ABCDE Investment Research Partner: A Brief Analysis of MEV and Privacy Technology Trends

Note: The original text is from @Wuhuoqiu Twitter

Let’s talk about trends in MEV and privacy today.

MEV - MEV is a technology-oriented topic, and it has become more and more complicated. Especially after the conversion of Ethereum to POS, the non-user roles involved in MEV include Searcher, Builder, relayer, Validator, and Proposer. The technology seems to be a big head, and there are various "ten thousand character long essays" series on the principle of MEV on the Internet. I will not repeat it here, but simply talk about the current status and trending technology.

Status quo: MEV clip robots (sandwich attacks, also known as malicious MEV) often earn more than reasonable MEVs (arbitrage and liquidation), and are also the main income of many MEVs. However, some time ago, the malicious Validator used relay vulnerabilities to replace clip robots The transaction, which caused the robot to lose 25 million US dollars, still caused a lot of waves in the circle, and also made many traps restrained.

In short, most of MEV's profits go to Searcher and Builder, and those who do MEV protocol or technology can't make much money. Flashbot is said to have no profit so far (but Flashbot is a non-profit organization). I saw at least 4 or 5 MEVs in a month, with different technical styles, but we didn't vote for any of them, because we really didn't think they could really achieve stable profits (such as the earliest Eden).

Several technical trends of MEV at present:

1. Smart Slippage Smart Slippage Management - This is mainly for cross-chain MEV. Seeing that there are projects in progress, it saves users from manually setting slippage + anti-pinch.

2. Threshold Encryption - This Cosmos ecology is relatively good at it. Now Penumbra and Osmosis should be working on it. The transactions entering the memory pool are encrypted, and MEV is basically useless.

3. Delayed Encryption- The threshold uses a style similar to multi-signature, and 2/3 of the verifiers decrypt it. If it is still unsafe (because the security assumption of the verifier committee is introduced), then use delayed encryption and let the encryption The information is set to be automatically decrypted after a certain period of time. This is mainly the application of VDF technology. It is still relatively early, and the performance is said to be not good.

4. SGX encryption - similar to the above two, but using trusted hardware, this is mainly done by Flashbot's SUAVE 5. Fair sorting FSS - outsource the sorting and hand it over to a trusted subject To prevent MEV, Chainlink is doing 6. MEV Auction - MEV auction, the method proposed by the OP, God V is said to like it very much, and it may be used as a solution for the decentralized Sequencer of Optimism in the future.

5. MEV-Share - Share MEV profits with users. This was just created by Flashbot recently. If it had been earlier, the clip robot that lost 25 million is said to be able to get back about 18 million...

6. Mev-Blocker - This is made by Cowswap. It mixes false transactions with real transactions, so you don't know who to trap. It is also a very novel idea... 9. ETH protocol level PBS - Ethereum protocol level proposal Separation of creators and builders, according to the usual style of the Ethereum Foundation, sees a high probability of 2025 and later...

Privacy has always been a track that I am not very optimistic about from an investment point of view. From the earliest Zcash to the later Tornado Cash to the current Aleo, Iron Fish, etc., there are no other reasons. Although this thing is politically correct, it is not suitable for 99% of users. Apart from hackers, a few institutions and giant whales, who cares about a local dog on Uniswap, a loan on AAVE, and a pledge on Lido?

Even if privacy is really needed, it should be in the form of a plug-in similar to Aztec's Aztec-connect to serve this mainstream Defi protocol, instead of building a "privacy public chain" from scratch. With the closure of Aztec Connect (possibly I am afraid that Sec will check the water meter, or it may not make money), I am even more bearish on the privacy track. Currently, I have seen the following two new privacy designs in the primary market.

The first category is based on Tornado Cash. The front end of Tornado is banned. Its design is because it can help hackers launder money and also keep the controversy of "political correctness". However, in fact, 80% of the funds in Tornado Cash are clean, and only about 10-20% are Hacking causes money laundering, because there are indeed whales and institutions that need to use similar services to ensure privacy. God himself has also used it.

So I have seen more than one project that wants to combine Tornado Cash with KYC. Since hackers are afraid of money laundering, it is OK to ensure that the money coming in through KYC + whitelist is clean money, but this actually brings regulatory risks. On the KYC provider side, KYC is theoretically very easy to forge or buy. If hackers use this "Tornado Cash with KYC", once they pass KYC, it may be more convenient for illegal activities.

The second category is similar to the design of Namada in Cosmos, called Multi-Asset Shielded Pool (MASP). Multiple privacy-protected assets share an anonymous set. Coupled with the strong interoperability of IBC, at least within the Cosmos ecosystem, theoretically it can Provide shielding protection for all mainstream assets on the Cosmos chain. For example, if you want to exchange Osmo and Atom privately, you can implement it similar to the diagram below.


I have also seen the use of homomorphic encryption for privacy, but homomorphic encryption is too early, and its performance and operability have not reached the stage of "really usable". It is a bit like ZK around 2017. , To develop into a usable high probability, there must be a 5-10-year feel. Let’s talk about this first today. In the next issue, we will talk about the three major components of Defi, Dex, lending, and new trends in stablecoins.