David's Takes: A Hitchhiker's Guide to Riding an MEV Bot

Welcome to David's takes. A new format with David and RSA where we explore David's weekly articles in 30 minutes or less. This week, we’re diving into one gigantic metaphor. Ethereum as a reserviour of liquidity. So sit back, relax, and enjoy "A Hitchhiker's Guide to Riding an MEV Bot". Read David's article here: https://www.bankless.com/a-hitchhikers-guide-to-riding-an-mev-bot/ If you're looking for a more technical explanation check out our recent episode with Dan Robinson: https://youtu.be/h4gzZib0j48 ----- 🏹 Airdrop Hunter is HERE, join your first HUNT today https://bankless.cc/JoinYourFirstHUNT ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2 ⁠ 🦊METAMASK PORTFOLIO | MANAGE YOUR WEB3 EVERYTHING https://bankless.cc/MetaMask ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum ⁠ 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle ⁠ 🦄UNISWAP | ON-CHAIN MARKETPLACE https://bankless.cc/uniswap%E2%81%A0 👾STADER LABS | ETHX LIQUID STAKING https://bankless.cc/Stader ----- TIMESTAMPS 0:00 Intro 1:00 Why did David Write This? 6:17 A Reserviour of Liquidity 9:25 The Ships Metaphor 13:36 Offchain Signed Orders 17:17 Intents 22:07 Dutch Auctions 24:06 Impications Of This? 28:25 How This Impacts Bridges 30:30 What's Left To Unpack? 33:15 Closings And Disclaimers ----- Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures ⁠

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00David Hoffman?

  If you look at the original Xbox games, the graphics sucked. And then if you looked at the late-stage Xbox games, the graphics were like orders of magnitude better, but it was the same hardware. How did that happen? It's because the software got better. And so this is the software of Ethereum layer, improving what we can do with the hardware layer of Ethereum.

• 0:22Ryan Sean Adams?

  Hey, Bankless Nation, we've got a new show format for you. This one's short, punchy. It's a deep dive into a crypto rabbit hole that David and myself are exploring. These are our takes, take and relay them, 25 minutes max. It's gonna be our punchiest episode ever, right, David?

• 0:36David Hoffman?

  God, it's pretty ambitious if they were gonna do this in 25 minutes or less. It would be a first.

• 0:41Ryan Sean Adams?

  Each of these episodes will focus on one specific theme. On today's episode, we're talking about an article that David published recently in the Bankless Newsletter. It's called "A Hitchhiker's Guide to Riding an MEV Bot." David, why'd you write this article? Why is this topic important?

• 0:55David Hoffman?

  Yeah, because every once in a while, we go down, collectively, the crypto world goes down the crypto rabbit hole, which we're all carving out, and then we find something new. We find something while we're digging in the crypto rabbit hole. And what we have found recently is this, what the world of the MEV industry of crypto is calling "intent." Intent as in, "I intend to do something." And the idea here is that this brand-new fertile field that we've just unlocked could be real big, real big. And why this is such a big deal and why I wrote a whole entire article about this is that an intent, in theory, inverts the relationship that the average Joe Swapper on Ethereum, the average on-chain Swapper, has with the MEV vertical.

• 1:40David Hoffman?

  Right now, there's an adversarial relationship with Swappers and MEV. MEV wants to eat up the value of all the Swappers, and the Swappers wants that to not happen. And then with intents, we actually can make these people be on the same team and actually get them to collaborate and cooperate, which is part of the bull case of crypto, is learning how to align incentives. And so intents is a mechanism for swapping that aligns incentives between Swappers and MEV. That's the big idea, and that is the thing that we have potentially discovered while we are going down the crypto rabbit hole.

• 2:10Ryan Sean Adams?

  I completely agree. This rabbit hole goes deep, so we're going to begin exploring it in today's episode. But first, we disclose nothing big or specific in this episode. Both David and I hold Ether. Uniswap X is a subject of today's episode. Uniswap has previously been a sponsor on the Bankless Podcast. This is my time to remind you that we are long-term investors. We're not journalists. We don't do paid content. There's a link to all Bankless disclosures in the show notes at all times. Before we begin, we also want to thank the sponsors that made this episode possible, including Kraken, our number one recommended exchange for 2023.

• 2:46David Hoffman?

  Extra thanks to Kraken, our preferred exchange for crypto in 2023. Whether you're dollar-cost averaging into crypto to prepare for the bull market, or you're taking profits out of crypto, be sure to do it with Kraken. The newly-designed Kraken Pro makes it super easy to do both your basic financial transactions while also taking your trading to the next level. Kraken Pro is truly the trading UX that you've always wanted. So if your bull market archetype is the trader class, you need Kraken Pro in your toolkit. But if your character class is more of a DeFi journeyman or woman, then MetaMask portfolio is the tool for you. MetaMask portfolio is your DeFi multi-chain battle station. Any asset on any Ethereum Layer 2, MetaMask portfolio will present it to you. So don't get caught forgetting assets or missing opportunities. Make sure you're prepared for the bull run by prepping your MetaMask portfolio.

