{"id":3277,"date":"2021-08-13T11:28:08","date_gmt":"2021-08-13T11:28:08","guid":{"rendered":"http:\/\/blog.mathwallet.org\/?p=3277"},"modified":"2021-08-13T11:29:27","modified_gmt":"2021-08-13T11:29:27","slug":"math-show-series-019-talk-about-eip1559-and-mev","status":"publish","type":"post","link":"https:\/\/blog.mathwallet.org\/?p=3277","title":{"rendered":"Math Show Series #019 – Talk about EIP1559 and MEV"},"content":{"rendered":"\n
\"\"\/<\/figure>\n\n\n\n

Host Cici:<\/strong><\/p>\n\n\n\n

I\u2019m Cici, the host of the Math Show tonight.<\/p>\n\n\n\n

EIP1559 and MEV are really hot topic recently, Did you guys see any news about EIP1559 and MEV? Today we invited CEO of bloXroute \u2014 Uri Klarman to talk about EIP1559 and MEV in Math Show.<\/p>\n\n\n\n

Uri Klarman:<\/strong><\/p>\n\n\n\n

I\u2019m Dr. Uri Klarman, co-founder and CEO of bloXroute Labs, and co-creator of the EGL project.<\/p>\n\n\n\n

Today we\u2019ll be discussing 2 super interesting (and related) topics \u2014 EIP-1559 and MEV.<\/p>\n\n\n\n

Along the way I will also tell you bit about the Ethereum Gas Limit (EGL, or \u201ceagle\u201d ) project and about bloXroute.<\/p>\n\n\n\n

So let\u2019s start by talking about EIP-1559, which just went live last week and everyone are talking about.<\/p>\n\n\n\n

EIP (Ethereum Improvement Proposal)-1559 is a change to the fees in Ethereum. Up until now, any Tx paid a fee to the miners, and the miners would sell most to pay for their operation costs.<\/p>\n\n\n\n

Now, under EIP-1559, the fee has two parts \u2014 a base fee (\u201cbasefee\u201d) which everyone must pay, and another small amount (the \u201ctip\u201d). Only the tip is paid to the miners \u2014 the basefee is \u201cburned\u201d. Which means miners make less revenues, and have less ETH to sell, and there is less inflation \/sell pressure for ETH, which in theory should be good for ETH\u2019s price.<\/p>\n\n\n\n

now that we got that covered \u2014 what does it mean for you, me, and Mathwallet users?<\/p>\n\n\n\n

So, how is the basefee set?<\/p>\n\n\n\n

It is designed to increase if blocks are over 50% full, and decrease if they are under 50% full. For example, imagine that the basefee is 10 gwei. There are many Tx that are willing to pay that much, so blocks become very full. Since blocks are over 50% full, basefee increases to 15, 20, 30, 50 etc, pricing out the lesser-value transactions which are not willing to pay so much. Because of that, blocks become less full, until only the high-value Tx are mined and fill 50% of the block, and the basefee stabilizes.<\/p>\n\n\n\n

In reality we\u2019re seeing this around 50 gwei.<\/p>\n\n\n\n

Are we happy with these basefees? well\u2026 maybe<\/p>\n\n\n\n

– If you\u2019re holding ETH, you want as much ETH to burn, so you are happy with higher basefees.<\/p>\n\n\n\n

– If you are a user you don\u2019t want to pay this higher basefee.<\/p>\n\n\n\n

But the interesting point, which leads us to the EGL project is \u201cwhat affects the basefee?\u201d<\/p>\n\n\n\n

The \u201cgas limit\u201d is the parameter which decides how \u201cbig\u201d ETH blocks are.The larger the blocks, the more transactions they can include, and the less transactions they need to exclude to keep blocks 50% full.<\/p>\n\n\n\n

So, the larger blocks, the lower the basefee. Who decides the gas limit? Right now it is the miners, but we launched the EGL project Genesis this week, and Genesis will and and EGL will go live tomorrow<\/p>\n\n\n\n

The EGL idea is simple:<\/p>\n\n\n\n

1- during Genesis, anyone can stake ETH to claim EGLs.<\/p>\n\n\n\n

2- anyone with EGLs can vote on the desired gas limit.<\/p>\n\n\n\n

3- pools are incentivized to follow the EGL vote. The closer they follow, the more EGLs they get.<\/p>\n\n\n\n

4- core decks are awarded EGLs to signal to the community what they think the gas limit should be.<\/p>\n\n\n\n

