The dream of redistributing the extracted value

From the day I was mev-pilled by @phil I got one idea stuck in my head: all of this invisible value being extracted only by the few who know how to bend the rules of the system could be used to understand and mitigate the problems that itself causes. Like finding a self-healing cycle for these complex interactions in the system.

One year later I think we are doing well with this part. The value is no longer invisible, it is being actively mitigated, and a lot of research and development is going towards the self-healing cycle. And yet, what for? I was feeling stuck… I knew I was missing something big, my sense of purpose was getting weak. Until the king @sxysun :crown: appeared with his 3EV framework, which is a very clear1 characterization of the economic games we are playing. He provided me with very good guidance2 about where to steer the system, how to approach the big challenges pending, and the purpose of the whole thing.

So now I want some of us to focus on purpose (!!!), while many other brave souls are focusing on where and how.

I start from his ideas of monarch, redistribution, and attending to the 99% that is currently excluded from the game, to introduce Morpheus Extractable Value3. The lord of our dreams in the tragic exploration to decipher human existence. Omniscient on the worlds he creates, endlessly bounded to this funky universe, dealing with the impossible question of when to intervene.

Let’s dream a world in which all of this value being created in the system is redistributed for the plentiful existence of all its inhabitants. For living and dying together in a damaged earth.

I think this redistribution exploration has to follow five dimesions:

When researching dreams in an open collective there are no rules, no limits, no iterative milestones. I will start collecting allies, past and present experiences, and small experiments. You are all invited to jump into this dream ship.

See Bookmarks relevant for redistribution researchers .


1 :warning: it did take several hours at full brain processing speed to come to this realization: it’s simple! :warning:
2 Smart, kind, funny human, thank you :pray:
3 Thanks Charleen Fei for the name and the quick wits to reframe the whole enterprise <3

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Some thoughts on concrete directions and overall the relationship between “redistribution” and “application” (which are just redistributive allocative mechanisms).

Not only justification of expressive mechanisms (as all MEV “solutions”) depends on the popularization of diverse preferences, but also the justification of MEV-mining (aka decentralized building aka collaborative searching) depends on the popularization of diverse preferences.

If we bootstrap a system without having adoption to grow with it, we will be rekt and consolidating power to early centralized actors. Basically making the mechanism executor set more centralized and this centralized position cannot easily go away even if we change the structure later.

Currently 99% MEV are AMM-related ones. Under this scenario, the ability to do trading, which has been proven to be very centralizing as we see in tradfi, is the most convex advantage to the mechanism executor set. Thus, if we start SUAVE which the only application on top being financialized ones, we endup without a lot of diverse preferences and thus entrench centralized mechanism executor sets. On the other hand, if we increase the adoption of applications that utilize unique properties of those mechanisms (more efficiency and expressivity in the matching), we will end up with more diverse preferences, which means the percentage of AMM-related MEV will be much less, and correspondingly the centralizing force will be much less (since matching diverse preferences is much more like mining than matching common values as we see in the case of trading on AMMs). The same argument for application layer goes for things like SGX geo-centralization or censorship as well, but application impact is on a much larger scale.

This implies that if we under-pay attention to nurturing the application layers on expressive MEV mechanisms, they won’t work AND in future will not work. So basically the road to MEV Utopia is path dependent here.

Some useful more concrete directions/problems to consider that can mitigate this issue:

  • Estimating the market size and the adoption curve for the increased expressiveness. What is the maximal reach of problems that can be solved using efficiently aggregated credible commitments? How large can non-AMM MEV be? What are some of the applications that generate diverse preferences can be enabled?
  • Given a mechanism, what’s a practical indicator of the welfare that it helps to increase? What is a good measure of this n-dimensional welfare (builder-gas) we are optimizing? Ideally this should NOT be just money transfer as we argued before that is potentially centralizing and impose Goodhart’s Law. Altho an interesting problem is to find out if everything (preference aggregation of any kind) will endup being market making and thus become centralizing.
  • How can we choose a better mechanism executor set? Specifically, choosing a mechanism executor set that is consisted of highly incentive-aligned entities that are at the same time willing to degen risks into financialized fungible credible commitment holdings positions isn’t ideal.
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Some justification on the position of assuming “diverse preference matching is less centralizing and the payoff curve is more like mining than capital and trading-based common values:”

the intuition is that AMMs are inherently capital based which has already been centralized and one dimensional, while other applications that potentially has a multi-dimensionality nature and the less centralized existing power dynamics, and also going to n-dimensional shifts power to information holders who are users rather than capital giants.

But ofc you could argue that FAANG has so much data that they can be the new privileged actors in the Mechanism executor set. Actually this could be an interesting alternate direction to think about more.

Basically decentralized building would be less convincing if the application adoption is not up. Since the delta of profit kickbacks between having a centralized builder and a decentralized builder will still be high, and users only care about money if your only application is money-based so they can only care about it

We see an intertwined relation between: incentives (users), market dynamics (mechanism executor set), and adoption (applications), so it’s hard to move forward one without another.

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@sxysun I totally agree on exploring the AMM related path. Seems the most logical and most straight-to-the-point. I have two questions:

  1. “Currently 99% MEV are AMM-related ones.” Where does the 99% number come from?

  2. You mention efficiency and expressivity in the matching. Can you envision what that looks like? Specification wise? Do we need to change the transaction EVM specification? or does this expressivity happen elsewhere? Where exactly?