BEP (Idea): Proposal for Integrating MEV within BNB Smart Chain

BEP
1

Title: Proposal for Integrating MEV within BNB Smart Chain

Introduction:
As the DeFi ecosystem continues to grow, the importance of understanding and integrating Maximum Extractable Value (MEV) within the BNB Smart Chain (BSC) has become increasingly apparent. This proposal aims to outline the motivation, objectives, specifications, and infrastructure required for the integration of MEV on BSC.

As previously discussed, the integration of MEV within BSC is essential for a more balanced and inclusive DeFi ecosystem. However, recent developments have shown that several validators have already begun to quietly capture MEV, which has led to unfairness, centralization, and lack of clear standards. Based on a recent study, the total profit for 2022 on BSC reached $90 million compared with $75 million on Eth (source: MEV Outlook 2023 | Research | EigenPhi) . In light of these challenges, this enhanced proposal aims to explore potential MEV solutions for the BSC ecosystem, balancing validator yield, decentralization, and DeFi user experience. Furthermore, without private tx service solutions on BSC, a user might be the victim of front-running bots.

Original discussion:

Thank you to bloXroute for the insightful analysis of MEV on BSC and for highlighting the risks it poses to our ecosystem.

Challenges:

  • Inequity: The fact that some validators can extract MEV while others cannot leads to unequal opportunities and rewards within the BSC ecosystem;
  • Centralization: Validators with higher MEV capture capabilities yield higher APY, causing stakers to concentrate their stake with these validators, leading to centralization;
  • Lack of clear community: The absence of synchronization and guidance from the BSC community and foundation hinders the effective utilization of MEV solutions across the ecosystem. If only some validators extract MEV while others do not, it negatively impacts both traders and MEV searchers;

Motivation:
MEV discussion is necessary within BSC because value extraction is already occurring on the network, with only a few entities reaping the rewards while others are left behind. MEV primarily impacts large DeFi traders, resulting in minimal impact on average users. Over the long run, the effect on average users is close to zero. By integrating MEV more openly, BSC can create a more balanced and inclusive ecosystem.

Flashbots are widely adopted on Ethereum, demonstrating a successful and effective approach to mitigating negative MEV impacts and improving overall network efficiency.

Currently, the significant MEV opportunities do not benefit BNB holders or the BSC ecosystem. By implementing a solution, the benefits can be redistributed more equitably, enhancing the value proposition for BNB holders and fostering a healthier ecosystem.

Objectives:
The primary objectives of openly discussing MEV within BSC include:

  • Allowing both validators and delegator to benefit from higher returns through MEV extraction
  • Reducing the gas costs for users over time by offsetting the costs with MEV revenue
  • Ensuring that the benefits of MEV extraction are distributed more equitably across the network

Specifications:
In order to tackle these issues and establish a fairer BSC ecosystem, the community should consider:

  • Decentralization: Ensuring equal opportunities for all validators, thus promoting most valuable blocks to any validator.
  • Security: The MEV module should not compromise the security of the BSC network and should adhere to best practices for blockchain security.
  • Compatibility: The MEV integration must be compatible with existing BSC protocols and throughput on BSC, ensuring minimal disruption to current users and services.

Infrastructure:
For a successful MEV integration within BSC, the following infrastructure requirements should be met:

  • Community-led development: The infrastructure should be built by the BSC community, ensuring that it aligns with the needs and expectations of its users. The core team should not be directly involved in the creation of the MEV solution.
  • Open-source access: The MEV infrastructure should be freely accessible to all validators, promoting transparency and inclusiveness across the network…
  • Third-party integration: The MEV infrastructure should allow for seamless integration with third-party services, such as data providers and analytics tools, to enhance its functionality and utility.

Conclusion:
The integration of MEV within the BSC can lead to a more equitable and sustainable DeFi ecosystem, benefiting both validators and users. By carefully considering the motivations, objectives, specifications, and infrastructure outlined in this proposal, the community can work together to implement a transparent and decentralized MEV solution that contributes to the long-term success and growth of the network.

Source:

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There was a great discussion about MEV during the 2nd BNB Chain community call - Tech Community Call #2 - MEV Implementation and Validator Rewards - YouTube. Feel free to view it to see how different participants of the BNB Chain community discuss the pros and cons of the MEV