Wallets and MEV: Decoding Ethereum’s Supply Chain | Matt Cutler, Blocknative

Transcript

hey everyone before we get into today's episode I want to take a second to acknowledge vouch with over 4 000 startups insured from napkin sketch ideas to large IPOs vouch is the insurer of choice for crypto companies including l1s l2s Dows protocols and a whole lot more they're exclusive coverages are enhanced for crypto covering everything from regulatory defense to Smart contract vulnerabilities with vouch you're not just ensuring your startup you are investing in peace of mind so you can keep on building you'll hear more about vouch later in the show all right everyone I want to introduce you to Bumper a new D5 protocol that is here to redefine how you protect your crypto assets obviously Market volatility can

be a concern for us crypto holders go check out bumper It's bumper.5 take a step towards smarter crypto Asset Risk Management all right everyone welcome back to another episode of Empire today we're sitting down with Matt Cutler founder CEO of block native the vision I think Matt for this in my mind I want to talk about uh supply chain of ethereum from a user's perspective kind of who are these actors in the supply chain then once we kind of solve that and figure that out we can get into Mev you can start to double click on that and go down rabbit holes like relays and I know you're very excited about account abstraction maybe we could use uniswap as a case study here private transactions a lot to talk

about but the place I want to start actually and I didn't know this until we had dinner at permissionless is I think you're one of the only crypto Builders who also has an IPO under their belt and I'd be curious I forget if it was actually an IPO or just a couple successes in the past I'd be curious as just a starting point like when you look at building for the early internet 25 years ago versus building for ethereum today what kind of similarities and differences stand out sure so you're dating me now but I appreciate that um my first startup ever was a internet infrastructure company way back in 1994 it was called net Genesis it became uh really the first ever web analytics

business um I like to say it was a nine-year overnight success a zero to IPO and at the time that we went public was one of the top 35 IPOs in history up to that point which is crazy to think about I was an undergrad at MIT at that point and so it was long before it was fashionable to do internet companies long before it was fashionable to do startups as an undergrad so as I like to say I have earned all these gray hairs bought and paid for um it's really interesting though like it's easy to romanticize wow it must have been awesome to build on the internet in 94 95 96 before it really happened and you know it was pretty lonely it was pretty weird people didn't know what it was you had to start every meeting with these explanations of what

the internet is and how it works and what an email is ETC most people thought it was some crazy Backwater does that sound familiar about crypto right that that uh basically when I started to tune into to the world of web 3 which was 2016-2017. my first reaction was oh I've seen this movie before it's it's weird it's complicated it's hard to use the tools are underdeveloped but if you really understand what's going on just like if you really understood the internet compared to other types of network architectures you really understood what's going on in crypto at a technical level you go oh this is clearly superior to the alternative and on a long enough time frame will succeed being and will take over because

basically there's all these advantages structurally right now it felt like it took a long time to get from 1994 to 1999 when the internet really broke into the mainstream and took off and oh by the way there are these ups and downs in the web 10 boom and then the crash and does that sound familiar right so in many ways I feel like uh you know this is the old it's a faux Mark twice Twain's saying which is history doesn't repeat itself but it Rhymes in many regards web 3 has parallels to the early internet but is also different you know if we think about our world today versus 2016 2017 it's like orders of magnitude larger orders of magnitude more diverse orders of magnitude easier to use but

still probably not easy enough one of the big differences which I think is under appreciated is uh the Clinton Administration which was the the administration that was had the presidency uh when in the formative days of the internet had a very explicit hands-off regulatory uh stance towards the internet there was people who were talking about doing stuff and that Administration basically said look there's Innovation happening here all we're going to do is screw it up let's just stand back and let it go and it turned out that that worked out pretty well both for the internet and for U.S based companies in in you know doing work there right I don't think we understood that at the time I think we all just sort of did what we were doing but uh we didn't really think about the

regulatory environment to any significant degree while we were building stuff now that's that's a bit different in our world in web 3. um it's not to say that we don't need regulation but certainly the regulatory environment is a lot more hostile to this class of innovation and it really bends what what can and can't be built and how people operate and why and I think that's something that basically has uh slowed us down in terms of you know why has it taken over the world it's been around for a long time it's because it's been fighting an uphill regulatory battle ever since um I do think we're seeing the Winds of Change there and I do think we're sort of starting to move in the right direction but those are just a few uh uh similarities and differences between building early internet infrastructure building early web3 infrastructure

so about a year ago we had the the merge right in this transition to proof of stake right and this this did a couple things right it formalized PBS this the proposer Builder separation it kind of formalized the Outsourcing of block construction uh which which then created this new market of of Specialists of of these block Builders right you had to have relays to the network and I think if you're actively at this point you know a year ago it felt like something like Mev was this like dark forest and this weird esoteric thing and now it feels pretty normalized um it does if you're building an ethereum or if you're investing in the ecosystem however when you talk to a lot of folks maybe just for the everyday user kind of swapping on you to swap this is still not really a very understood supply

chain so I think a good starting place for this conversation would just be can you walk me through the supply chain of a transaction on ethereum today sure so uh the merger is obviously the most significant upgrade to the ethereum network since it's Genesis block and and while it it brought in the transition from proof of work to proof of stake it also brought in a whole bunch of other changes which uh in many ways perhaps are as fundamental but don't they are more complicated and don't have quite the same headline so um it's sort of helpful to go back a little bit so what happened under proof of work you had miners who were basically solving arbitrary math problems you basically pour in CPU which really requires power right to solve

these complicated math problems it's a big Global competition one computer uh solves it they get the right to uh to to win the block and to write the block to the chain they determine which transactions go into what order and then there's a new contest right well what was not really well understood uh by the community at that time was that though there were thousands of computers that made up ethereum there were basically clustered in what were known as mining pools because if you basically stood up a computer was expensive and put it under your desk which was expensive and you ran it for a year probably you'd win no blocks so why would anyone do this but by basically pooling your compute resource with others you could share the rewards so it was economically rational for folks to to pool their resources

together um but what wasn't understood was there was only about four or five mining pools that that comprise the vast majority of the network and those entities were the ones who determined what went into a block meaning which transactions are included which transactions are excluded and what is the sequencing or ordering of that right and and that's not great from a decentralization perspective and and basically there was no um transparency with those parties uh a group called flashbots um emerged as sort of a research Collective to start to basically start to to analyze was there you know evidence of manipulation happening here where were the um these mining pool operators basically doing things which

seem to favor certain parties or not and that seemed to be happening because it turns out that an ordered transaction systems which are all transaction systems the uh inclusion exclusion and sequencing or ordering of transactions there's value to be extracted this is known as Mev at that point it was known as minor extractable value and it turns out there's a lot of money to be made here so there's actually massive economic incentive for these mining pool operators to get smart about this to develop you know develop code that did this and basically cut side deals with large trading operations in order to give them you know specific ordering and inclusion uh so that they could capture value and then they would pay the The Miner off to do so so enter proof of