• 3:30David Hoffman?

  Moving on from tools you need to playing fields to play on, the Arbitrum Layer 2 is one of the main arenas in which this bull market will be fought on. Whether your character class is a DeFi Dgen, Airdrop Hunter, or Yield Seeker, the Arbitrum Coliseum is where a ton of the action is going to be. So whether you're on Arbitrum 1 for DeFi NFTs, or Arbitrum Nova for Web3 Gaming, or a new frontier on Arbitrum using an Arbitrum Orbit chain, there are so many opportunities to sink your teeth into. But as we know, the Ethereum rollup-centric roadmap produces all kinds of Layer 2s. And Mantle is one of the newest Layer 2s on the scene, with some of the newest technology that Ethereum Layer 2s has to offer in the year 2023. Mantle is built using the OP stack but uses Eigenlayer's data availability solution instead of the expensive Ethereum Layer 1, reducing gas fees by 80% compared

• 4:14David Hoffman?

  to other Layer 2s. With billions of dollars standing by from BitDow to investing Mantle, make sure you stay ahead of the game by building and growing your Your on-chain footprint on Mantle. Let's not forget about the ETH staking character class. And Stater makes it easy. Running a staking pool with Stater just requires four Ether for a deposit, letting you charge a fee to the remaining 28 Ether that uses your node to stake their ETH, increasing your yield by 35%. Stater's staked Ether token, ETHX, allows you to stake your Ether and use it in DeFi at the same time. For all you DeFi swappers out there, this one is for you. Uniswap X has opened up a brand-new landscape to play in, and it's the world of intents. This is where those who employ this swapping ability get to team up with the evil MEV bot army,

• 4:56David Hoffman?

  and they get to band together to discover the most efficient liquidity route through the Ethereum landscape: gas-free swaps, MEV protection, and theoretically optimal pricing. When swappers and MEV'ers come together, new metas happen, and it's thanks to Uniswap X. So the next time you trade on Uniswap, consider clicking the Uniswap X button to get your MEV protection. And so, if we're truly entering a bull market phase in crypto, which we totally are, then tokens are going to start flying all over the place. So if you're an organization looking to grow with token incentives, then look no further than Toku. If you want to distribute tokens to your employees, team members, or for payroll, Toku can help you comply with labor laws, tax obligations, and reporting for whatever country you employ someone. Crypto is entering its regulated era, and Toku can help you achieve your token incentive award goals with compliance.

• 5:40David Hoffman?

  So thank you to all the sponsors that support Bankless, and all the podcast editors, newsletter writers, and operations managers who make the Bankless organization the best that we can be. We truly appreciate your support, and for all the listeners out there who listen to the mountains of content that we churn out each week, especially this one right here. So let's go on to the show.

• 5:56Ryan Sean Adams?

  A Hitchhiker's Guide to Writing an MEV Bot. Okay, David, what's the big idea here?

• 6:01David Hoffman?

  So I use metaphors when I write. I think it's the best way to explain some of this stuff. And so I start this article with this metaphor of Ethereum as just one gigantic ocean of liquidity. If there's like one activity that we do on Ethereum, it's swapping tokens. Like Ethereum, if you want to be ultra-reductive and kind of make a jab at Ethereum, you'll just call it like one gigantic DEX. Like, that is what Ethereum is. It's just an exchange. It's a marketplace for marketplaces, so it's like a meta DEX. Like, you can host many DEXs on Ethereum, but really Ethereum just is a place to swap tokens and assets, if you really want to dumb it down.

• 6:44Ryan Sean Adams?

  The term ocean is kind of interesting, too, because ocean implies some depth, right? You can have more shallow parts of the ocean, you can have deeper parts of the ocean.

• 6:52David Hoffman?

  Yes, there's that, yeah, and that relates to this term called liquidity, right? And we all know what liquidity is in crypto. It is just the how deep market like order books are on an exchange, or how much assets are in a Uniswap liquidity providing position. There's this like fundamental relationship that like at a very deep level, that water and liquidity and assets and markets all have with each other. And it's why it's why we use the words liquidity. That's not a coincidence, it's because people way back when discovered that there's a relationship, a pattern between like actual water and the liquidity of market structures. And so this is why I call Ethereum a reservoir of liquidity.

• 7:36David Hoffman?

  It holds a bunch of liquidity in Uniswap AMMs in like, you know, God forbid Ether Delta once upon a time. 0X and actually the originator of off-chain orders, 0X. And now we have Uniswap, right? Curve is another reservoir. So like, think of Curve as like a very big lake, or maybe Curve is an ocean. Uniswap is also another ocean. We got Velodrome, which is a smaller, little tiny ocean on a layer two. But really, with you summate everything, Ethereum is like, you know, the Earth with all of its oceans put together. And in order to navigate across this landscape of Ethereum, if you view Ethereum as a landscape, which you ought to, because like every single contract address or your Ethereum address is a destination.

