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The Execution Tickets Proposal: Revolutionizing Ethereum's Economic Model and Capturing Maximal Extractable Value

Core Concepts
The Execution Tickets proposal introduces an innovative ticketing mechanism that enables the Ethereum protocol to directly broker Maximal Extractable Value (MEV), traditionally an external revenue stream for validators. This approach aims to facilitate a more equitable distribution of value within the Ethereum ecosystem and enhance the network's security and economic robustness.
The paper analyzes the Execution Tickets proposal on the Ethereum Research platform, which aims to redefine how the Ethereum protocol distributes the value associated with proposing execution payloads. Key highlights: The proposal introduces a separation of duties between Beacon Block Proposers and Execution Block Proposers, with the latter selected through an auction-based lottery system involving the sale and drawing of tickets. Tickets not only confer the right to Execution Layer Rewards (EL Rewards), which include both transaction fees and Maximal Extractable Value (MEV), but also introduce a new native asset to Ethereum, potentially creating its own economy and market. Revenue from ticket sales is intended to be burned, applying deflationary pressure on ETH's supply, increasing ETH's value, and enhancing network security. The analysis demonstrates that the Execution Ticket system can capture all value generated from proposing execution payloads, redirecting what was once validator revenue to the protocol itself. The success of this mechanism hinges on the efficiency of the ticket sale process, as the protocol must be capable of selling tickets at their intrinsic value to prevent value leakage into a secondary market.
"The Ethereum blockchain operates using a proof-of-stake consensus mechanism, where a network of nodes known as validators maintains the Ethereum Virtual Machine (EVM)." "With the implementation of EIP-1559, Ethereum introduced a dual fee structure comprising base fees and priority fees. While base fees are burned, contributing to Ethereum's deflationary aspect, priority fees are given to validators as an incentive for block production." "Maximal Extractable Value (MEV) arises from a validator's ability to choose and order transactions. The most prevalent MEV strategies include sandwich attacks, arbitrage, and liquidations." "Execution Layer Rewards (EL Rewards) encapsulate the total value a validator can earn from proposing an execution payload, including revenue from fees and MEV." "The expected net present value of all future EL Rewards is given by NPVR = μR/d, where μR is the expected value of the EL Rewards and d is the inter-slot discount rate." "The expected value of a single ticket is given by E[Vticket] = μR/(nd + 1), where n is the number of tickets issued." "The net present value of all tickets issued and unissued equals the expected net present value of the rewards, i.e., E[Vall tickets] = NPVR."
"The Execution Tickets not only confer the right to EL Rewards but also introduce a new native asset to Ethereum, potentially creating their own economy and market." "Revenue from ticket sales is intended to be burned, applying deflationary pressure on ETH's supply, increasing ETH's value, and thereby enhancing network security." "Effectively, tickets are EL Reward futures and the market cap of the tickets is a leading indicator of the future value that can be captured from proposing the execution payload."

Key Insights Distilled From

by Jonah Burian at 04-09-2024
The Future of MEV

Deeper Inquiries

How might the Execution Tickets mechanism address the potential issue of multi-block MEV, which could lead to significant centralization pressures?

The Execution Tickets mechanism could potentially mitigate the risks associated with multi-block MEV and the resulting centralization pressures through several key features: Random Selection of Beacon Block Proposers: By randomly selecting Beacon Block Proposers in proportion to their staked ETH amount, the mechanism introduces an element of unpredictability in block proposal assignments. This randomness reduces the likelihood of a single entity consistently controlling multiple consecutive blocks, thereby limiting the advantages gained from multi-block MEV. Separation of Duties: The distinct roles of Beacon Block Proposers and Execution Block Proposers ensure that the construction of execution payloads is not monopolized by a single entity. This separation of duties reduces the potential for centralization by distributing responsibilities among different participants in the network. Auction-Based Selection Process: The innovative auction system for selecting Execution Block Proposers introduces a competitive element that can prevent any single entity from dominating the process. The auction mechanism adds a layer of complexity that discourages centralized control over consecutive blocks. Ticket Pooling: The potential for ticket pooling within the Execution Tickets system could further decentralize the process of block proposal selection. By allowing participants to join pools and collectively hold tickets, the system can distribute rewards and risks more evenly, reducing the concentration of power in the hands of a few entities.

What are the potential drawbacks or unintended consequences of the protocol directly brokering MEV, and how could these be mitigated?

While the direct brokering of MEV by the protocol through the Execution Tickets mechanism offers significant benefits, there are potential drawbacks and unintended consequences that need to be addressed: Centralization Risks: Directly brokering MEV could inadvertently lead to centralization if certain entities amass a significant number of tickets, giving them disproportionate control over block proposal rights. To mitigate this risk, mechanisms such as limits on ticket ownership or anti-sybil measures could be implemented to ensure a more distributed ownership of tickets. Market Manipulation: The sale and trading of tickets could be susceptible to market manipulation, where entities with significant resources could influence ticket prices or outcomes for their benefit. Implementing transparency measures, regulatory oversight, and robust monitoring systems can help detect and prevent market manipulation. Complex Valuation: Valuing tickets accurately over an infinite time horizon with varying MEV values and discount rates can be challenging. To address this, continuous research and modeling to refine valuation methodologies, considering changing MEV landscapes, and incorporating dynamic discount rates can help improve the accuracy of ticket pricing. Inequitable Access: There is a risk that certain participants may be excluded from participating in the ticket system due to financial constraints or other barriers. Introducing mechanisms for fair ticket distribution, accessibility initiatives, and community engagement programs can help ensure broader participation and reduce inequities in access to ticket ownership.

How could the Execution Tickets system be adapted or extended to incentivize the development of more efficient and decentralized block construction methods beyond the current Proposer-Builder Separation (PBS) approach?

To incentivize the development of more efficient and decentralized block construction methods beyond the current PBS approach, the Execution Tickets system could be adapted or extended in the following ways: Incorporating Innovation Incentives: Introduce rewards or bonuses for proposers who develop novel and efficient block construction algorithms or strategies. By incentivizing innovation, the system can encourage participants to explore new approaches that enhance network efficiency and decentralization. Community Governance: Implement a community governance framework where stakeholders can propose and vote on improvements to the block construction process. By involving the community in decision-making, the system can benefit from diverse perspectives and ideas for optimizing block construction methods. Research and Development Grants: Allocate funds for research and development grants that support projects focused on advancing block construction technologies. By providing financial support to innovative projects, the system can foster a culture of continuous improvement and experimentation in block proposal mechanisms. Collaborative Workshops and Hackathons: Organize collaborative workshops, hackathons, and developer events focused on exploring new block construction methodologies. By bringing together experts and enthusiasts in a creative environment, the system can stimulate collaboration and knowledge sharing to drive advancements in decentralized block construction. By incorporating these strategies, the Execution Tickets system can create a dynamic ecosystem that incentivizes the development of efficient and decentralized block construction methods, ultimately enhancing the security and robustness of the blockchain network.