stake the merge what happens at the merge we go from proof of work to proof of stake consensus so we're not solving complicated math problems with power and CPU instead use stake eth and you um basically get randomly selected to be the tip of the chain and if you do your job you get a reward in the form of yield well just like we had mining pools before now pretty rapidly uh became the emergence of staking pools because again you operate one staking node there's hundreds of thousands of them out there what's the likelihood that you're going to get picked very low and so what you want to do is basically Bend IN with others and you want to basically pool the reward so you get a more even return totally makes sense but there started to be some very large mining pools that

were aggregating a lot of eth they had a lot of resources and the realization was ooh these large staking pools could get really good at Mev um they could build more valuable blocks than anybody else and uh they would then have higher yield so if I was someone who had 32 eth and I wanted to put my eth somewhere I would just just like buying a bond right I would look to see where I got the highest yield that I put my stake there right well basically if staking pool a offers higher yield than everyone else then everyone's going to put their money in staking pool a and second pool a is going to have more resources to get better at this and generate higher yield and this would create effectively an irreversible centralization of stake at

the very heart of the network and this was viewed as sort of an existential threat to the network and the realization was made by the researchers at the ethereum foundation that that they couldn't introduce the merge um with this as a fact of life um there was a whole field of research known as PBS proposer Builder separation whereby you know just breaking that down you break apart the act of proposing a block to the network from the act of building the block right you separate proposer and Builder and while there's been a lot of research into doing that in protocol there's a lot of extra complexity with that and in order to accelerate the arrival of the merge the ethereum foundation wind up using uh out

of protocol sidecar known as Mev boost which by the way is sort of architected and coded by the team at flashbot so there's flashbots again and what this does is it basically creates a third-party Marketplace for independent block Builders to basically do the work of of ordering of grabbing transactions inclusion exclusion and ordering and um providing that to the proposer to send to the network so any proposer on the network can either build their own block or they can Outsource to this third-party Network right um we as block native are integral players in that and evolving with that space and the question is why would anyone do this why would a Staker

Outsource to the block building Network and the reason is building valuable blocks is actually quite difficult it's quite computationally intensive it's um Network intensive it's storage intensive and to do it well you actually need a whole bunch of specialized relationships and so these third parties like us build blocks that are on average about five times as valuable as a locally sourced block so it turns out there's this really significant economic incentive for any staking operator to Outsource to the third party because they they get higher yield and if they don't then they're going to have lower yield than everybody else and they're going to lose all their state right um and so uh this so by the way today on ethereum 93 to 95 of all blocks are

outsourced and so it's the prominent way that blocks get constructed and the way that it goes and just now we're getting into the core of your question but it helps to understand the context understand why it works this way is a user submits a transaction to the public mempool use your metamask wallet use your Ledger wallet you have default configuration you submit it goes into the public mempool um your transaction is effectively competing with every other transaction to be included in the next block you know on average the each block contains you know between 150 and 250 transactions so you need to be at the top of that like how do you get at the top well it's gas price so basically transactions are sorted by gas price you have a base fee which gets burned you have this uh priority fee or tip which

goes to the miner or the Builder now um and basically if you price your transaction appropriately you can get included right and then what Builders do they're these third-party operators called builders that basically aggregate all these transactions in the public mempool and try to build you know fill up the block because there's only so much gas space and um you know build a valuable block except there's this other group of actors called Searchers what Searchers are doing is they're looking for transactions in the public mem pool that they can basically bundle transactions with to extract value so this includes things like back running or front running or sandwiching what these Searchers do is they create a bundle they say if you give me this so

they actually it's not really well understood they grab the transaction out of the public Med pool they insert their transactions in front behind or on top of and then they submit that bundle to a builder and they say hey Builder if you include these transactions in this sequence and it successfully lands on chain here's what I'll pay you right here's what I'll I'll give you for doing so and so how much would you bid for the opportunity to get a hundred thousand dollar profit would you bid 10 bucks of course you would what's nice but interesting is it's a competitive Marketplace we have lots of Searchers who all see the same thing only one of them is going to win so you've been 10 I've been 20. she bids 50 he bids 100

you bid a thousand and before you know it the bidding goes up quite a bit where most of the value of that hundred grand gets set to the Builder okay now the builders also compete with each other because they're trying to bid for the right to win the block at the at the proposer level right so that they have to be the most valuable block so just like there's competition among Searchers there's no competition among Builders and they do the same thing they say hey validator if you take my block here's what I'll give you as a reward right and so as you might imagine that gets bid up as well and so most of the value of this Mev that as a result of this Oracle update starts at the Searchers who recognize it

flows through the builders to the validators right and so this is where we get what we call juicy blocks blocks that are literally worth millions of dollars a single block because they contain so much value and because everybody's competing with each other final piece of all of this in the middle between the builders and the proposers or these entities called relays where one of the few relay operators on the market and what they do is they basically protect the builders and the proposers from each other because it's a trustless and permissionless system and that basically Builders could do things like make phony bids that would then screw over the proposers and proposers could do things like steel Mev from Builders and screw them over and so basically uh relays are these critical

trusted intermediaries that that ensure the orderly operation of the network so that Builders and proposers can work together without having to trust each other and sadly propose that the relays for for really helping operate the network get nothing there's no economic incentives at the relay layer I for one we have block native have been very vocal about that this isn't a great situation because it turns out there's only seven relay operators on the market and there's nobody new really coming in that that has any real share because why would anyone go into something that has 100 risk and zero percent reward as a Relay operator so there's a long answer to short question but that's sort of the history of how we got here and how things work today and and oh by the way of course all this stuff is is being

worked on it may work differently tomorrow Fair all right uh very very good answer there Matt um couldn't be a conversation with with uh with Matt Culler without talking about the economic incentives of of relays but before we do that so four actors here right we've got the builders are the folks who kind of construct the potential blocks the relays are kind of these trusted actors which receive the blocks from the builders and kind of sit in the middle and like validate them and make sure that they're good they kind of sit in the middle between the builders and the validators and they pass the they passed the blocks over to the validators to be included on chain and the Searchers are hedge funds who are oftentimes funds who are or or just smart smart individuals who are trying

to basically extract value from this whole system who so Searchers Builders relays and validators who has the leverage in this supply chain how would you rank kind of the leverage of this system so the economics are have have been pretty clear so even now we're more than a year post merged by the way we just published a big blog post about what we've learned over the course of the past year and one of the things we've said is basically the value occurs at the Searcher level the trader class Trader Searcher for the same thing and at the validator class right and there's not great economics in the middle and and part of the reason is we block native have been a credibly neutral Builder like we're we're not a trading operation we're just trying to build

valuable blocks and what's become a fact of life is vertically integrated Searcher Builder so the Searcher says there's all this profit in this trade I could share it with a builder or I could just be a builder myself right and so the the what the Searchers do is they operate their own Builders they don't socialize their trades so they have what's called exclusive order flow they have trades nobody else has right and they capture value at the trade level as opposed to at the Builder level so it kind of bleeds out the interesting economics for the most part at the Builder level right um and you can see all this there's public dashboards on all of these things which is pretty great but you can see um uh Builder profitability on sites

