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private order flows
rpc-based "payment for order flow protocols" (POFPs)
- this type of private order flows can be realized by modifying either the user's rpc or by modifying the protocol's frontend
- the rpc endpoint re-broadcasts (forwarding) the tx to nodes.
- in respect to every pending tx they receive, they can: 1) censor, 2) forward to some mempool, or 3) forward it directly to some block-builders or validators.
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
stat arbs
- if CEX is greater than the price on chain (DEX), stat arbs can 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 it 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 realized MEV