Thomas Thiery: Fossil enhances transaction inclusion in Ethereum, MEV threatens decentralization, and upcoming changes will reshape block construction

Key takeaways

• Fossil improves transaction inclusion guarantees by allowing validators to enforce transaction inclusion in Ethereum blocks.
• The design of Fossil aims to prevent MEV from compromising censorship resistance.
• MEV introduces a centralization force among validators, challenging decentralization.
• Block building on Ethereum is currently dominated by a few builders, undermining decentralization.
• MEV refers to the context in which a transaction is placed in a block, affecting transaction ordering.
• The extractable value from MEV dwarfs the transactions themselves, previously estimated to be around 1% of the transaction volume.
• Block construction involves searchers creating transaction bundles and builders compiling them into full blocks.
• The auction process between proposers and builders is mediated by a relay to ensure fair exchanges.
• A commit and reveal scheme will replace the current relay system in the next Ethereum hard fork.
• Proposers hold significant power in the auction process, capturing value before redistribution.
• The Ethereum Foundation is focused on enhancing censorship resistance and transaction inclusion.
• The upcoming changes in Ethereum’s infrastructure could impact transaction processing dynamics.

Guest intro

Thomas Thiery is a researcher in the Robust Incentives Group at the Ethereum Foundation, where he focuses on blockchain economics and protocol design. He is the primary architect of FOCIL (Fork-Choice Enforced Inclusion Lists), a mechanism proposed for inclusion in Ethereum’s Hegota upgrade that addresses centralization risks in block production by enabling decentralized validators to enforce transaction inclusion. His work directly tackles the censorship resistance challenges posed by the concentration of block-building power among a small number of actors.

Fossil’s role in Ethereum

• Fossil enhances inclusion guarantees for public transactions by allowing validators to enforce transaction inclusion.

• I think fossil helps to drastically improve inclusion guarantees for public transactions

  — Thomas Thiery

• The mechanism lets multiple validators force include lists into Ethereum blocks.
• Fossil’s design prevents MEV from compromising censorship resistance.

• There was also a very meaningful intent in the design of fossil not to involve MEV

  — Thomas Thiery

• This approach ensures that censorship resistance is not crowded out by MEV transactions.
• Understanding Fossil’s impact requires knowledge of Ethereum’s transaction validation process.
• The focus is on maintaining the decentralized ethos of Ethereum.

MEV’s impact on decentralization

• MEV introduces a significant centralization force among validators.

• There was MEV and basically there was a big centralization force caused by MEV

  — Thomas Thiery

• Validators that were decentralized may centralize due to MEV.
• The current state of block building is dominated by a few builders.

• Builders were actually very centralized… now you have very dominant builders

  — Thomas Thiery

• This centralization undermines the decentralization of the Ethereum network.
• Awareness of the current landscape of block builders is crucial.
• MEV challenges the health of Ethereum’s decentralization.

Understanding MEV

• MEV refers to the context in which a transaction is placed in an Ethereum block.

• MEV at a high level is just the context a transaction is placed in on the Ethereum block

  — Thomas Thiery

• It affects the ordering and potential creation of new transactions.
• The extractable value from MEV dwarfs the transactions themselves.

• This extractable value it dwarfs the transactions themselves

  — Thomas Thiery

• Previously, MEV was estimated to be around 1% of the transaction volume.
• Understanding transaction ordering is key to grasping MEV’s impact.
• MEV has substantial economic implications for Ethereum transactions.

Block construction dynamics

• Block construction in Ethereum involves both searchers and builders.

• You have builders that are also searchers

  — Thomas Thiery

• Searchers create valuable transaction bundles for builders to compile.
• Builders need to be technically sophisticated to build blocks quickly.
• Builders compete in an auction to construct full blocks.
• The difference between searchers and builders lies in block construction.
• Understanding the roles of searchers and builders is crucial.
• This process is central to how transactions are processed in Ethereum.

Auction process in Ethereum

• The auction process between proposers and builders is mediated by a relay.

• The auction is now mediated by a relay

  — Thomas Thiery

• Relays ensure fair exchanges between proposers and builders.
• This mechanism prevents proposers from exploiting builders.
• The current relay system will be replaced by a commit and reveal scheme.

• That sort of trusted relay doesn’t need to be used

  — Thomas Thiery

• The new scheme allows trustless communication between proposers and builders.
• Knowledge of Ethereum’s upcoming hard fork is essential.

The role of proposers

• Proposers in the auction process hold significant power.

• Most of the value is actually given to the proposer

  — Thomas Thiery

• Proposers capture value before it is redistributed.
• Their role is to propose the block to the rest of the network.
• Proposers’ influence on value capture is significant.
• Understanding auction dynamics is crucial for grasping proposers’ power.
• Proposers are key actors in the value distribution process.
• The auction process highlights the importance of proposers in Ethereum.

Ethereum’s future infrastructure

• The Ethereum Foundation is focused on enhancing censorship resistance.
• Transaction inclusion is a critical challenge addressed by the foundation.
• The upcoming changes in Ethereum’s infrastructure could impact transaction processing.
• A commit and reveal scheme will enhance trustless communication.
• The focus is on preserving Ethereum’s decentralized ethos.
• Understanding these changes is crucial for stakeholders in the network.
• The foundation’s work addresses critical challenges posed by MEV.
• The future of Ethereum’s governance is a key discussion point.

Challenges in Ethereum’s ecosystem

• MEV poses significant challenges to Ethereum’s decentralization.
• The centralization of block builders undermines network health.
• Proposers’ power in the auction process raises concerns.
• The Ethereum Foundation addresses these challenges through infrastructure changes.
• Understanding MEV’s impact is crucial for stakeholders.
• The focus is on maintaining a decentralized network.
• The foundation’s work is pivotal in addressing these challenges.
• The future of Ethereum’s ecosystem is shaped by these dynamics.