MEV Regenesis Pt. 1
Part one of a two-part post, we will introduce the changes that have been made and will be going live as part of XGA v2. Enabling constructive private order flow as well as enabling ETH and non-ETH yield accretion to participating validators through our AVS system. Any qualified LST token can be restaked through Eigenlayer or potentially directly through the new FOLD Stalking system.
An important note to take is that AVS actives are processed through the XGA auction, eliminating the ‘builder bottleneck’ for services wishing to leverage and use restaking services like Eigenlayer that currently exist today.
Current MEV Supply Chain
This details the current limitations of the ‘MEV Supply Chain’, we show below how this system can be improved upon greatly.
XGA V2 Effect on MEV Supply Chain
Validators will run XGA/AVS Boost and connect to the XGA Relay to seamlessly increase their MEV yield.
If you run MEV Boost you can adopt this without any changes besides changing your Relay URL configuration.
Running AVS Boost does not incur any security difference between running MEV Boost.
Relay Changes
- Will start actively participating in Latency ‘games’
- We will start charging for historical access queries to the dataset
- Builders that wish to participate in the latency games may do so through ‘optimistic submissions’ so long as they have deposited ETH/FOLD into the staking contract. Builders can continue to submit, however they will not be eligible for the extended submission times past when the slot is due proper.
Builder Bid Verification
- Will no longer consider Ethereum Staking (Deposits/Withdrawals) as part of consideration in block valuation
Restaking
Figure 1 Effect of Exteranl Yield on Real Yield for Validators [Tripoli, 2023] [1]
The subsidization of an open-set of validators allows adopters to operate in a lower base APR environment and out-compete non-adopting validators. This dynamic is not unique to restaking; it is also observed with liquid staking tokens and MEV-boost.
Risk Adjusted Restaking Yield
When out-of-band rewards are available as additional rewards to validators, it creates an interesting advantage: These validators can stay profitable even with lower base returns, giving them an edge over those who don’t participate
Effect of Out of Band Yield on Ethereum Staking Equilibrium
From DataAlways[1:1] (Flashbots researcher), he details the following scenario:
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Assume that the market equilibrium demands a real staking yield of 1.5%. In an unperturbed market this occurs at approximately 37% of the current supply staked.
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Assume there is an infinite supply of restaking yield at 1%. Validators who adopt restaking can now operate with a base real yield of 0.5%, pushing the equilibrium staking participation rate to 71%.
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Validators who do not adopt restaking now only earn 0.5% and are priced out of the market.
Figure 2 Demonstrates how external yield can incentivize more staking; [Tripoli, 2023] [1:2]
Analysis
The graph illustrates the effect of external yield on real yield extraction:
Base Real Yield (Real Yield without External Yield): This shows the baseline real yield extracted from staking rewards as a function of validator network share 𝑆. The peak occurs at a lower participation level, indicating the optimal share without external yield.
External Yield (Real Yield with External Yield): The introduction of external yield shifts the curve upward, allowing stakers to extract higher real yield across all values of 𝑆. This curve peaks at a higher participation rate, showing that the optimal share for maximizing yield extraction increases when external yield is available.
The vertical dashed lines highlight the optimal validator shares for each scenario:
Without External Yield: The optimal point is lower, suggesting less staking participation.
With External Yield: The optimal point shifts to the right, leading to higher participation rate
Validator Growth Projection
| Market Share | Current Validators | New Validators (No External) | New Validators (With External) | Delta |
|---|---|---|---|---|
| 25% → 27% | 235,000 | +18,800 | +18,800 | 0 |
| 27% → 30% | 253,800 | +28,200 | +28,200 | 0 |
| 30% → 33% | 282,000 | 0 | +28,200 | +28,200 |
| 33% → 35% | 282,000 | 0 | +18,800 | +18,800 |
| 35% → 38% | 282,000 | 0 | +32,000 | +32,000 |
Restaking Yield
| Staking APY | Today | +5 Years |
|---|---|---|
| Baseline ETH | 4.8% | 2.0% |
| MEV Boost | 1.0% | 0.4% |
| Restaking | 0.0% | 9.2% |
| Total | 5.8% | 11.5% |
Constraint Market
The ‘Constraint Market’ is at the block building level, whereas intents are at the transaction level. This enforcement is enabled by the Relay and the AVS service. The benefits include:
- Protocols can directly subsidize User Intents via the Intent/Inclusion Market
- This can be implemented via Uniswap V4 Hooks or via Vault-based Incentive Paymaster contract
- Searchers can directly access a portion of blockspace without the need of vertical integration
- This also can be extended to Solvers for that relevant Protocol (think like CoW Swap Solvers/Uniswap V4 ‘Fillers’)
- This leads to higher MEV Yield for Validators/LSTs/Restaking participants
Intent me Harder
This infrastructure allows for the scalable distribution of incentives across an entire ecosystem. As a result, networks can now strategically implement objective-based approaches rather than relying on protocol-based strategies for the first time. Below we show two examples of such services.
Example: Enforcing Slippage Surplus to Users
I.E. Any AMM becomes like CoW swap, without any code changes on their part.
Example: Intent Market using Uniswap V4 Hooks
Part 2
In part 2 we will detail changes regarding the rollup, provide clarification regarding the staking adjustments and specifics for the new Relay changes as well.
Citations
Restaking APY from @GraziellaCamata via @FinalityCap and restakingreport.com
DataAlways. “Addendum: Endgame—Perils of Restaking.” Substack, October 24, 2023. https://dataalways.substack.com/p/addendum-endgame-perils-of-restaking ↩︎ ↩︎ ↩︎