https://ethresear.ch/t/mev-sgx-a-sealed-bid-mev-auction-design/9677

Introduction to Flashbots

Flashbots is a research and development organization working on mitigating the negative externalities of current MEV extraction techniques and avoiding the existential risks MEV could cause to state-rich blockchains like Ethereum. Our primary focus is to enable a permissionless, transparent, and fair ecosystem for MEV extraction.

We plan to achieve this by:

• Bringing transparency to MEV activity
• Democratizing access to MEV revenue
• Distributing MEV revenue in a way the benefits the community

Flashbots has released two products so far which make progress on resolving the MEV crisis:

• Flashbots Alpha 32: a proof of concept communication channel between miners and users for transparent and efficient MEV extraction. Our Alpha consists of MEV-Geth 15, a fork of the Geth client that provides a sealed-bid blockspace auction that allows users to communicate granular transaction order preferences, and MEV-Relay 16, a transaction bundle relay.

Today there are two primary groups of users for Flashbots’ products: miners and searchers. Miners are the block producers of Ethereum who secure the network by performing work in return for the block reward, uncle rewards, and fees from transactions. Miners group together cooperatively in “mining pools” to collectively generate blocks, thereby increasing their probability of successfully mining a block.

Searchers send transactions through Flashbots for inclusion in a block. Searchers are users that “search” for MEV to extract. For example if the price of ETH/DAI is high on Uniswap and low on Sushiswap, then the searcher could buy on Sushiswap and sell it on Uniswap, thus making a profit from the price difference. The searcher would capture this profit by creating a transaction to perform the aforementioned arbitrage and send it to miners, who would include it in return for a transaction fee from the searcher.

Flashbots plays an important role in Flashbots Alpha today as the operator of the MEV-Relay that sits between miners and searchers. The relay is necessary today to prevent DOS or spam attacks on miners for reasons which will be expanded on below.

MEV-Geth and Flashbots’ design goals

In early 2021 Flashbots released Flashbots Alpha. These were the design goals we launched with:

• Permissionless A permissionless design implies there are no trusted intermediaries which can censor transactions.
• Efficiency An efficient design implies MEV extraction is performed without causing unnecessary network or chain congestion.
• Pre-trade privacy Pre-trade privacy implies transactions only become publicly known after they have been included in a block. Note, this type of privacy ensures that transactions not included in a block remain private, but does not guarantee privacy from privileged actors such as transaction aggregators, gateway, or miners.
• Failed trade privacy Failed trade privacy implies losing bids are never included in a block, thus never exposed to the public. Failed trade privacy is tightly coupled to extraction efficiency.
• Complete privacy Complete privacy implies there are no privileged actors such as transaction aggregators / gateways / miners who can observe incoming transactions.