A highly anticipated feature that will be built on top of the SafeStake middle layer to achieve an even higher level of transparent, decentralized, and lucrative ETH staking is SafeStake’s VEV, or Validator Extracted Value protocol.
In simple terms, Validator Extracted Value supports the original ETH PoW (Proof of Work) concept referred to as Miner Extracted Value, or MEV. Today, in the current PoS (Proof of Stake) ecosystem, MEV has evolved to mean Maximal Extracted Value.
Since the transaction sorting process in Ethereum PoS is the same as the previous Ethereum PoW, MEV opportunities still exist. The only difference is that validators, rather than miners, are in charge of the transaction ordering process.
Specifically, Maximal Extracted Value (MEV) or its equivalent, Validator Extracted Value (VEV), refers to the process of extracting the most value from a block reward by including transactions with the highest gas rates and including, excluding, or reordering transactions in a block.
SafeStake’s unique flavor of VEV will ensure that MEV rewards always go directly to the owner of the validator earning them.
When does MEV happen?
To understand when MEV takes place, we must explore how Ethereum transactions are currently executed. To summarize, the lifecycle of a transaction is as follows:
- A transaction hash is cryptographically generated.
- The transaction is added to the local transaction pool, then broadcast over the network and added to the main transaction pool (mempool), along with all other pending transactions.
- A validator selects the transaction and includes it in a block to verify and deem the transaction “successful.”
- Over time, the block containing the transaction is justified, then finalized, providing greater certainty that the transaction was successful and cannot be altered, otherwise known as immutability.
- Once any block is finalized, it can only be altered by a network-level attack (51% attack) that would require many billions of dollars to successfully orchestrate.
It is precisely at #3 where it is possible to perform a reordering of transactions, based on the incentives given to validators to perform their duties on the consensus layer.
Recall that while the execution layer manages transactions and implements the EVM, the function of Ethereum’s consensus layer is, as the name suggests, to enable the chain to achieve consensus and finality.
To explore further, #2 refers to the fact that if the transaction is valid, the execution client adds it to its local mempool and broadcasts it to other nodes over the execution layer gossip network. When other nodes hear about the transaction they also add it to their local mempool.
But, at this exact point, some advanced users are able to take advantage of the system and refrain from broadcasting their transaction, instead forwarding it to specialized block creators, like Flashbots’ Auction.
Now, they can reorganize the transactions in the next block and/or include only the ones with the highest gas fees to obtain the maximum profit, or MEV. With SafeStake, VEV refers specifically to validators running on the SafeStake network who can extract additional rewards via MEV capture.
A deeper dive
In practice, before The Merge and Ethereum’s transition from PoW to PoS, bot operators known as seekers sought to extract MEV by paying high fees to increase the likelihood that their transactions would be mined, or by fine-tuning their gas price choices to best time their transactions.
In Ethereum PoS, seekers have been replaced by network-independent finders that run complex blockchain data algorithms to detect profitable MEV opportunities.
Block finders monitor the mempool for opportunities and implement various strategies to maximize profits on each block by: 1) executing transactions early; 2) taking advantage of arbitrage opportunities; and/or 3) prioritizing transactions with the highest gas fees.
For example, MEV-Boost, Flashbot’s open-source middleware implementation of a block finder, is run by Ethereum validators. It provides access to a block-building marketplace and allows validators to increase their staking rewards by taking advantage of MEV opportunities.
In theory, MEV-Boost was created to democratize MEV extraction and make it accessible to all validators, who can deploy it to access a competitive block-building market.
Here, the thought process is that validators will get a share of the total MEV amount as searchers are willing to pay high gas fees in exchange for a higher probability that their profitable transactions will be included in a certain block.
However, in practice, many large, centralized staking providers have found ways to dominate the block building market and take advantage of the best MEV opportunities.
As we mentioned, the block building market has several participants with specialized roles, including searchers, builders, relays, and validators/proposers. If you would like to learn more about these roles, we invite you to read the following article:
Ethereum Censorship and SafeStake: MEV, OFAC, and Flashbots (Part I) | by Daniejjimenez
SafeStake’s VEV offering
SafeStake departs from the conventional approach of running a solo node by disabling the configuration of fee recipient parameters at the node level. Instead, we implement a built-in protocol-level function that allows the Node Operator Committee to set a unified fee recipient using the account address of the validator’s owner.
The key here is to establish a unified rate receiver address at the protocol level in a decentralized manner and require that the node operators chosen for the committee agree to this account address before the operator committee is established.
With SafeStake, this process occurs when the validator is registered and the staker chooses the operators for the committee, with operator committee setup immediately following.
By using this approach, SafeStake can guarantee that MEV revenues accumulate directly into the validator owner’s account and nowhere else, smoothing MEV revenue distribution across the network.
Because the agreement between the node operators chosen for the committee to establish a unified account is integrated directly into the node code base, immediate access to the account is ensured and the operator committee setup process can proceed.
This innovation in the Safestake protocol, in contrast to other DVT solutions, establishes a decentralized protocol for MEV-enabled staking where MEV gains always accrue directly to the validator owner’s account. By simplifying the management of fee recipients, SafeStake ensures fair and transparent allocations of MEV revenues across the network.
End-user benefits
According to dotpics.info data, the share of MEV-Boost blocks equates to a block-building market currently exceeding 400K ETH.
These numbers illustrate just how lucrative MEV capture has become and that it is an essential part of the Ethereum staking process. In short, ETH stakers want to run their validators on nodes that offer the best MEV opportunities.
The great news here is that to participate in MEV capture, SafeStake operators only need to run MEV-Boost on their nodes. Once an operator agrees to participate in MEV capture, stakers running SafeStake validators will be able to see them and the specific relays they are using.
Now, users running SafeStake validators have the option of choosing operators with an open door to the MEV marketplace, allowing them to obtain quotes from selected relays and propose the most lucrative blocks. By combining MEV-Boost with SafeStake’s unique flavor of DVT, validators will be able to increase their income by taking advantage of more MEV opportunities.
Natively empowering validators to get more MEV opportunities right in the base code also enhances the liveliness of the validator’s proposal duty. Why? Having multiple operators sign and broadcast the same duty increases liveliness on the Beacon chain, which is just one of the many benefits a distributed validator provides.
Key Takeaways:
- VEV (Validator Extracted Value) is the PoS equivalent of MEV (Miner Extracted Value) that existed with Ethereum PoW.
- MEV now means Maximal Extracted Value. VEV is Validator Extracted Value.
- Validators show preference towards operator nodes that are MEV-enabled.
- SafeStake promotes validator participation in MEV capture, improving protocol integrity and efficiency.
- SafeStake’s VEV ensures that MEV revenues earned by a validator accrue directly to the account of the validator’s owner.
- SafeStake’s VEV protocol will empower solo and retail stakers and attract larger institutional staking by offering more opportunities to maximize ETH staking rewards via MEV.
About SafeStake
SafeStake is a pioneering technology company focused on revolutionizing Ethereum staking. With its cutting-edge, decentralized Distributed Validator Technology (DVT), SafeStake provides an ultra-secure, fault-tolerant environment for Ethereum validators, maximizing staking rewards and minimizing penalties. SafeStake is committed to driving the growth, innovation, and decentralization of the Ethereum network while ensuring the security and prosperity of its participants.
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