Why Your Protocol is Subsidizing Sophisticated Searchers

Searchers use bots to detect pending transactions and insert their own to profit at user expense. This is a direct tax on every swap.

• Cost: Users receive 5-50+ basis points worse execution on DEXs like Uniswap.
• Scale: Extracted value exceeds $1B annually across Ethereum and L2s.
• Impact: Degrades trust, increases slippage, and makes retail trading uncompetitive.

Protocols relying on on-chain price feeds (e.g., lending markets like Aave, Compound) are vulnerable to latency arbitrage. Searchers exploit price update delays to drain collateral or trigger liquidations.

• Vector: Oracle latency creates a risk-free profit window for bots.
• Consequence: Protocols subsidize these profits via bad debt or inefficient liquidations.
• Example: A $0.10 price update delay can enable a $1M+ arbitrage on a large pool.

On rollups and alternative L1s, the entity controlling transaction ordering (the Sequencer) has a monopoly on extracting value. This creates a centralized rent extractor and leaks value out of your ecosystem.

• Monopoly Profit: Sequencers can capture >90% of MEV via private orderflow.
• Ecosystem Drain: Value that could fund protocol treasuries or be returned to users is captured by a single entity.
• Network Effect: Encourages builder/searcher ecosystems to cluster on Ethereum, stifling your chain's DeFi maturity.

Flashbots' attempt to decentralize the block building market, moving MEV extraction from private mempools to a public, competitive network.\n- Separates block building from proposing, creating a neutral marketplace for order flow.\n- Aims to democratize access to MEV opportunities, reducing the edge of sophisticated searchers.\n- Long-term goal is to become a cross-chain block space marketplace, but faces significant adoption and coordination challenges.

Protocols like CowSwap and UniswapX internalize the auction process, forcing searchers to compete for user trades on-chain.\n- Captures MEV value (like liquidity rebates) and returns it directly to users as better prices.\n- Uses batch auctions or Dutch auctions to neutralize front-running and sandwich attacks.\n- Turns a protocol's order flow from a liability into a monetizable asset, directly plugging the leak.

Networks like Ethereum (PBS), Shutter Network, and Fhenix encrypt transactions until they are included in a block.\n- Eliminates front-running by hiding transaction content from searchers and builders.\n- Threshold decryption ensures transactions are only revealed after commitment, preserving censorship resistance.\n- The trade-off is increased latency and complexity, creating a new attack surface around key management.

Ethereum's core roadmap enforces PBS via ePBS designs, mandating a clean separation between the validator (proposer) and the entity constructing the block (builder).\n- Prevents validators from insourcing MEV capture, forcing them to outsource to a competitive builder market.\n- Aims to reduce centralization pressures and make validator operations commoditized and simple.\n- The critical challenge is implementing it without creating trusted relays that become new central points of failure.

Shifts the paradigm from users submitting precise transactions to declaring desired outcomes (e.g., "Swap X for Y at best rate").\n- Delegates execution complexity to a competitive network of solvers (e.g., UniswapX, Across, Anoma).\n- Solvers absorb all MEV risk and compete on price, with users paying only for the fulfilled outcome.\n- Transforms the subsidy from a hidden tax into an explicit, auctioned service fee for optimal execution.

Protocols like dYdX V4 and Sei migrate to their own chains to gain full control over the block production stack.\n- Customizable mempool logic and native order matching eliminate external MEV extraction.\n- Allows for optimized fee markets and priority scheduling that benefits the protocol's core users.\n- The trade-off is sacrificing composability and liquidity fragmentation, reintroducing bridge risks.