In the ever-evolving landscape of blockchain technology, combating the exploitation of maximum extractable value (MEV) has become a critical concern. Da Hongfei, the founder of Neo, is at the forefront of tackling this urgent problem. With over a decade of experience since founding Neo in 2014, Da Hongfei brings unique insights into how blockchains can prevent malicious actors from taking advantage of MEV, while increasing security for users.
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Recent reports have shed light on the alarming scale of MEV, with malicious actors opportunistically siphoning more than $5.5 million in profits from Ethereum over the past 30 days. Against this backdrop, Da Hongfei argues that it is time for the industry to strengthen its defenses against MEV. He argues that a combination of innovative mechanisms, including wrapper transactions and delegated Byzantine fault tolerance (dBFT), offers a promising solution.
Da Hongfei’s recent article outlines the effectiveness of these technologies in context and provides valuable insights into how they can increase MEV resistance while ensuring user safety. As the industry strives for a smart economy, Da Hongfei’s expertise illuminates the path to greater fairness, security and resilience in the blockchain ecosystem.
Read the full interview for a deeper dive into Da Hongfei’s perspectives and solutions for tackling MEV.
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Can you explain the concept of Maximum Extractable Value (MEV) and why it has become a major issue in the blockchain industry, especially within the context of Neo?
MEV, an abbreviation for Miner Extractable Value or Maximum Extractable Value, can be implemented in different forms. The majority of MEV attacks are initiated by miners or validators who manipulate transaction orders to extract additional value for themselves, which is known as ‘toxic MEV’. Examples include front running, sandwich attacks, block withholding, and time bandit attacks.
MEV embodies the battle between centralization and decentralization inherent in the blockchain industry. Miners and validators have the power to rearrange transaction orders in their favor, seeking additional profits beyond standard rewards and gas fees.
It is reasonable to estimate that billions of dollars are lost annually to toxic MEV, and recent figures suggest that more than $1 billion has been extracted from Ethereum alone, demonstrating the scale of the problem.
What motivated your interest in tackling MEV within Neo, and why do you think it is crucial for the ecosystem?
MEV attacks threaten the decentralized and transparent ethos of blockchain, creating significant fairness and security issues in the DeFi space. This is not only problematic for those handling the technology, but also impacts the overarching reputation of DeFi. Therefore, to drive continued investment, DeFi must address MEV.
Neo’s vision is to establish an open network for the smart economy, where fairness and security for all participants are paramount. To achieve this, Neo has launched our EVM-compatible sidechain, Neo
You mentioned combining enveloped transactions with the delegated Byzantine Fault Tolerance (dBFT) consensus mechanism as a possible solution for MEV. Can you explain how these mechanisms work together to address MEV?
In combating MEV attacks, Neo
First, the dBFT consensus mechanism developed by Neo eliminates toxic MEV from the protocol level, preventing miners or validators from compromising the block generation process. It ensures that no consensus node can stop the block production process or, once a block is generated, reorder transactions.
Second, Neo This ensures that transaction processors cannot see the information in transactions, meaning they must process all transactions neutrally.
This combined method is known as ‘wrapped transactions’. Similar to the transition from HTTP to HTTPS, wrapped transactions provide greater security and protection for the user.
How do enveloped transactions guarantee user privacy and protect against potential exploitation by malicious actors in the context of MEV?
To achieve MEV resistance, Neo
To do this, Neo This allows users to encrypt their transactions with the common public key, preventing others from viewing the transaction contents before placing the transaction in a new block.
Then, each consensus node performs the threshold decryption with its own partial private key, which cannot directly decrypt the raw transaction. To recover the entire raw transaction, there must be enough consensus nodes (not less than the threshold; in practice greater than two-thirds) each producing its own partially decoded result.
DKG and threshold decryption serve as a robust privacy-preserving mechanism in blockchain networks, as evidenced by the way we use it with Neo complete transaction details can be stored. safely reconstructed when a sufficient number of participating nodes cooperate.
This maintains the confidentiality and integrity of the blockchain ecosystem and prevents malicious actors from engaging in toxic MEV.
Can you provide insight into how the dBFT consensus mechanism, as implemented, helps prevent toxic MEV and maintain transaction integrity within Neo?
As the inventor and pioneer of the dBFT consensus mechanism, Neo X (and Neo’s legacy chain) inherently prevents MEV attacks.
The dBFT consensus mechanism achieves this in an innovative way: transactions in Neo have absolute finality once confirmed in a single block, leaving no room for time bandit attacks, while the behavior of each consensus node is supervised by the community. If some nodes withhold a block for too long, the other nodes will start a new consensus view and continue producing blocks.
If some nodes continue to withhold blocks, the community can see this behavior and penalize it, preventing toxic MEV players from taking advantage. If a node is rational and does its job correctly, the community will see this, ensuring transparency and security.
It is worth noting that the dBFT consensus mechanism, combined with enveloped transactions, enables the highest level of security and fairness in the validation of blockchain transactions.
“Neo
Da Hongfei, founder of Neo
What do you see as the key challenges hindering the widespread adoption of MEV-resistant solutions within Neo or similar platforms?
MEV has been around for a long time. The different approaches taken to address MEV are the result of different views and the different inherent nature of each public chain. While there are many solutions for MEV, and we’re sure the industry is constantly exploring new ways to tackle MEV, Ethereum and Neo, for example, take very different approaches:
Ethereum’s solution is to use Flashbots to mitigate the negative externalities of MEV. In other words, this means that the profits generated from MEV are democratically distributed among blockchain ecosystem players, validators, MEV seekers, and users. The distribution strategy continues to evolve to achieve the fairest possible result.
Neo’s approach is to use the dBFT consensus mechanism alongside envelope transactions to eliminate MEV, ensuring absolute fairness.
We believe that every approach stems from the individual character of the chain in question. Neo, uniquely equipped with the dBFT consensus mechanism, naturally avoids this problem. We uphold the spirit of innovation and decentralization and hope that other blockchains and communities will follow suit. There is plenty of room to learn from each other and work together.
With recent figures suggesting that toxic MEV is responsible for more than $1 billion lost to Ethereum alone, the key challenge now is to ensure the industry makes the changes needed to combat the problem.
How do you anticipate the blockchain technology landscape developing in terms of MEV prevention and improving overall security, especially within the Neo ecosystem?
We believe that as the industry matures, fairness and security should always be a priority, while protecting the interests of ordinary users. Neo, through our new Neo We believe this will be one of the key features that will grow our vibrant ecosystem.
As we progress towards the smart economy, the industry will demand the utmost in user protection and security, which, through our Neo We hope, and will see over time, that more blockchains realize the potential of combining enveloped transactions with the dBFT consensus mechanism to make this a reality.