like relay scan and and what you'll find is most of the profit goes to integrated Searcher Builders and that's just sort of how it goes I can talk a little bit about that um there's some money but not very much money at the Builder level there is no money actually negative money at the relay level and then most of the value actually goes to the validators so so fundamentally there's been literally hundreds of millions of dollars maybe billions of dollars of value that this setup has basically flow code to validators so validators are are the big winners in all of this and the very clear you know sort of uh most advantaged economic actors because they have final say now there is a fifth actor which is easy to overlook and easy to ignore in the supply chain which is

users right that none of this happens without regular people doing transactions on the network which is the root cause of Mev or the source of it all the user doesn't do a transaction there's no Mev and users for in many ways have been an afterthought in this space um users in many ways uh suffer a less favorable settlement as a result of these sorts of things and and we don't think that's great and and we think this is something that we talked about and addressed because if users are second class citizens on any of these networks then it's unlikely that they're going to be the the network will be the foundation of the next economy so anyways uh Searchers are doing pretty well uh uh validators are doing very well tough on everybody else in the

current the current set of Affairs yeah well maybe I would push back on the user thing for a second or or just bring up this question that I think is important um which is who are you trying to optimize for are you trying to optimize because are you trying to optimize for the user or are you trying to optimize wise for kind of the health of the network the infrastructure in a sense and I'd be I'd be curious to throw that at you because Mev I feel like has ebbed and flowed from this at some points in times uh people have almost thought of it as this existential threat to the decentralization of ethereum at other points in time you hear it talked about is like look any any system with ordered transactions is going to have Mev crypto or non-crypto right um so it's just part of the part of this

network and part part of the market I'd be very curious how you think about like who are we trying to optimize for and um is Mev this threat to the decentralization of ethereum um it's it's interesting I would say yes so so first off mbb is absolutely a fact of life for any transaction system right there's just once you have ordering you have some actor who can control that ordering and extract value what are what are examples of not to get too off topic but like me Mev in in in my daily life out off chain so the classic example which I'm pretty sure I was the one who proposed as SEO right type in a search to Google everybody knows that being at the top of the search results is way better than

being on the fifth page so there's this whole thing you do to optimize your search engine ranking because the ordering matters right and this used to be a dark art that like only certain people knew about and then gradually this started to be talked about and then tools started to be built and now there's a whole industry used to be a cottage industry now it's a big industry associated with SEO but there's one actor in the center Google who benefits from from all of that right so classic example of SEO I mean of uh of Mev um airline tickets concert tickets everybody understands right like the sooner you buy or when you buy and what you pay and basically that Ticketmaster captures Mev and the airlines capture Mev around you know seat assignments and availability and pricing right classic

true of stock trading it's true of mortgages it's true of um you know any credit card system as well the difference on public blockchain networks like ethereum is it's open and programmable it is observable which it's not on any of those systems it all happens behind closed doors we never really know about it or hear about it and so this seems like this brand new thing that suddenly came into the spotlight not new at all just new transparency and observability of it now what is the net effect the net effect is Mev is economically measured in billions of dollars and if you don't deal with it in a organized orderly transparent

permissionless fashion that it absolutely pollutes and corrupts and centralizes the network right it's just too valuable right and so you'll hear about chains and say oh we have no Mev right the only way to have no Mev is to have no liquidity no flow as soon as you have flow Meb results you can say oh we have rules where you know it can't be you know manipulated or or exploited you go well eventually there's the economic incentives get so large that like it's worth it to break the rules and so uh Mev is a fact of life doesn't matter and again the idea that there are some magical way to do Fair ordering or some magical way to do uh to sort of

engineer it away I'm pretty skeptical of it I think many in the space are skeptical of it does exert this sort of um gravity on the network where the network has to deal with it and as a result you can look at the how the network works like PBS you can look at other things coming and say you're kind of catering to the Mev class you're kind of favoring that class and the answer is look if we don't deal with this if we don't if we don't make this organized then it it's going to crop up but in these back room you know kind of ways and that's going to be really negative for the network so it's a difficult position for for any chain to be in with liquidity um certainly the ethereum foundation is

has spent a lot of energy here and will continue to as the roadmap unfolds but like it or not it's a fact of life and I think everybody's going to need to to deal with it um the final thing let's say is I don't think it's an end user problem to deal with a man I always say imagine going to the grocery store and being like dude you paid with your your Visa card on Wednesday and you had bananas like everybody knows you don't do that you get screwed like wait what like oh well you I don't know time of day day of week what's in your shopping cart where you are geographically and which credit cards in order to get favorable settlement because it's changing all the time like end users are just want to like buy their groceries and get out I don't want to feel like they're getting

screwed that does remind my dad when he made his first ever transaction on uniswap he um on uniswap he I think it was like a 2 p.m on a Tuesday I was like he's like yeah but gas was crazy I was like well yeah you got to make that trade on like a Saturday he's like well how would I know that and why would I know that and by the way if you know like again it's just if you're in the space it's like oh well all we need is smarter users you're like that's not that's not the weight of the future right yeah your infrastructure in order to uh insulate and Abstract this all away from users which good news is we're making a lot of progress on um Mev is not quite the uh the dark art that it once was it's kind of a

mainstream topic but it's something that I think everybody in the category needs to to be aware of and to be proactive about yeah who are last question on the actors and then we'll move into I think uh maybe the economic incentives of relays but who are who are the actors like who are the biggest Searchers who are the biggest Builders who are these are these names that are the validators you know the people and the companies behind the validators and the Searchers and stuff and the builders would these be names that Empire listeners would be familiar with um or are they kind of these like really under the radar folks um they're they're not they're generally not big names again the good news about this is there's public dashboards where you can see a lot of this stuff

happening so relay scan um Mev boost dot picks Mev boost dot uh org um rated network uh there's tons of stuff out there where you can see this stuff there are actors like block native and blocks route and flashbots that maybe you're familiar with they're uh actors like Beaver builds and Builder 0x69 and Titan Builder and you know um there are entities which like hey they operate as this as a builder but it's really this um hedge fund behind the scenes right and so none of this stuff is super secret um but it's not super explicit either and then there are like specialized

actors like ultrasound relay or agnostic right ultrasound relay the head of that is a guy named Justin Drake who's one of the top ethereum researchers uh overall agnostic is a project from gnosis so it's it's not I wouldn't say these are household names they're not completely opaque either um Searchers themselves are often quite opaque right that they're just addresses online and they can range from Individual people um who it used to be that way today it's so competitive there's relatively few you know independent or individual Searchers they tend to form teams um or they tend to turn into like funds where they actually have a fair amount of capital they have a formal structure and there's a number of these large

funds that are active in the space in particular one of the big areas to Big ways to grab value here is what's known as sextecs Arbitrage so arbitraging between centralized exchanges and decentralized exchanges but to do so requires actually a fair amount of capital and taking a fair amount of risk and so it's beyond like even if you understand how it works it's beyond the means of you know most individuals um you really do need a pretty substantial amount of resources to do that effectively but there's a lot of money to be made at it and that's why the bigger folks do so yeah by the way folks want to listen to an interview with a Searcher Mike had a really good episode on bell curve with uh Dean Eigenmann and I think uh I think a niche from I think he's a paradigm or maybe expert

