gas fee carries to jump forward and sells immediately after the previous trade has been processed. You only achieve a win if the price movement is larger than the gas fee you paid for the jump forward.

Generalized Front-Running is another popular approach. It searches for profitable transactions/trades in the mempool, copies them and increases the gas fee to rows up. In contrast to sandwich trades, this approach from MEV benefits instead of price movements at a Dex.

But these tactics are not predictable or consistent.

"" There have been different ways to deal with Ethereum. Typical users may only want to broadcast the ETH. People who participate in MEV rather show a reaction to what happens in the network. It is iterative and reflexive. They watch the outstanding transaction pool and watch what others do, "said Clayton Menzel, Head of Protocols and Opportunities Figment.

What are flash bots? A new paradigm

flashbots is a research and development organization that aims to reduce the negative network effects of MEV.

You have developed an open source solution that enables miners in the Pow protocol and validators in the POS protocol to work more efficiently with MEV seekers. It houses a private auction that is separated from the mempool. This system does not stop any front running on flashbots, but it prevents the generalized approach by hiding transactions in the queue in front of the public.

In the new upgrade to Mev Boost, flash bots will make this auction more efficient by introducing a third -party provider called Builder. In this version, validators would no longer work directly with MEV seekers in block production. Instead, builders will work with MEV searchers to build potential blocks and auction them to examiners. Each party would make a profit for their contribution. And it makes the process more efficient and fair because it relieves the validators and lets more participants benefit from it.

The brilliance of this new paradigm is that it aims to remedy inefficiencies instead of punishing bad behavior. Front running tactics in the Ethereum network will most likely always exist. But thanks to the right incentives, you can steer this behavior into a transparent and democratic system, which enables stronger participation in the MEV market.

Instead of relying on slow bureaucratic civil servants in order to punish bad behavior, it is structured the incentives to reduce negative network effects and make MEV decentralized. It is not guaranteed that every validator will take over flash bots after the merging. But if it increases the staking yields and reduces the negative network effects of MEV, Validators risk losing stakers if they do not deal with flash bots or an alternative MEV solution.

that recently announced Ethereum validators. So far, you have successfully tested MEV-Boost on Goerli, the last test network that was carried out in front of the Ethereum merge. So far, your studies have shown that the upgrade will significantly increase the staking income. But Figment's ETH customers will also enable the ETH customers to take part in MEV.

There is a lot of noise and not so much signal in this room. Since the ETH switches to POS, people should make better decisions about who they work together in relation to infrastructure providers. You can see the negative aspects of MEV and now you can make your own decisions as an ETH token owner. Figment is working hard to help people make sound decisions. They not only published their MEV-Politics ahead of the merger they also organized a Twitter-room to help your community better.