The Future of Rollup Economics: MEV as a Primary Revenue Stream

Today, searchers and builders capture ~99% of MEV value, while the underlying rollup sequencer only earns base transaction fees. This is a massive opportunity cost for the protocol treasury.

• Value Leak: Billions in MEV flow to third parties.
• Misaligned Incentives: The protocol that provides the blockspace sees minimal direct benefit.
• User Harm: Extracted value ultimately comes from end-users via worse prices and frontrunning.

Embed a first-price auction for block-building rights directly into the sequencer. This turns MEV into a predictable, on-chain revenue stream for the rollup.

• Direct Capture: The sequencer/treasury wins the auction, capturing MEV profit.
• Subsidized Fees: Revenue can be used to lower gas costs for users.
• Transparent Pricing: Creates a public market price for blockspace priority, as seen in protocols like Flashbots SUAVE and EigenLayer's restaking vision.

A single, profit-maximizing sequencer is a single point of failure and censorship. It also creates a monopoly on MEV capture, stifling competition and innovation in block building.

• Censorship Vector: A malicious or compliant sequencer can reorder or exclude transactions.
• Inefficiency: A single builder cannot match the optimization of a competitive builder market.
• Stagnation: No competitive pressure to improve MEV extraction techniques.

Implement a permissionless set of sequencers that participate in a shared MEV market. Inspired by Espresso Systems and Astria, this separates block production from proposal.

• Censorship Resistance: No single entity controls transaction ordering.
• Builder Competition: Multiple builders compete for MEV, improving efficiency and revenue.
• Proposer-Builder Separation (PBS): Allows for specialized, optimized builders while the decentralized sequencer set maintains liveness and fairness.

Traditional MEV is a zero-sum game between users and extractors. Searchers profit at the direct expense of user slippage and failed transactions, creating a poor UX and eroding trust in the chain.

• Negative Externality: Users bear the cost via sandwich attacks and frontrunning.
• Trust Erosion: The chain is perceived as a predatory environment.
• Inefficient Markets: Opaque order flow prevents users from capturing their own order flow value.

Integrate threshold encryption for transaction privacy and run order flow auctions (OFAs). This allows users to sell their order flow intent directly to builders, capturing value and guaranteeing execution quality. This is the model pioneered by Flashbots Protect, CowSwap, and UniswapX.

• User Profit: Users earn a rebate or better price for their order flow.
• MEV Democratization: Shifts value from adversarial searchers back to users and the protocol.
• Improved UX: Guaranteed, non-exploitative execution builds long-term trust.

Sequencers are incentivized to maximize MEV capture, which directly conflicts with user experience and network neutrality. This creates a principal-agent problem where the sequencer's profit motive is misaligned with the rollup's stated goals of low-cost, fair execution.

• Conflict: Extracting MEV via frontrunning or sandwiching degrades UX.
• Risk: Centralized sequencers can become rent-seeking bottlenecks.
• Mitigation: Enshrined PBS (Proposer-Builder Separation) and credible neutrality commitments.

Who captures the value determines the political future of the rollup. A fight emerges between the foundation, token holders, sequencer operators, and users over how to redistribute extracted MEV.

• Stakeholder Conflict: Should MEV fund protocol treasury, be burned, or be redistributed via rebates?
• Precedent: Ethereum's PBS (Proposer-Builder Separation) and EIP-1559 set a template for value distribution.
• Outcome: Poorly designed redistribution leads to governance capture and centralization.

Cross-chain intents and bridges (e.g., LayerZero, Across) create new arbitrage vectors that rollup sequencers are uniquely positioned to exploit, threatening the security of interoperability protocols.

• New Vector: Cross-domain MEV allows sequencers to manipulate asset prices during the bridging delay.
• Systemic Risk: A malicious sequencer can launch liveness attacks on optimistic bridges.
• Solution: Requires verifiable delay functions (VDFs) and shared sequencing layers like Espresso or Astria.

The cost of fraud or validity proofs creates a security budget. If MEV extraction exceeds the cost of bribing verifiers or delaying proofs, the system's cryptographic security can be economically broken.

• Core Risk: A $10M MEV opportunity can justify a $1M bribe to sabotage proof submission.
• Economic Security: Proof costs must scale with potential sequencer profit.
• Mitigation: Decentralized proof networks and substantial stake slashing.

Intent-based architectures (e.g., UniswapX, CowSwap) abstract transaction construction away from users, centralizing MEV capture in solvers. This may attract regulatory scrutiny as it resembles broker-dealer activity.

• Regulatory Risk: Solvers acting as 'dealers' could fall under securities or commodities laws.
• Centralization Force: Efficient solving requires specialized capital and data, leading to oligopoly.
• Outcome: The most profitable MEV streams become professionalized, licensed activities.

Shared sequencers (Espresso, Astria) solve individual rollup centralization but create a meta-centralization point. Controlling the shared layer grants influence over dozens of chains and their combined MEV, creating a single point of failure and censorship.

• New Risk: Replaces N sequencer risks with 1 systemic risk.
• Power Concentration: The shared sequencer becomes the most powerful entity in the rollup ecosystem.
• Mitigation: Requires robust cryptographic decentralization and anti-collusion mechanisms from day one.