I forget where he's at but anyways very very good episode with the Searcher uh two Searchers so um maybe we could double click on the this thing in the middle between the the builders and the validators so the relay sit here and block native runs a relay um you're also a block Builder um can you maybe just double click on relays like why do they really exist how many relays are they what is the market size for like relays look like and even just like I'd be very curious about the the business model you you are running a business uh what what is the bit why do you do this uh what why are you doing this so there's a lot there's a lot there maybe just double click on relays for us here I asked myself this question so why are you doing what you're doing

here Matt so again relays are these critical trusted intermediaries that that um uh you know there's a whole bunch of bad things that can happen between Builders and proposers if one of them is a malicious actor right so for example the Builder says I have a block that's worth 100 million dollars validator says oh awesome I'll take 100 million dollars and the Builder says just joking I don't really have 100 million dollars and because you have to propose the block within 12 seconds right you only have 12 seconds for the slot in reality it's more like four seconds right you accept that winning bid it's not a valid bid

you end up with a missed slot and you get zero from the network right and the reason why I would do this is a builder wants to prevent somebody else from putting a block on because they're trying to prevent some other um uh you know transactions from landing on chain right this would be very trivial to do and so what a relay does is a relay basically validates uh that the Builder's bid is valid is is there right there are multiple ways to do this one is to actually inspect the block and inspect the bid and say yep everything's good with the block and everything's good with the bid there's a another way which is called optimistic relaying which is pioneered by the ultrasound team where they don't do that instead the builders are bonded meaning the

builders like put up some like say put up I think it's 100 eighth is the max you can do and then you can bid up to that amount and uh if you don't deliver a valid block then basically the the validator gets paid out of the escrow right um out of the bond um there's advantages to that for latency because a lot of this winds up being a latency game um but there are disadvantages to that approach as well um critically at the relay layer you can do things like sensor transactions you can basically you know decide that there's certain sorts of transactions you're not going to transmit through which in the US the Department of Treasury has what's known as ofac sdn they put tornado cash Mark contracts on

there and so entities with us-based persons like block native generally are legally advised not to touch those transactions because you might be liable for facilitating a banned transaction so it does introduce some fragility to the network and that's something people care about conversely the other thing is also true where basically a builder builds a valuable block a proposer receives the block and says oh there's a ton of value in here I'm just gonna change some of these addresses so instead of you getting paid I get paid right steal the Meb and you go wow you know that'd be terrible you'll get slashed like I get slashed 32 East right but I could make hundreds of millions of dollars or more right and so basically

how it works is the relays don't share the full block the block body containing the transactions to the validator to the to the proposer they just share the header right so they basically share the bids it's a it's a it's a a full block auction bid the validator reviews the bids selects the highest bid signs the bid okay and it basically binds them you know at a cryptographic layer that they have to propose that block to the network and what used to happen was that the relay would then release the block body to the proposer and the proposer would send it to the network and there was actually a big attack an exploit there's a a bug in all

of that that resulted in a pretty big like 20 million dollar loss and so today what happens is as soon as the proposer signs the header the relay releases the block body to the entire network and then releases it back to the proposer so basically gets it out to the network and sort of it prevents some potential attack vectors on malicious proposers so the relays are this really critical you know for 95 of the network 95 of the blocks they act as these intermediaries to make sure everything is orderly and smooth and proficient right um for doing so zero economics they get paid nothing okay and in fact there's negative economics because if a relay doesn't do its job it's slow it screws

up it gets rebooted and the validator misses a slot because the relay didn't do all the network handshakes that there's precedent for these large sticking pools for demanding a refund like it's a free service and you say oh now you owe me right and uh if you don't uh uh make me whole then I'm gonna disconnect from your relay and you won't have access to us right and so literally the job of relaying is is negative margin not positive margin there are relays that have funding in other ways there are public goods relays where they basically say hey donate in there are some relays that actually charge Builders to get access to them and so you know there's starting to be some some movement there we and me have

been very vocal advocates for they should be economically incented in protocol so you do your job and you get paid because you're you're providing a valuable service particularly the validators um and doing so would increase participation and increase diversity at the relay layer because turns out that there's not a lot of players here there's I think 10 or 11 relays on the network total loot but they're only operated by seven um entities um where one of where one of those seven we at block nineve are right now about 10 of the network um uh and and we think there should be more we think it's it's better to have more people participating it's better to have a diversity of code bases and things like that now why do we do this we thought it was necessary to to

compete in this market space we thought it was good for the support of the network and we thought that some of these issues would be addressed over time and and the truth is that uh the economics really haven't been there's been a lot of discussion about it but but there hasn't been sort of a a real material change here and you know like anything else we evaluate our strategies so um we will be making changes in these areas because we're a venture-backed startup we need to return you know a generator return for our shareholders and relays what we thought would be a really interesting and important thing or are really not that economically interesting to an actor Like Us by the way they're expensive to operate they're Global 24x7 real time right you've got an economic incentive for for there's

there's no economic incentive for operating in relay there is a cost you've got negative economics I'm I'm sure the VC's backing block native or not don't don't love that model no no and you can't make it up on volume when there's there's no positive economics and so you know I think we will see and um changes in the relay setup right in terms of who's participating and who's not I think the space um isn't as dynamic as we'd like it to be um and you know we have to look out for for our own and there's very real opportunity costs I was talking to one of the other relay operators and uh the team said there'd be a higher Roi on doing literally anything else besides this

so you know I raise these issues because it's not great right like just people people really one of the analogies to do is when you eat your food you think about where your food came from then like you're putting it in your body like when you do transactions on the on a chain do you think about like what the supply chain with the sourcing is how does that look like you should be aware of where your food comes from you should be aware of how blocks get made and and as you get into it sometimes you'll find like oh it's not quite as clean as I would like it to be or quite as decentralized as I'd like it to be so you know we try to be uh uh net positive actors and positive contributors to the ecosystem but you know there's only there's only so far you can go that's

for sure yeah so if I'm reading between the lines here you believe that operating relay relay is really net positive for for eth right you're you're 10 of the network right now you think it's a really good thing to run however the economic incentives just don't make sense and you're starting to think like look even if it's really good for the network maybe this isn't the business we should be in um I would say yes but it's less starting to think and more like we've reached some conclusions and we'll be taking some actions here right like we've been doing this for more than a year um it's been super interesting we're we're excited to be part of all of this stuff but you know uh attaboys high fives and nice tweets don't pay salaries so you know we gotta find ways to to make sure that happens yeah so then okay

so I'm just gonna pretend like you guys are getting out of the relay Market that leaves what just one code base which is flashbots right so then it's or no well so it's a good question so there is a open source code base from the flashbots relay we operate a separate open source code Base called Dreamboat our own that has some significant architectural differences between them that introduces some code-based diversity um it's unclear if every other relay is running the the default flashbots or they've made modifications to it but they're as far as I know not open source so so there's not great observability in there and so yeah that that is something that I think we we have tried to raise awareness of is we spent a lot of time

