mev-toolkit/mev_protocols

MEV protocol solutions

private order flow protocols (POFPs)

• rpc-based mev solutions (private order flow)
• private orderflows are realized by modifying either the user's rpc or by modifying the protocol's frontend
• the goal of private order flow protocols (POFPs)

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validator transaction reordering protocols (VTRPs)

• private tx reordering
• two goals: 1) identify valuable user txs, 2) replace the POFP's value-extracted tx with its own value-extractive tx
• when a VTRP is able to identify a valuable user tx but, due to the tactics of the POFP, is unable to inject its own transaction in place of the POFP's -> VTRP's optimal strategy is to censor the user's transaction from the final block

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stat arbs

• if CEX is greater than the price on chain (on theDEX), stat arbs will buy on the DEX and hedge on the CEX -> confident that the DEX price will drift towards the CEX price, but not confident that will happen to the CEX price
• problem: settlement mismatch -> CEX trades are fast but blockchains aren't -> start arbs are unsure if the trade will land or competitors will beat them
• from the time between trade submission and receipt of the next block, the trade (their exposure to the assets) is uncertain
• the greater the uncertainty, the more the profit estimate needs to be marked down
• while volatility of the token is important, the longer the time period between blocks, the longer tx remains, and the longer can go without being fully hedged
• as block time increases, stat arb MEV profit estimates get marked down -> payments made by stat arbers to miners/validators or to users/traders decrease
• conclusion: the battle between PFOF-style MEV could lead to increase block times for stat arbers, decreasing combined realzied MEV