This article was co-written by Reza Sabernia and Émerick Mary.
Since the Merge, Proof-of-Stake (PoS) Ethereum has grown significantly, with over 20% of its total supply now staked. Among the many focal points, Maximal Extractable Value (MEV) has captured significant attention.
For those seeking a quick refresher, check out our previous articles on MEV:
There are several actors within the MEV supply chain: searchers, block builders, relays, and validators. As shown in Figure 1, block builders construct new blocks and send them to intermediaries known as relays. Validators select which relays to connect in order to receive the blocks from different builders and propose the most profitable one to be added to the blockchain. The selection of relays is an important decision, as they vary considerably in their capabilities and offerings.
Guiding Principles for Adopting MEV Relays
MEV Relays play a crucial role in the block supply-chain, with over 90% of all proposed blocks being passed through them. For Figment, the factors that set relays apart go beyond solely performance. We also assess the compatibility of the relay with our infrastructure, the nature of partnerships, the operational dynamics of the relay’s business, and compliance with regulatory standards. We determined that opting for a thoroughly curated selection of relays proves more advantageous than a random assortment.
Let’s break down these key considerations:
#1 Performance and Reliability
Evaluating for performance is a key consideration and involves an understanding of various factors that directly or indirectly affect the relay’s performance. For instance, a closer geographic proximity between the relay’s infrastructure and that of the builders reduces the latency, potentially granting builders additional time to prepare more profitable blocks for the validators. The reliability of an MEV relay is typically measured by its uptime, latency, and bid faults. For example, delays in delivering the header or payload of a block adversely impact reliability of a relay, possibly leading to MEV-Boost timeouts or missed proposals for validators.
#2 Relay-Specific Optimization
Choosing the right MEV relays hinges on their integration with the staking provider’s tech stack and infrastructure. Consider scalability, particularly in scenarios where thousands of validators use a single node. Some relays are not scalable, rendering them incompatible with such architecture. That being said, it can be possible to fine-tune MEV-Boost code for specific relays, enhancing the performance and potentially increasing the rewards that customers earn.
#3 Trusted Relationships
Creating a strong partnership with reputable MEV relays involves establishing direct relationships with technical and management teams to evaluate their claims about their performance and operations. It is necessary to do due diligence regarding the organization and its operational jurisdiction. Preference is often given to MEV relays that are open-source or have undergone third-party audits.
#4 Business Model Alignment
For staking providers, examining beyond a surface-level understanding of relays is essential.
There needs to be a deep understanding of the architecture of MEV relays and the inherent operational costs. Certain design and architectural choices may not be scalable, potentially leading to prohibitive and costly operations as demand increases. Additionally, certain business models may not be financially sustainable, posing risks to the longevity and future of the relays.
#5 Regulation and Compliance
Customers often find themselves subject to certain regulatory frameworks based on the nature of their business, operational jurisdictions, and client base. These considerations are important when deciding what relays to connect with.
MEV Relay Strategies for Validators
Considering these factors, there is a range of strategies that can be applied. At Figment, we have developed the MEV Relay Triangle model (see Figure 2 below), taking into account the top three most widely used strategies and their potential trade-offs.
This strategy involves swiftly integrating as many relays as possible, thereby permitting the relay with the highest MEV reward to win the block proposal. It is an out-of-the-box configuration that expedites the integration of emerging relays, offering a rapid route to market. However, it may entail oversights in compliance and security, and potentially overloading MEV-boost with marginal increase in rewards.
Staking providers employing this strategy prioritize adherence to jurisdictional regulations or ethical standards. This means proposing blocks with transactions that comply with the relevant regulations and/or are free from market manipulations and market abuse (e.g., sandwich attacks and front-running). This strategy safeguards customers from potential liabilities stemming from non-compliant transactions or not upholding ethical standards. However, executing this strategy requires substantial collaboration among legal, compliance, and security teams of staking providers during vendor assessment.
This strategy involves the selection of specific MEV relays and enhancing their performance and rewards through careful configuration and optimization. This ranges from fine-tuning MEV boost parameters to optimizing the underlying infrastructure, such as employing optimistic relays, refining factors such as latency and geographic proximity to the builders and relays. This approach may increase potential MEV rewards and even lead to improvements in overall performance, however it demands a significant investment of time and resources. Depending on the specific implementation, this investment can include analyzing relay data to continually enhance performance as well as testing every MEV-Boost update to ensure its safety and compatibility with the existing setup.
When it comes to staking strategies, there is no one-size-fits-all solution. Staking providers typically adopt a tailored blend of strategies, aligning with the specific requirements and preferences of their customers.
Our comprehensive MEV strategy is guided by principles, emphasizing careful integration of established as well as emerging relays. We conduct rigorous due diligence, including extensive testing on testnets, to confirm compatibility with our infrastructure and maintain performance. We continue to monitor and optimize the performance of the MEV relay after integration.
Figment is dedicated to tailoring a thoughtful approach focused on optimizing MEV rewards and ensuring compliance to meet the unique needs of financial institutions, marketplaces, custodians, and asset managers. As the leading staking infrastructure provider, we prioritize compliance with jurisdictional regulations and ethical standards. If you’d like to learn more about our MEV strategies or have questions about our services, please meet with us.