and energy around um code diversity at the consensus layer um but you know why should we also have similar levels of diversity in other layers of the stack and is that good or bad or why I actually debated this very point with hasu on uh an episode of um the bell curve podcast where you know is code-based diversity good or bad at the relay layer and uh we're very much of the camp of it's if it's good that the consensus layer should also be good at the relayer layer so and I think Costa would probably argue that what would hostu say to this hossy would probably say that there's if there's more eyes it's it's better to have more eyes on one code base than you know spread a bunch of code bases

out again the same argument could be made for consensus layer clients right so I I understand that POV but you know my POV but my world view is to be intellectually consistent either code diversity is a good thing or a bad thing right in the marketplace can decide which ones they they trust in um and so regardless I think the ship has sort of already sailed and so you know it's just things are going to unfold moving forward we we are Advocates of positive change here because we think it affects the entire network and we think it affects anybody moving forward so um we'd love to see you know in protocol economics introduced for the relayer level I think part of the pushback has

been that's a significant change and we need to really be careful and do research here so you know I I certainly understand that POV as well but at the end of the day like time keeps ticking by so there you go um I think the final thing about all of this is like observability really matters and I think one of the big issues that we had with proof of work was there was really poor observability into the block construction process there's really high degrees of centralization um one of the areas that we at block native are invested in will continue to invest in is ensuring sort of great observability for all members of the network and and at the relayer level this is important as well so anyways I think that's something that will continue to unfold yeah one last thing on the relay and just I'd be curious to

get your so in in uh in like a normal supply chain in a supply like Mike actually used to be a supply chain consultant so he's uh I've I've learned too much about the supply chain from him if there's ever a time in a supply chain when someone's not making the money they think they should make it's usually because they're fungible they're they're completely fungible and be so that's one thing the other reason is because uh if somebody start charges too much you can circumvent them so is that the same case with relays here is that either a they're fungible or B if they started charging you could just circumvent them is that the conclusion you came to well so let's just say this is a complicated debate I think one of the issues is uh uh uh that you can create a coalition of relays who agreed

to do something but it the it's an unstable Coalition right um there are ways to sort of uh circumvent that so one of the things I I was a big proponent of is what I would call Miss slot insurance right like imagine a scheme where validators pay some fee a small fee on relayed blocks and in return they get missed lot insurance right and so as a result if you know they they have some coverage uh if a validator would choose to use a relay that doesn't participate in that that doesn't charge the fee then they realistically can't expect Miss lot insurance right so there's a hard cost and a hard benefit right to sort of balance some of that out um the reality is the relays are are to a certain degree fungible meaning we have similar blocks and we have similar

um uh similar things flowing through them but from the point of view of the network we're expected to operate as utility um for instance if a relay has a block that they have won so hey they're the winner but for whatever reason they're unable to release the block if we as block native have the same block we should release it because it's better for the network and better for the validator even if that other relay hasn't done its job right so you say well you know for the liveliness the liveness and the resiliency of the network that makes total sense but are we competing with each other as relays or are we cooperating with each other to keep the network in an orderly fashion and the reality is is relaying is much

more cooperative and much more collaborative than it is competitive right and so what what people really want is an orderly relay Network that that does its job reliably and and that's a utility model and and that's sort of how we should be expected to operate right and so again like you like utility model you flip on your light switch you expect the lights to go on right you don't want to really hear oh well the oil came out of the ground and Bahrain and then the the company that operates the shipping you know container got hung up at custom so go call them you're like dude I just want the light you're like oh well the supply Chain's complicated and so hey we told you now you got to go deal with the shipping company like no one wants to do that right and so anyways there are it's it's

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reading about Citadel earlier today Citadel did something and SEC slapped them with a seven million dollar fine or something like that so I was thinking about a citadel leading up to this episode and there's payment for order flow and Robin Hood and all that kind of stuff and if we transition would we ever transition to more of a kind of payment for order flow process for Mev and are there still if that happened like how does that impact how searchers think about like when they submit their bids in this kind of like order flow auction right maybe those are two totally separate separate questions you can jam together a bunch of ideas but yeah I would say one that's not a hypothetical that's already what's

happening right okay so and so the the reason here is the the economic incentives are such that if a transaction hits the public mempool and every Searcher has access to it it's a uh open competition to capture the result where most of the profit actually goes out of the searcher's hands and to the validators we've already talked about but if I can have proprietary order flow exclusive orders that only I can see and nobody else can see I can do that because you know what I'm a trading operation these are my own trades so I'm not going to socialize them to others I'm going to have my own trades it's into the private Transat private mempool private conversation that I wanted okay

exactly or I can create a relationship with let's say a wallet right and and I can do that which by the way there's a bunch of those that exist as well um then I as a Searcher can see transactions that nobody else can see which means I can build bundles that aren't competitive it means I can build blocks that are more valuable and it means I can um uh retain more of the upside than rather than sharing it with the validators right so Hocus Pocus there's a lot of economic incentive to do this sort of stuff right now you mentioned this term OFA or order flow auction these are emerging now as well and the idea here is well if I'm a source of order flow like maybe a wallet right I

could tie up with the Searcher maybe that's not the best thing optically but you know I could have sort of my own um you know private relationship or maybe even as a wallet I have my own searching it's captive to me right but but that's probably inefficient because it turns out MVP is a big and complicated topic and like you need many actors who are on top of each other so what I'm going to do instead is auction off my order flow to a set of Searchers right so again it's before it hits the public mempool it goes to a set of Searchers maybe it's a smaller set right and then you know there's some some private market like act you know entities or uh Tendencies to that um as we look at you know things like 4337 account abstraction and smart

contract wallets this sort of stuff gets even more pronounced and and um I would say institutionalized or or enshrined in the form of bundlers whose job it is is to do that with 4337 intense so the supply chain is really turning into a value Network that's certainly what the guys at Frontier Tech would argue with more actors more variability more players more configurations um and in many ways more opaque right and this is why we we feel like this notion of observability continues to be a really big one is um users need to know why things happen not just what happened so Unchained data is what happened but it's it's in this pre-chain mempool Etc layer that the Y's occur like why does settlement happen

and if folks don't have great observability if they can't see why things happen then they should assume they're they're being screwed they should assume that there's Bad actors and they should be leery of you know putting liquidity into those systems because they don't really know what's happening right so we think observability is going to be very much a necessary condition moving forward I might take the other side of that argument Matt actually I would um so actually let's go deeper into private transactions and mempools and things like this so so just to make sure I understand it correctly because there's some venturing out of my territory here right now if I make a transaction on anything from Rainbow to uniswap wallet to metamask whatever it may be that all flows into one place but wait what what

you're saying and what it sounds like is already happening is there are these private transaction private private pools that could be created right where maybe something from uniswap's wallet instead of going into the public mempool it goes into a private uh private maybe uniswap only is that correct do I have that right um yes so so just to be a little bit clearer your wallet uh transmits uh your transactions to the network over what's known as as an RPC endpoint remote procedure called endpoint right um You Know metamask by default the RPC endpoint is inferior which is also a consensus you know consensus operates both of them and by default inferior transmits your transaction to public mempool so it's out there for everybody

to see um many wallets allow you to change your RPC endpoint um including metamask and others where you could pick a different one to send it to there has been the rise of what are known as private mempools so a public mempool transaction goes from your wallet to the public mempool and the builder then grabs it out of the public mempool right but so can searchers and so a private uh a mempool is really a direct communication to a builder or set of Builders so instead of going to the public mempool first and getting pulled down by the Builder and Searchers you say I'm just going to give it straight to the Builder Okay um in fact pretty much every Builder including block native has a private RPC endpoint where you can share it with

just us you can share it with just uh Beaver or just Builder 0x69 um the problem there is you then only get access to a portion of the block space so let's say you give it to a builder that has 10 share that means they have it alone but they're only winning 110 blocks you're going to wait 10 times as long for that transaction to get Unchained right so there's a trade-off here the good news is no one can see it the bad news is it takes longer right there are um MAV Protection Services out there right now sort of the big two that there are others are what are called Mev share which is a flashbots offering and Med blocker which is by the cow swap team um and these are are various forms of

