If you haven’t heard of the research and development organisation of Flashbots by now, you will do very soon. The for-profit entity, which was co-founded by Stephane Gosselin and Phil Daian in 2020, raised $60 million in new capital in 2023. Its main mission purpose is to remove the destructive impacts of maximal extractable value (MEV), which refers to the profit network operators can withdraw by previewing or re-ordering blockchain transactions on the horizon.
According to its website, the primary goal for the company is to “enable a permissionless, transparent, and sustainable ecosystem for MEV”.
It aims to do this by bringing transparency to MEV activity, democratising access to MEV revenue, and enabling sustainable distribution of MEV revenue.
How Do Flashbots Work?
Remember, the role of Flashbots is to iron out some of the perceived deficiencies in a network.
They do this by following a specific formula.
This is how it works in practice:
- Step One -Transaction Submission: A gas price and the associated desired action – a trade on decentralised exchanges, for example – is submitted to the Flashbots network by a user or a bot.
- Step Two – Relay to Miners: Flashbots relays the transaction directly to miners, bypassing the public mempool.
- Step Three – Transaction Ordering: Miners review the Flashbots transactions and choose to include them in the block they are producing. If the miner opts to include a Flashbots transaction, they can potentially earn MEV by including transactions that exploit price movements or other inefficiencies.
- Step Four – Settling MEV: Once the block is mined and added to the Ethereum blockchain, the miners or validators collect the MEV, which might include transaction fees, tips, or profits generated from trading strategies like sandwich attacks or arbitrage.
Why Is Flashbots Only For Ethereum?
Initially, Flashbots was developed to address specific challenges within the Ethereum network, particularly around Miner Extractable Value (MEV) and transaction ordering.
Flashbots was created to solve the front-running problem and other types of MEV extraction on Ethereum. By allowing participants to submit transactions in a private manner (through a process called “private transaction mempools”), Flashbots enables arbitrageurs, traders, and miners/validators to optimise transaction ordering and capture MEV without hurting retail users.
FAQs
1. What is Flashbots?
Flashbots is a research and development organisation focused on mitigating Miner Extractable Value (MEV) and improving transaction ordering on Ethereum and similar blockchains.
2. How does Flashbots work?
Flashbots allows users to submit transactions directly to miners/validators, bypassing the public mempool to reduce front-running and optimise MEV extraction in a transparent manner.
3. What is MEV?
Miner Extractable Value (MEV) refers to the profit miners/validators can make by reordering, including, or excluding transactions within a block, often to the detriment of users.
4. Why use Flashbots?
Flashbots helps users avoid front-running, enables fairer MEV extraction, and improves transaction efficiency by sending private transactions directly to miners or validators.
5. Is Flashbots only for Ethereum?
Flashbots was initially developed for Ethereum, but it is expanding to other blockchains with similar MEV challenges, such as those supporting DeFi and smart contracts.
