Interview With Aleph Zero On The MEV Problem That Could Cost Ethereum Users $1 Trillion In Losses
25 Décembre 2021 - 5:06PM
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The Ethereum network remains to this day one of the most active and
innovative blockchains in the crypto space. Onboarding thousands of
users since its inception, Ethereum is the king of DeFi and some of
the hottest trends in this industry with billions in total value
locked (TVL). However, Ethereum is also one of the most expensive
platforms for regular users. This has led to a surge in competitors
trying to capitalize on the problem-driven by bad actors, MEV
tactics, and other strategies to front-run regular people out of
the network. In the Ethereum ecosystem, many projects are working
on delivering a needed fix to this issue. In that sense, we sat
down with Adam Gagol, Ph.D., the co-founder of Cardinal
Cryptography, a Web3 venture studio, and Aleph Zero, a Swiss
non-profit organization looking to provide an enterprise-grade
solution to the MEV problem. This is what they told us. Q: What is
Aleph Zero and what are the project’s objectives? A: Aleph Zero is
a fast and high-throughput blockchain built with a DAG-based
consensus protocol. We’re developing a privacy-centric framework
with use cases that span multiple addressable markets, including
the decentralized finance (DeFi) sector, healthcare, gaming,
digitization, supply chain management, and more. The Aleph Zero
blockchain aims to solve privacy issues by offering the first
hybrid privacy solution which will offer innovative security
measures based on a unique combination of “zero-knowledge” proofs
(ZKPs) and Secure Multiparty Computation (sMPC). Q: Could tell our
readers unfamiliar with the topics, what MEV stands for and why
it’s one of the most important issues to address for Ethereum at
the moment? A: MEV stands for Maximal Extractable Value, which is
the maximum value that can be extracted from block production in
excess of the standard block reward and gas fees by including,
excluding, and changing the order of transactions in a block. This
type of attack occurs when a block producer is able to see the
transactions submitted on-chain and insert their own transactions
ahead of users — getting the best deals and leaving everyone else
with less value. Aleph Zero plans to tackle the Maximal Extractable
Value (MEV) problem via our Liminal MPC framework and submarine
sends. We’ve done so by ensuring an encrypted transaction is
immediately ordered but only revealed after a specific period (as
an example, after three blocks have been finalized). Through this
method, block producers are unable to influence the ordering for
their own benefit because when they need to provide an order on
transactions, the content of the transactions remains unknown. Q:
How is Aleph Zero different from other projects trying to mitigate
the MEV effect on Ethereum, such as Flashbots? A: We’re actually
solving the MEV problem at its root. There are plenty of other
efforts to resolve the issue, Flashbots for one. But none of these
upgrades addresses the root cause of the MEV problem, which is that
block creators have the power and are incentivized to order
transactions in a way that benefits the block producer the most.
One of the applications of Liminal is to automate the process of
submarine sends. In a classical submarine send scenario, the user
could not reveal encrypted transactions because everything happened
manually. These systems lack atomicity, but Aleph Zero solves this
issue by ensuring an encrypted transaction is immediately ordered
but only revealed after a specific period (for example, after three
blocks have been finalized). Q: Many users were hoping that the
change in Ethereum’s market fee with EIP-1559 was going to bring a
solution to the high cost of using the network. Months later high
transaction fees have persisted, what is really at the core of this
phenomenon? And what is Aleph Zero doing to improve the ecosystem?
A: When it comes to transaction cost, the crux of the issue is the
low throughput of Ethereum blockchain. It can achieve around ~15
transactions per second, and there are clearly more people wanting
to put their transactions on-chain. EIP-1559 was not aimed to solve
the MEV problem, so no one should be surprised that it didn’t. If
anything, the EIP-1559 implementation in London upgrade made the
problem even worse. Although it put mechanisms in place to lower
fees and protect them against volatility, it did so at the expense
of miners. Block production revenue was cut by something like a
third, so MEV is more incentivized than ever. It didn’t remove the
power of miners to reorder transactions, and since they’re now
earning less per block, they’ll need to make up that 30 percent
revenue somewhere else. So long as the incentive and ability
remain, manipulation will continue to keep MEV high at the expense
of the network’s users. What Liminal has to offer DeFi is not only
privacy, but also greater economic consequences. One of them
is the fact that the block producers will be unable to arbitrarily
reorder transactions in an inequitable way. Q: What do you think
it’s the biggest obstacle for crypto and blockchain technology to
achieve mass adoption? Could MEV become a deterrent for users to
onboard on a blockchain? A: It wouldn’t impact new users so much
but MEV could halt adoption from bigger players who tend to trade
higher quantities. But it’s only a part of the greater need for us
as developers to remove all friction to make the blockchain as
accessible to everybody as web 2 is. Accessibility and expense are
still the biggest challenges for the industry to overcome for mass
adoption. When you look at something like the iPhone or smart TVs,
these devices are simple to use, whether you’re 8 or 80. DeFi,
NFTs, and all these great web 3 use cases of blockchain are still
very much accessible mostly to enterprise users. The average person
doesn’t want to remember a long key phrase or lose a thumb drive
that can cost them a fortune in lost crypto. It needs to be
as easy (or easier) to access as web 2. And that includes the
expense. Two of the big crypto stories last month were the
Constitution DAO and ENS airdrop. Both required transaction fees of
$50 or more, and in the case of the Constitution DAO, you double
that fee in pulling the money out when it failed to win the
Sotheby’s auction. $100 is a lot of money to pay just to donate
$100 to a cause. DeFi was supposed to remove all these
intermediaries from the financial system, but there’s no way you
would pay a 100% fee upfront to your bank. Q: How do you see Aleph
Zero in the coming decade with an increase in institutions and
people taking an interest in this nascent space? A: We plan to
continue scaling our platform. Aleph Zero will aim to provide
cross-chain interoperability with an industry-leading privacy
framework. The world in ten years won’t be dominated by just one
blockchain solution like Ethereum, but at the same time, none of
these so-called “Ethereum killers” is likely to take it offline.
There was a time when people assumed only Bitcoin could survive or
only a small handful of blockchain solutions. But why? There’s not
a single web-building app, a single camera app or music player or
email provider. In reality, we’re more likely progressing toward a
world where there will be more smart contract networks than ever.
And that’s great — that’s why Aleph Zero is so focused on providing
a secure solution with cross-chain compatibility. We’re helping
developers future-proof their projects to remain nimble, regardless
of what happens down the road.
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