Mev recirculation so you put a transaction into map share or into med blocker and again they have RPC endpoints and basically they then share it with a captive set of Searchers and if they find Value they recirculate value back to you right um MAV Blocker in particular has become fairly popular but it's mainly used for protection like like they're so far at least the public dashboards about map blocker don't you know the amount of Mev being shared back to users is pretty small um but even still what we have found is uh uh the settlement that happens there is often worse than going to the public mempool for a whole bunch of reasons we just wrote a blog post on but we have a blog post that basically says you know

private transactions often do worse than public medical transactions because of slippage okay um and there's a whole bunch of reasons why um to oh the other thing about these private RPC endpoints is they have pretty weak observability characteristics so you sort of throw them in there and then it's like a black hole you don't really know what happened and sometimes strange things happen that are sort of hard to understand we at block native have actually built a new solution called transaction boost which is a an also an RPC endpoint but it Aggregates all of these private endpoints so you give us the transaction via transaction boost and then we then form it out so you get access to all the block space and we provide um uh sort of high levels of observability so you can know what's going on with your transactions if

you're listening to this and you care about this stuff um you can go to our website and find out you can try it out it's pretty cool we have some cool tools for it but the whole idea is private transactions that's some of the compromises or maybe even most of the compromises and we think there's a whole bunch of really interesting things that can result from here so that's an area of active development for us and for others and just to frame it private transactions used to be about two percent of the network now they're about 12 to 15 of the network depending on the day and most people in the industry feel like that number is going to go up 30 50 maybe right that's a big conversation at ECC right that that is just a rising yeah quarter over quarter so I think

you're argument hearing you you would make the argument that private transactions means fragmenting the mempools which means decreased transparency and decrease transparency is bad which easy to easy to agree with if I had to try to push back though I might argue that ultimately when you look in traditional Capital markets payment for order flow lowers the cost of trading for retail it enables things like zero fee zero fees on Robinhood which then trickled down to all the other brokerages and dark pools which people think of as this scary scary thing is like without dark pools institutions can't trade in size or else they would cause this pretty significant Market impact and volatility in the markets so I think my argument to you if I tried to

push back here is like payment forward or flow and dark pools are both Financial innovations that help the End customer the the retail customer curious how you would respond to that so I I don't disagree and by no means am I a vocal advocate for private or public it's just like these are Facts of Life that we need to deal with I think your your point which is um in public markets there is evidence that users actually benefit from some of these things that feel maybe a little distasteful is exactly what we published research on that turns out that transmitting your transaction privately often results in less favorable settlement right um your your other point though is a

good one which is with increased fragmentation results in um decreased observability and this means that there's more opportunity for um games to be played negative outcomes sort of you know uh hacks exploits things like that because no one can really see what's going on and I think we as block native as a as a technology provider as an infrastructure operator um think very deeply about this and and we're working hard to provide the ecosystem solutions that are sort of Best of Both Worlds that that do provide privacy and protection and do provide observability without compromise um we're actually building tools right now that that will sort of our next generation tools to help people really

understand what's happening in the mempool right now and then how do various transactions get on chain what was happening around them so um we have a huge amount of data we have a mental data Archive of over I don't know 12 20 terabytes something like that that we're in the process of open sourcing for commercial for sorry for research purposes there's a a form on our website where researchers you want to look back at you know transactions from July of 2020 versus July of 2023 and you can see exactly what was going on a public mempool what sort of action was happening there what the bot Wars look like and and how that affected what went on chain and so you know we're very much putting our money where our mouth

is with you know this is a critical issue for the future of the network of all web 3 networks to be honest and it requires sort of dedicated teams that are really focused on solving some of these problems and and the reason why is there's such economic incentive against it to have poor observability to play games to keep users ill-informed to have you know I always talk about the wallets as the sleeping Giants right yep ultimately once the wallets become Mev aware I think the game changes entirely and so we work with many of the leading wallets we know many of the teams out there and it's quite clear to us that they're aware of these issues they're aware that their users are are um

offering less favorable settlement than that they want to do something about it the question is exactly what they want to do and with whom and so you know I think over the course of the next year we'll see the rise of Mev aware and maybe protecting wallets that that basically take all this complexity away on behalf of end users so that you know regular people don't need to be Geniuses about this stuff because it's complicated uniswap just launched something on Friday introducing unistop wallet swap protection uh protection against front running and sandwich attacks um safer swaps every day um and they posted this thing like what is uni swap swap protection so you're starting to see it come into these walls I don't know if you worked with you as well on that but um we're we're aware of that work I I know some of the inner workings of it um

I think it'll be very curious to see what the reality is I know what the promise is right um but there is actually a pretty interesting you know I think the results are sometimes counterintuitive and by the way if you read the blog post that we showed about you know private transactions doing worse it's the very effect that you talked about which is really what happens and this is important for everybody to know that the best settlement is at the top of the block okay because that's where you're basically acting on the most recent price information and the further down the block you go the more transactions can affect price and therefore the worse you do okay private transactions which basically are Standalone transactions have nowhere

near the gas to compete for top of block because the top of block is all Traders right and so by submitting a private transaction you're basically signing up for Mid to bottom of block settlement which basically makes you at risk of slippage right and so basically what starts to happen is you go well how do I get to the top of block well if I'm in the public mempool and a Searcher picks me up and includes me in a bundle hey suddenly I'm competing for top of block so maybe you got back run maybe there's other things that happen but maybe I'm part of a more complex thing but I'm I'm actually in a better spot so I get better settlement right and so it's not so cut and dried and and this is stuff by the way that we think very deeply

about and that we are really interested in helping users compete for top of block settlement right um and it's one of the we would say the problems with or maybe the the areas for optimization for PBS is today you have full block auctions I.E a builder wins the whole block or none of it right so you have one winner and lots of losers and um in the future there's a lot of uh research going into basically partial block auctions where you can do partial block buildings so you could have a competition at different levels you can have multiple actors who put this together and and net net you know provide more favorable settlement right because at the end of the day what users really care about is that by being treated fairly am I being treated like other actors on the network or am I