If you\u2019re interested, you can still participate, but the Genesis closes in exactly 24 hrs, over 20 core devs had signed up to participate, many of the major pools had agreed to the idea, and collected over 9,000 ETH so far.<\/p>\n\n\n\n

and that\u2019s it for 1559 \u2014 at least for now.<\/p>\n\n\n\n

Now let\u2019s talk about MEV and DeFi!<\/p>\n\n\n\n

Everyone are talking lately about MEV, front running, backrunning, etc. But what do these terms mean?<\/p>\n\n\n\n

While CEX (centralized exchanges) are very common, DeFi and decentralized exchanges (DEX) are becoming a very big deal. why? because they don\u2019t require you to upload your ID, nobody controls them so they can\u2019t be regulated, and don\u2019t have any employees, allowing them to charge lower fees (and even these fees mostly go to liquidity providers, not to \u201cthe exchange\u201d).<\/p>\n\n\n\n

Now, when someone want to trade in a DEX, he sends a transactions trying (for example) to buy 10 ETH for $10K. Such a transaction will change the price in the DEX (ETH price will go up), while the price everywhere else remains the same.<\/p>\n\n\n\n

This is an arbitrage (arb) opportunity \u2014 you could sell in the DEX and buy somewhere else, until the prices everywhere converge to the same price, which would be slightly higher than the price before the transaction took place.<\/p>\n\n\n\n

There\u2019s also \u201cbackrunning\u201d \u2014 if I see such a target Tx, and I know the price of ETH will go up in the DEX (while it remains the same everywhere else) I want to sell ETH immediately after the target transaction. This backrunning will capture the arb opportunity, but won\u2019t hurt the target transaction\u3002<\/p>\n\n\n\n

lastly \u2014 \u201csandwiching\u201d is doing both frontrunning and backrunning at the same time \u2014 making a sandwich of (1) frontrunning Tx, (2) target Tx, and (3)backrunning Tx<\/p>\n\n\n\n

Talking a bit about the services bloXroute provide here,<\/p>\n\n\n\n

1) we provide \u201cPrivate Transactions\u201d, or \u201cfront-running protections\u201d, which are never broadcasted to the mempool, so nobody can frontrun it. This is an enterprise-grade service, but we\u2019re now offering it to all our customers.<\/p>\n\n\n\n

2) we launched a BackRunMe service, where you can configure wallet to send your transaction to us, avoid frontrunners, and if there is any backrunning value in your transaction \u2014 you will receive 25% of it!<\/p>\n\n\n\n

(the rest goes mostly to the miner and to the bot who did the backrunning \u2014 bloXroute get a lot less, only 5%)<\/p>\n\n\n\n

3) the speed at which your transaction reaches the miners or validators is critical!<\/p>\n\n\n\n

If it takes your transaction 1 sec just to reach them, then there\u2019s a chance that a new block was already mined and the prices have changed by the time your transaction execute.<\/p>\n\n\n\n

This is especially true in BSC, where blocks are mined every 3 seconds.<\/p>\n\n\n\n

If you\u2019re trying to time the market and sell the top (or buy the bottom) you want your trade to go thru at the price you see \u2014 not after a new block was mined and maybe already drastically changed all the prices.<\/p>\n\n\n\n

Host Cici:<\/strong><\/p>\n\n\n\n

Before the start of the MathShow, we have collected a wide range of questions on Twitter. For some questions submitted by some community members, let\u2019s invite Uri Klarman to answer .<\/p>\n\n\n\n

1.Will the MEV situation change after 1559? increase or decrease?<\/p>\n\n\n\n

Uri Klarman:<\/strong><\/p>\n\n\n\n

at a first glance, it should remain the same, since the arb and liquidation opportunities remain the same, and it still makes sense to \u201cbribe\u201d pools to include your Tx to capture such value.<\/p>\n\n\n\n

however, there is one major change \u2014 a big chunk of the \u201cbribe\u201d now gets burned, and there\u2019s nothing the bot or the pools can do about it!<\/p>\n\n\n\n

it probably means 2 things:<\/p>\n\n\n\n

1-that MEV bots and pools would earn less $, since some of the value will be burned.<\/p>\n\n\n\n

2-that smaller opportunities might no longer be profitable to front\/backrun, and therefore are \u201csafer\u201d under 1559.<\/p>\n\n\n\n

but MEV is here to stay, it just might change its dynamics a bit \u2014 and I don\u2019t see it significantly decreasing<\/p>\n\n\n\n

