MEV and the Dark Forest: Why we need privacy in Blockchain

Lurking in what is sometimes referred to as the “Dark Forest,” programmed predators take value from unwitting victims as they attempt to execute blockchain transactions.

The concept of a “Dark Forest” originates from a novel written by Cixin Liu, which describes a setting where the discovery of someone’s location heralds their inevitable doom at the hands of sophisticated predators. It is often compared to Ethereum’s hostile and murky block-building environment.

Searching for victims in Ethereum’s public mempool, automated seekers hunt for transaction orders when detected in a practice called MEV, extracting value from their targets’ activities through front runs and sandwich attacks.

In an interview with Blockworks on a recent Bell Curve podcast, Hasu, head of strategy at Flashbots, spoke with host Mike Ippolito about the need to build privacy mechanisms to protect users from MEV exploits.

The pursuit of privacy

“I would say there are three different camps in crypto, when it comes to privacy, that have very different motivations,” says Hasu. First on his list is the “ideologically driven crowd,” motivated primarily by the principle of privacy as a human right.

Second, Hasu says, a more “academic camp” of curious, privacy-focused cryptoscientists are studying zero-knowledge, cryptography, and trusted execution environments in their quest to improve privacy.

“They’re in it,” he says, “for the intellectual challenge.”

The third camp consists of designers of mechanisms and market structures, explains Hasu, who strive for privacy in order to build “credible mechanisms that work.” As head of strategy at Flashbots, Hasu identifies himself as such a builder.

Privacy, says Hasu, is “extremely important when you want to build a good market structure.” This is particularly the case in the MEV supply chain, he says. “Privacy is very important because there is a lot of informational value in the bids.”

“Just seeing the intent of a person, what they want to do,” he says, gives the applicant “a financial advantage because you can drive them ahead” and “do them damage.”

Hasu believes that privacy is also crucial for successful collaboration in the construction process. “We want validation and block production to be decentralized.”

Centralized actors who could monopolize the MEV supply chain would have extraordinary power, he says. Instead, he advocates a wider distribution of smaller applicants and block builders to collaborate in the block building process.

“This collaboration doesn’t work without strong privacy protection because you always have to be very aware that others can steal your bundles and steal money from you.”

“Privacy is of fundamental importance to the MEV supply chain,” Hasu says, noting, “We couldn’t achieve our goals” without solving the “privacy puzzle.”

MEV share

Ippolito cites the privacy innovations of Flashbots’ MEV-Share tool as an example, which allows users to “directly control which parts of the transaction they want to share with applicants.”

Hasu explains that with MEV-Share, applicants are limited in their ability to see information about user orders, protecting the transactions from MEV exploitation.

“We reveal a certain amount of information, not enough to drive ahead, but just enough to narrow the search area so that searchers are not completely blind.”

The block builders in this system, Hasu explains, are responsible for “running this simulation and matching the orders.”

“For applicants, it’s a whole new paradigm,” he says. “Searching private data is not what they are used to, but we think it provides fundamentally better results for users.”

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