getting you know am I paying a penalty because I'm a little guy and not a big guy and that's what this is all about so you've uh let's talk about account abstraction for a second and four three through seven so you've uh you've long been an advocate for for AAA um for account abstraction I would say and if you we've been talking about kind of the middle of the supply chain here let's let's take it to the top of the supply chain and and kind of the growing influence of I don't know what you want to call it more powerful wallets more value capture wallets uh less blind wallets whatever whatever deeming these wallets I think um everything that we've been talking about is kind of this growing monopolizing behavior in different parts of the Mev supply chain and just block building supply chain better wallets might be a counter push

on all of that and I would just be curious to hear your thesis and thoughts on why you're so excited about a kind of abstraction so in general we think that while if you think about the supply chain it starts at the top with the user conducting a transaction flows downhill to a validator today the value flows downhill with it uh we think as we get uh more supply chain aware wallets that the value can be captured at different spots including at the user level okay now account abstraction is you know probably the biggest upgrade to the user experience on ethereum is anything in the history of the network and um It's actually kind of uh it took a while for

everyone to wrap their minds around it I I was super confused by it I was reading the papers and I couldn't figure out what the hell was going on because one of the beauties of account abstractions doesn't require a hard Fork of the network so you don't need to at a certain day and all the nodes get upgraded and then there's new rules of consensus like you can introduce this major change but you need to change the infrastructure and I couldn't understand it um I asked a whole bunch of people smarter than me and they didn't really understand it either so we wound up publishing the mental model for 4337 for account abstraction which is what's widely used today what it basically says is uh account abstraction introduces a new layer on top of everything else so today you use your your favorite wallet metamask Ledger I'm token math wallet

pick your favorite you sign a transaction that's an eoa right with a signed transaction going to the public Med pool what smart contract wallets do for 337 wallets is they add this whole layer on top of that where rather than a user signing transactions a user basically expresses intent right so I intend what I want to have happen is I want to swap this token for that token right and these intents are programmable and this is the thing that I think people really uh uh it's hard to overlook or it's easy to overlook which is transactions on ethereum today are these very fixed things with these very fixed rules that have certain characteristics of

properties for it and users um feel that pinch every single time they have to authorize a token swap before they can conduct the token swapped and they pay the gas on these two transactions right and the you know regular users like I don't understand it why can't I just do it like oh well you got to basically authorize the protocol to have access to this and so the application and so you know you're like well now it's twice as expensive like yeah we don't have to do that once it's just messy okay with account abstraction and user intents you can batch these things together into one you can authorize the Swap and conduct the swap with two different intents but they actually get on chain in one transaction um you can abstract away gas prices so

today to transact on ethereum you must hold Ethan your wallet because gas is only denominated in each right because you're expressing intent you could have your gas price paid in usdc or or any erc20 or or even off-chain assets like a credit card or even like credit card points or miles right that it kind of uh opens things up quite a bit underneath the covers for new types of transaction experiences to happen but to do so there's this new class of actor called the bundler and what does a bundler do bundler ticks is user intents rolls them together into a giant signed transaction and so sounds sort of familiar to something what he talked about which is a builder so you basically introduce a new class of Builders called bundlers

and what bundlers do is they take 4337 intense and they wrap them up Supply the gas and sign the transaction and submit to the network so most folks expect the big Builders to also be big bundlers these user intents need to go to a new mempool so we talked about the public mempool before 4337 introduces this notion of what's called an ALT mempool but that's a misnomer it's alt mem pools there can be an arbitrary number of them so you're going to have potentially significant fragmentation of the mempool layer and of once you have mempools that are observable you have new sources of Mev so um we're excited because it really opens up the user experience we're excited because it allows wallets to do much

more powerful things on rehab event users but it also creates all sorts of new possibilities and new threats potentially at the the core of the network um and and you know I think it's driving a Renaissance and wallet Innovation and that's really it's really necessary because we think that there's certainly a lot of room for wallet Innovation moving forward also just a much better ux right like the original way of like eoas and signing transactions is just far too complicated so yeah totally so so you can provide you know web 2 like transaction experiences but have it go on web3 I gave a talk at ECC um that that introduces the example of you have an artist named sailor twift right she has a big show coming up she has a super fan the Super Fan is like

really active and sailor twist wants to basically recognize the Super Fan with some sort of exclusive experiences and of course sailor could just give the Super Fan an nft but then that requires a Super Fan like be crypto aware have a wallet know what it is you know yada yada yada but imagine sailor twist works with Spotify and Spotify uses their credit card number and the credit card has become a 4337 account abstraction wallet so you have a private key associated with your credit card wallet and you can literally drop an nft into a Visa card and then the super fan of the show shows up presents review Visa credential maybe the card maybe just on her phone and they say Hey you have this asset associated with your credit card that gives you access to this VIP area please

come on in right and that's you know an nft which the user can then share or sell or or leverage right and it just sort of suddenly these experiences get wide open um all enabled by web3 but but massively simpler for all members of the supply chain it's great for sailor twist it's great for Spotify it's great for visa and it's great for the user so we're really excited about this but it's going to take some time to unfold future future of wallets next year 2024 2025 moving from transaction based interactions to intent-based interactions with invo that well basically what you're saying is wallets will involve some sort of intense plus Mev Capture Plus discount abstraction

um shortly we're going to see the rise of of uh intent based wallets um I think you know the reality is is most users are not going to be aware that they're moving from one to the other that one is intense it'll feel very familiar similar to the end user um I think you'll have wallets that look out for their users that are proactively providing Mev protection and potentially Mev recirculation and the reason why is users will have start to have options and they'll say this wallet protects me this while it does not I'll I'll move over to the wallet that protects me right so the one that does not we'll need to introduce those capabilities this is an area that we you know invest a lot in we provide

infrastructure for wallets to do this sort of stuff so we think there's a lot of of good things happening there um you know I think there's a lot of conversation about you know where's the next billion users come from and it's either going to be bottom-up organic growth there's going to be viral applications that basically bring a whole bunch of new people into the ecosystem or and or it's going to be top-down inorganic growth who are going to meet users where they already are like existing credit card holders right or existing brokerage account holders or suddenly these things that you already have and know and use and are familiar with will get super powers because account abstraction allows them to become conversant and flex and usable and secure here in this web3 environment and as you might imagine we're fairly

bullish on on that top-down inorganic growth if you look at the numbers of debit card holders of credit card holders of bank account holders in the world there's there's a lot of them and it'll take us a long time to go uh organic bottom up to get there but if we can meet users where they are and provide them new classes of experiences that they can't get today and provide the interest the existing providers with like new services to sell new ways to retain their existing customers new reasons for their customers to transact um we think it's you know massively expansive for the category and for the economy at whole so that's why we're bullish about 437 so we talk about it um you know again it's rolling out now there's a lot happening already but it's it's gonna be it's gonna be some time

