Blockchain
Lurking in what is sometimes referred to as the “dark forest,” programmed predators snatch value from unwitting victims as they attempt to execute blockchain transactions.
The concept of a “Dark Forest” comes from a novel written by Cixin Liu, which describes a setting where the discovery of one’s location predicts their inevitable demise at the hands of advanced predators. It is often compared to Ethereum’s hostile and murky block-building environment.
Hunting for victims in Ethereum’s public mempool, automated searchers hunt for transaction orders while being discovered in a practice called MEV, extracting value from their targets’ activities through front runs and sandwich attacks.
In an interview with Blockworks on a recent Bell Curve podcast, Hasu, strategy lead at Flashbots, spoke with host Mike Ippolito about the need to build privacy mechanisms to protect users from MEV exploits.
The quest for privacy
“I would say there are three different camps in crypto, when it comes to privacy, that have very different motivations,” says Hasu. First on his list is the “ideologically driven mob,” motivated primarily by the principle of privacy as a human right.
Second, says Hasu, a more “academic camp” of curious, privacy-focused crypto researchers are studying zero-knowledge, cryptography, and trusted execution environments in their quest to improve privacy.
“They’re in it,” he says, “for the intellectual challenge.”
The third camp consists of mechanism and market structure designers, Hasu explains, who strive for privacy to build “credible mechanisms that work.” As a strategy leader at Flashbots, Hasu identifies himself as such a builder.
Privacy, says Hasu, is “extremely important if you want to build a good market structure.” This is especially true in the MEV supply chain, he says. “Privacy is very important because there is a lot of informational value in the bids.”
“Just seeing a person’s intent, what they want to do,” he says, gives the seeker “a financial advantage because you can get ahead of them” and “harm them.”
According to Hasu, privacy is also crucial for a successful collaboration during the construction process. “We want validation and block production to be decentralized.”
Centralized actors that could monopolize the MEV supply chain would wield extraordinary power, he says. Instead, he advocates for a wider distribution of smaller seekers and block builders to collaborate in the block building process.
“This partnership does not work without strong privacy, because you should always be very aware that others can steal your bundles and steal money from you.”
“Privacy is fundamental to the MEV supply chain,” says Hasu, noting, “We couldn’t achieve our goals” without solving “the privacy puzzle.”
MEV share
Ippolito cites the privacy innovations of Flashbots’ MEV-Share tool as an example, which allows users to “instantly control which parts of their transaction they want to share with searchers.”
Hasu explains that with MEV-Share, searchers are limited in their ability to see user order information, protecting the transactions from MEV exploitation.
“We reveal a certain amount of information, not enough to lead the way, but just enough to narrow the search space so searchers aren’t completely blind.”
The block builders in this system, Hasu explains, are responsible for “running this simulation and matching the orders.”
“It’s a completely new paradigm for seekers,” he says. “Searching on private data isn’t what they’re used to, but we think it fundamentally produces better results for users.”