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Priority Is All You Need

paradigm.xyz · 4,903 words · saved by 3 readers

In this post, we introduce MEV taxes, a mechanism that arbitrary applications can use to capture their own MEV. This mechanism could be used today on OP Stack L2s like OP Mainnet, Base, and Blast, because the block proposers on those chains follow a set of rules we call competitive priority ordering. To implement a MEV tax on one of these chains, a smart contract charges a fee that is a function of the priority fee of the transaction. We show that if an application charges searchers a MEV tax of (say) $99 for every $1 of priority fee, it can capture 99% of the competitive MEV for that transaction. MEV taxes are a simple technique that opens up a vast design space. You can think of them as allowing any application on the chain to run its own custom MEV auction, without needing any offchain infrastructure of its own, just by hooking into a single shared auction run by the block proposer. We show how MEV taxes could be used to solve three major problems in MEV research: Decentralized exch

Priority Is All You Need - Paradigm Research Priority Is All You Need 06.04.2024 | Dan Robinson Dave White Outline 1. Introduction 2. Priority ordering 3. MEV taxes 4. Single-application MEV capture 1. DEX routers 2. AMMs 3. Backrunning auctions 4. Other use cases 5. Cross-application MEV capture 1. Incentive incompatibility 2. Full blocks 3. Reverted transactions 4. Leaking of user intents 6. Discussion and prior work 7. Conclusion Introduction In this post, we introduce MEV taxes, a mechanism that arbitrary applications can use to capture their own MEV. This mechanism could be used today on

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