before it's sort of a mainstream activity and then suddenly it's mainstream so yeah we're really excited about that matters we think about bring this to a close I think we could uh tie this conversation together nicely by using uniswap as an example to answer some of the final questions that I'm thinking about so what what percentage of the Mev does uniswap account for today I would assume it's quite High it's a good question um it depends on which version of of uniswap V2 V3 or now V4 but but it's well over 50 was is uniswap and the time it's been like 75 of all Mev is associated with unison transactions um by the way that could be a good thing or a bad thing as it relates to to

uniswap and uh the network but it does say sort of how significant a player they are as an application yeah I mean so unisop is this whatever it is 50 67 whatever the percentages uniswap is this big source of Mev I think my first question for you is this might be a really dumb question could uniswap become a relay or a builder and the second order question that I have there's like could one app end up completely monopolizing the supply chain of ethereum well so this is one of the big concerns um so at uh devconnect in Amsterdam more than a year ago now uh a flashbot's put on a event called Mev day was organized

into Mev Utopia and dystopia right and the Utopia was articulated as a um a disaggregated decentralized supply chain with you know separate independent actors at each stage at each you know uh mem at each level of the supply chain whereas dystopia was a vertically in its integrated supply chain where one actor controlled everything the the wallet the application the the Searcher the re the Builder the relay and the validator and I think at that time there was a sort of General sense that economics were going to favor verticalization vertical integration

here and that that there was needed to be work to be done to counteract that we're a year in and we're seeing quite clearly you know unequivocal evidence of verticalization Searcher Builders are integrated today okay we have not seen integration at other levels of the stack so for instance none of the major staking pools operate their own relay today right um it's unclear if any of them want to the ones the big ones who I talk to express no interest in doing so but they may eventually have economic incentives to do so right um and so could an actor like uniswap which now has a wallet right which is the leading uh a DEX uh protocol uh could they either themselves do searching or partner up with Searchers

or do some sort of OFA like thing that would sort of capture their flow seems like they're already doing that right from what I understand could they also operate a builder or partner with someone absolutely could they also yes yes absolutely I think that you know there are both practical issues which is unislove can build their own operating system if they wanted to but that's probably too much so they have to pick and choose what they want to do and there's also a lot of social pressure is there certain steps that folks would take that would basically create a significant enough backlash by the ecosystem that would sort of disincentivize someone to do so so um it is possible is it probable I really don't know um it is pretty clear though that uniswap is a very sophisticated actor who's well aware of these issues and and

certainly does not want to be this poster child of you know oh they just turn a blind eye and all their users get abused so don't use uniswap you should use something else instead which is me be aware right they're they're not going to be asleep at that switch that's for sure if you were Hayden and you were the and or MC or you know the unit swap team you've got the wall you've got the wallet you've got this app chain thesis and I remember when Dan elliser put out this post about kind of you know you you need change the potential of uni chain to capture more of this value that they leak um you've got uniswap x what is your if you were the CEO of uniswap today what would you do that maybe they're not doing

oh um I don't Proclaim to know everything that they're doing I think they're they're quite sophisticated and um are sort of leading the way in terms of being um thoughtful about these issues um I think the question is you know from the POV of the network you want UNICEF to be one of many right from the point of view of uniswap you want to win market share you want to win users you want to use win liquidity you want to win the the Rev market and so um you know my view is uh where they should focus is in ensuring A diversity of infrastructure suppliers underneath the covers they need to own

the user experience they need to own the brand experience they need to make sure their users are protected and the best way to do so both in terms of execution and in terms of sort of for the safety and and longevity of the network is use a bunch of folks under the covers right um uh don't pick single Partners don't cut back room deals don't be opaque all of these things come out on the public eventually and and quite frankly I'm concerned about some of the back room deals that I'm aware of eventually becoming made public and the folks who are involved in those maybe not being really happy about that you know that all of this stuff becomes public you know sooner or later and uh if you're an actor who proclaims to care about the values of decentralization but you're

doing things which are pretty counter to that that's not great right um there are practical and pragmatic reasons sometimes why that's necessary but in general you know uh we all want to be on the right side of History here and and basically be favoring the forces of decentralization um you know in this space there are plenty of people who say the right words but their actions don't match up to it so I would encourage um Hayden the unusual team and everyone to be skeptical not just of what public statements are made but how these various organizations behave and act and sort of where they're going um and that's true of block native and it's true of everybody else right uh at the end of the day we are a privately held venture-backed startup with

shareholders we're expected tuition return We Are by no means alone in that many of our peers are the same right we're just more explicit about our our need to to find Revenue generating opportunities and how we plan to do so um but anyone who has private shareholders who's saying uh we're not really concerned about generating Revenue that's something to be you know there's an economic incentive at play here that's not explicit so you know it's an interesting field to be in and an interesting ecosystem to be a part of and and I think it's still pretty early but um there's a bunch of there's there's a lot of history yet to be written that's probably the best way to put it I guess you don't want to name the name but I I think I think it's pretty obvious uh who you're who you're mentioning here Matt

anything uh this is an awesome conversation um anything that we haven't talked about that you feel like is uh still maybe misunderstood in the industry or just anything that you think is important to get across before we wrap this up um well I really appreciate you know going into some of these topics as well as we have I appreciate to all the listeners for sticking around with us as far as we're passionate about um I think the thing is is uh today's ethereum so I view ethereum as just a few chapters ahead in the book because it's one of the longer living smart contract chains and it has most of the liquidity today and and we're seeing this tendency of the network kind of being bent towards the will of the trader class right in many ways this is

inevitable Traders are going to trade you know arm is going to ARB right there's sort of no way to avoid that but the question is do users become second-class citizens do users basically get reverted to the slow lane or do they get reverted to sort of the less favorable settlement lands because the Traders are crowding in um that's something I worry about and that's something I think that we as a as a community need to be thoughtful about is are we privileging individual end users in such a way that they're you know Equitable contributors um we think that knowledge is power this is why we publish as much research as we publish and we're our blog is very active and and we think that users left to their own devices are going to get

run over and that's not great and so uh we very much are trying to build and provide powerful tools that uh protect users from some of these inevitable ill effects and even Empower them to compete in ways that perhaps they haven't been able to and so you know we've been at this game block they've been building for five plus years and and uh we've always been on the side of the end user from the best gas estimators in the world to uh greatest ways to connect your wallets to Major applications and and now we're doing things like you know uh private transaction aggregation with transaction boost so um it's just something I I want to make sure is at the Forefront of the dialogue with the thought leadership

um because it's really easy to get blinded by the trader class the trader volume the liquidity that comes with it you know um and and lose sight of what it is we're really building here which is we're trying to build the foundation for the next economy in an economy which is fundamentally better than the one that we have today which I think everyone would acknowledge is not as Equitable as we'd like it to be um and so this is a debate which continues to unfold the the technology continues to move forward the state of the art continues and and of course we as actors and it will continue to evolve is I think we've already sort of hinted at it today um but uh uh we're excited to be a part of the conversation and and uh appreciate the opportunity to share some of our perspectives awesome uh if you

guys want to find out more about Matt yeah he's on Twitter at Mac at M Cutler blocknative.com they put out a lot of good research you guys just put out or are putting out soon a bunch of great data so um yeah I appreciate everything you do man thanks for the time you bet appreciate it cheers everybody [Music] thank you [Music]