Host Cici:<\/strong><\/p>\n\n\n\n

2. Is 1559 have any impact on these MEV-Geth production clients? Will the Gas auction model change?<\/p>\n\n\n\n

Uri Klarman:<\/strong><\/p>\n\n\n\n

it definitely has an impact \u2014 pre-1559 MEV-geth would include Tx with 0 fees, and now post-1559 it has to burn about 50 gwei . And we\u2019re already seeing the gas auction model changing!<\/p>\n\n\n\n

we moved from bots gas \u2014 auctioning to flashbots, and now Eden is gaining traction, likely because of this change.<\/p>\n\n\n\n

the principle remains the same \u2014 pay more fee to affect tx order, but the specifics change.<\/p>\n\n\n\n

Host Cici:<\/strong><\/p>\n\n\n\n

3.Will 1559 have an impact on non-miner MEV solutions? (Such as Eden, KeeperDAO, CowSwap)<\/p>\n\n\n\n

Uri Klarman:<\/strong><\/p>\n\n\n\n

All MEV solutions are miner-related.<\/p>\n\n\n\n

Our friends at KeeperDAO are just limiting who can try and capture MEV, and have some of it distributed among the token holders.<\/p>\n\n\n\n

Eden tries to affect miners, but using Eden staking and rewarding the Eden tokens. I don\u2019t remember the CowSwap details, but it\u2019s always a matter of \u201cbribing\u201d the miners.<\/p>\n\n\n\n

I think the major change for all of them is that all of a sudden the fee cannot be directed to the mining pool \u2014 the basefee is burned, and doesn\u2019t help to persuade the miner\/pool to order the tx one way or another, which reduces the value searchers and miners capture.<\/p>\n\n\n\n

Host Cici:<\/strong><\/p>\n\n\n\n

4.Nowadays, many public chain create their own evm chain. If they are all evm public chains, what is the significance of these public chains?<\/p>\n\n\n\n

Uri Klarman:<\/strong><\/p>\n\n\n\n

there\u2019s a big question here \u2014 \u201care we heading towards a mass-multichain world, or are we going to have just a few major chains?\u201d<\/p>\n\n\n\n

The general attitude changes every 1\u20132 years, swinging from \u201cthere are going to be MANY chains\u201d to \u201cjust a few\u201d.<\/p>\n\n\n\n

I think it\u2019s obvious at this point that ETH provides value and functionality that BTC doesn\u2019t. it makes a lot of sense that other chains will add more value which can\u2019t be done using ETH. Additionally, it seems regionality plays a major role \u2014 the chains and communities in the west are different from those in the east.<\/p>\n\n\n\n

I think that the evm bridges are going to allow adding potential functionality which ETH and BTC don\u2019t have, but I don\u2019t think most of them will make sense in the long term. The EVM \u201cbridges\u201d are going to make sense when they lead from ETH to a chain that adds value. A bridge that leads nowehere isn\u2019t really helpful.<\/p>\n\n\n\n

Host Cici:<\/strong><\/p>\n\n\n\n

Thank you for sharing your opinions. Hope this audience could get something from your answer, we will see you in the next issue.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Host Cici: I\u2019m Cici, the host of the Math Show tonight. EIP1559 and MEV are really hot topic recently, Did you guys see any news about EIP1559 and MEV? Today we invited CEO of bloXroute \u2014 Uri Klarman to talk about EIP1559 and MEV in Math Show. Uri Klarman: I\u2019m Dr. Uri Klarman, co-founder and […]<\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"unlock_protocol_post_locks":""},"categories":[1],"tags":[96],"_links":{"self":[{"href":"https:\/\/blog.mathwallet.org\/index.php?rest_route=\/wp\/v2\/posts\/3277"}],"collection":[{"href":"https:\/\/blog.mathwallet.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.mathwallet.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.mathwallet.org\/index.php?rest_route=\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.mathwallet.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=3277"}],"version-history":[{"count":3,"href":"https:\/\/blog.mathwallet.org\/index.php?rest_route=\/wp\/v2\/posts\/3277\/revisions"}],"predecessor-version":[{"id":3280,"href":"https:\/\/blog.mathwallet.org\/index.php?rest_route=\/wp\/v2\/posts\/3277\/revisions\/3280"}],"wp:attachment":[{"href":"https:\/\/blog.mathwallet.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=3277"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.mathwallet.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=3277"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.mathwallet.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=3277"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}