🎉 I'm excited to share a new paper on arXiv co-authored with Davide Crapis and Fahad Saleh!
We study Execution Tickets (ETs), highlight centralization vectors due to heterogeneous MEV extraction abilities & capital costs, and quantify protocol MEV capture.
Read our paper 👉 https://lnkd.in/eyCac24v
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Background:
In Ethereum, a block proposer has a short-term monopoly right to propose the Execution Payload (ordered list of transactions). This monopoly is the source of MEV (value extracted from users via discretion over transaction ordering and inclusion).
The problems with MEV:
•Centralization: MEV puts centralization pressure on Ethereum as sophisticated validators out-earn others.
•Allocation: MEV shouldn’t just go to proposers—it should benefit users, apps, or be shared among ETH holders.
ETs are a proposed solution to these issues. A lottery in each slot decides who can propose the payload. The lottery tickets, called ETs, are sold in-protocol. ETs stay valid until they win, then they’re removed from circulation.
Why were they proposed?
•To address centralization by separating block building from proposing (APS).
•To fix the allocation problem since ET buyers are purchasing future MEV. This lets Ethereum capture MEV upfront, enabling Ethereum to redistribute MEV.
So do ETs work?
In my 1st ET paper (https://lnkd.in/e-t9gmZh), I assumed that ET buyers were homogeneous. The world is more complex, and in this new paper, we find that results differ under builder heterogeneity.
Our new paper shows that in practice...
Regarding allocation: ETs capture some (but NOT all) MEV. This is better than the current system, which captures no MEV.
Regarding centralization:
•ETs reduce centralization pressure on the validator set, but further research is needed on ET related timing games.
•ETs introduce ET holders as a new actor to the MEV pipeline. Unfortunately, ETs are likely to be concentrated among a subset of buyers.
•ETs do not alleviate centralization in the builder market.
More specifically we show...
Regarding allocation:
•Risk Aversion and Capital Costs undermine the success of ETs internalizing all MEV.
•Heterogeneity among builders with or without PBS undermines the success of ETs internalizing all MEV.
•In all situations, the more competitive the playing field, the more MEV can be internalized.
Regarding centralization:
•When buyers are homogeneous, ET holdings are decentralized.
•When buyers are heterogeneous and there is no PBS mechanism, ET holdings are centralized.
•When buyers are heterogeneous and PBS is present, ET ownership is centralized among buyers who balance low capital costs with high MEV extraction abilities Moreover, large investors with lower capital costs may dominate the market. Even with ticket ownership concentration, the block-building rights are likely sold ex-post via PBS, and thus the tickets are likely exercised by builders with the best ex-post MEV extraction ability in a slot.
