Ethereum Foundation DevCon 6 - Cryptoeconomics Track, 15 Oct 2022

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From YouTube: MEV NFT: ERC-721 Fork for Blocking Atomic Arbitrage by Franz | Devcon Bogotá

Description

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https://archive.devcon.org/archive/watch/6/mev-nft-erc-721-fork-for-blocking-atomic-arbitrage/

Inspiration
MEV (miner extractable value) is an issue that often times disbenefits the smaller consumers or traders. While traditional MEV research is mostly focussed on sandwich trades, we focus on one specific type of extractable value: MEV NFT!

Let's illuminate the dark forest.

In the talk we present a novel way to analyse and detect NFT arbitrage for more transparency. With that research we design a ERC-721 token that blocks malicious bots and could benefit consumers.

Speaker(s): Franz
Track: Cryptoeconomics
Keywords: mev,nfts,arbitrage,research

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Devcon is the Ethereum conference for developers, researchers, thinkers, and makers.
Devcon 6 was held in Bogotá, Colombia on Oct 11 - 14, 2022.
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What started this talk? It started in April there was a tweet by bird Miller from flashbots about a moon bird that was actually bought for 44 East and then immediately sold in one single transaction for 240 eth and when I saw this I was like wow. This is pretty insane and we are really dived into the topic, so at first I'm going to give a short introduction. What is Mev, um basically, who who can say here? What happens if you click like swap on uni Swap and in a one sentence?

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Maybe this transaction gets submitted to the mempool uh and the TR the technical view? Is you have uh the public map Pool where you can submit the transaction and then traditional Finance?

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You only have like a centralized server and then the transactions get uh executed with the public mempool, though people can see your transaction and they can insert their own transaction before or even uh I mean the miner itself can insert the transactions, manipulate them, block them and yeah there's a more technical explanation about like what's different in POS and the last slide, but uh Due Time Yeah, so basically, Mev exists. Also in like old auctions, it's basically, if you skip the auction, make a contract with the seller itself.

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In this case, the seller is the block space and yeah. What is an nft um for me? It was kind of interesting to understand that nft is is kind of like the same as an erc20 token, but with an ID. That was much more understandable to me than like non-fungible token and um they're like.

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If you look at Google search volume, you will see that, like one to ten thousand people Google how to create a erc20 token each month and like how people want to create an nft, it's like 10 000 to 100 000 people, so you could assume that nfts are like very mainstream and um also the the gas. If you look at ethereum is kind of high uh from nft projects, so like open C is always in the like top 10 of gas vendors.

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You can see the beautiful nft project on the side and um so another question: what happens if you, like click, make a collection bit on a nft side. It does work on every Marketplace, but maybe uh someone knows it, but now so, basically, if you um click and make a collection bid on an nft Marketplace, usually the auction is off chain, but once the the the the like the contract gets held in the mempool people can still like do Arbitrage. So, let's dive into this rabbit hole. So what is an nft Arbitrage?

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Basically, you buy the nft at One Marketplace and you sell it at the other Marketplace and what what is special about it is in crypto. You can do it in a single transaction in one block, there's some particular cases about like nfts and Mev or in general, like value extraction. So uh the the moonberg example is uh pretty uh extreme I find and also the ape coin. Maybe you've heard of it.

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They had a a token for every nft holder and there was a a a Trader who basically lent the nfts, um claimed the tokens and then sold them immediately. So he netted more than like six hundred thousand dollars I think. So what what can we do about it? Because I mean, if you look at the the the life cycle of nft, it's like pretty mainstream and I, don't assume like Bill Murray uh knows like what happens in the mempool and um so there's a couple of resources to educate yourself.

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um This is like website Mev tools, which shows like also how to like mint, an nft or like submitted transactions through flashbots, uh which is basically making skipping the mempool there's other ways you can avoid it right. So if you have an auction, where you have a commit reveal you first commit and then once you you place a bit, you reveal your bid and you you cannot like front run it because you need to commit first So. When you buy an ens domain, you have to wait one minute.

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That's basically the reason why so the life cycle of nft, you have the minting process um here it can like lead to gas Wars. So uh I don't know there was a soccer project that actually had like one million dollars in gas fees and like the the nft mint, was like less valuable than like. It's crazy right and if you like, submit the transaction to flashpots um it. Basically, if it fails you would you don't need to pay gas.

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So that's important, but also um there's been cases where an nft project might be super successful and people were like bribing the miners to make sure that they mended. So, even if you like, a normal consumer, you don't have any chance to Mint it right and the holding time of an nft I mean at any case. Basically, if the nfts are flipped and uh yeah, the transfer function um is basically for like auctions and um yeah.

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So what can we do and one one idea is we just Fork the erc20 erc71 uh contract and, if you think about okay, what is atomic Arbitrage? You sell it and buy it in one block, so we just simply lock the last transfer and we uh block the the ID from being transferred twice per block.

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um I mean it says it's more like it's a very simple solution um but uh yeah. Obviously, some some contracts might not work with it. um So what what are? What else can we do? What are like conclusions? Yeah? First of all, there's different stakeholders, so the markets they just want to sell the the artists just want to sell the users I mean they want to don't maybe don't spend so much money. uh Nft is a bit like long time.

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There's been a case where somebody just wrote a function for uh I think it was a potato or something and the ver. The volume is like pretty uh variable, so it might not be uh the the best trading for like a high volume, um Trading Company and yeah. There's like different resources. We've been working on a extension which shows like Mev activity, phishing activity and yeah time is over here's the sources.

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Thank you so much uh thanks to Alan, Bert, Miller, and so many more maybe I I forgot some and you can find me on Twitter under uh filmfronts. Thank you so much.