• 8:20David Hoffman?

  And in order, and then you also, you also have tokens inside of your addresses. And each of those tokens have addresses, little destinations all across this world. And we need sometimes to do our transacting, we need to go from place A to place B, from token contract address A to token contract address B. And this is what the activity of swapping is. You're going, you have USDC in one contract address, and you need to turn it into another token or Ether, which is at a different contract address. So like, if we're putting this into metaphors, we actually need to travel across Ethereum's liquidity pools, pools of liquidity. And we actually need to do something, we need to make a transaction to get that job done for us. And this is like, starting to set the scene for like, what is this big metastructure of Ethereum?

• 9:06David Hoffman?

  But we have these liquidity pools with different assets all over Ethereum. And then we have to go across these pools in order to get our jobs done. And that's kind of where I start off this article with this metaphor.

• 9:16Ryan Sean Adams?

  Yeah, and you were using, so if you picture Ethereum as this ocean of liquidity, right? In the rest of this, this article, this kind of resonated with me. You use this metaphor of ships and you say this at the beginning. As swappers on Ethereum were about to upgrade our ships, moving from gas guzzling clunkers that blast through the swells to sleek yachts, oh, yachts, that stealthily send you where you need to go without disturbing the waters. You've got this image here and on the one side it says on-chain DEX trade. And this looks like some sort of, I don't know, standard ship that is, you know, going through the ocean.

• 9:51David Hoffman?

  A tugboat.

• 9:51Ryan Sean Adams?

  It's, it's a tugboat or something. There's, there's a massive amount of wake.

• 9:55David Hoffman?

  Is just pushing water. It's like, it's like a bulldozer going through the water, just like pushing the water around it, just leaving a massive wake. It's got this like messy, like a pipe that's just burning oil at the back. It is just brute forcing its way through the water. Yeah.

• 10:12Ryan Sean Adams?

  All right. And you're calling that the on-chain DEX trade, which is now, that's where we live.

• 10:16David Hoffman?

  That's what, that's the current meta of things.

• 10:18Ryan Sean Adams?

  Yeah, I use Uniswap as an on-chain DEX trade. So, so you're saying that's like a big freaking tugboat.

• 10:23David Hoffman?

  Yep.

• 10:24Ryan Sean Adams?

  And then you've got this other side juxtaposed as you say off-chain signed order. And I don't, I have no idea what I'm looking at, but this looks like a stealth yacht. It's making, it's going through the ocean, but it's making very little waves, you know, very little movement, not much wake. And you're calling that the off-chain signed order. Looks like also that, you know, the scene is at night. So something stealthy is implied here as well. So why this metaphor? Why are you painting this picture?

• 10:51David Hoffman?

  Yeah, so both of these images are actually made with Midjourney, just to aesthetically please.

• 10:55Ryan Sean Adams?

  Really?

• 10:55David Hoffman?

  Viewers, yeah.

• 10:56Ryan Sean Adams?

  I could tell the second one was, I didn't know the first one was.

• 10:59David Hoffman?

  Yeah, the first one definitely was. Well, think about how big all those wakes are. I, I think the prompt was like metal heavy tugboat with massive wake or something like that.

• 11:07Ryan Sean Adams?

  Okay.

• 11:08David Hoffman?

  So I was, so actually, can you pull up another tab and type in C shadow IX 529?

• 11:15Ryan Sean Adams?

  C?

• 11:17David Hoffman?

  C shadow. Yeah.

• 11:19Ryan Sean Adams?

  Okay, C shadow.

• 11:21David Hoffman?

  IX 529, yeah.

• 11:24Ryan Sean Adams?

  Oh, wow.

• 11:24David Hoffman?

  IX, IX stands for.

• 11:25Ryan Sean Adams?

  What's this thing?

• 11:27David Hoffman?

  Okay, okay, so now now type in F F117 Nighthawk. You can just do F117.

• 11:34Ryan Sean Adams?

  F117 Nighthawk, okay, F117?

• 11:38David Hoffman?

  Mm hmm. Yeah, so this is a stealth, this is a stealth fighter, famous stealth fighter, right? Developed by Lockheed Martin. They have all the the ship, the the, this is a plane, this is a jet. This is a stealth jet, one of the first stealth jets ever. And the angles on this ship are meant to absorb radar and also not leave a wake. And so they also were charged with building this Navy Sea Shadow ship, which is like kind of the same version, but as a ship. And it's built in this way that is A, it absorbs radar, so you can't see it. And B, also doesn't leave a wake. Because it's like, it's great if it doesn't show up on radar, but if you could just see the wake of this ship that it leaves behind, the white cherny waters behind it in its path,

• 12:21David Hoffman?

  then like all of your stealth technology goes to nothing if you just leave a wake. So it's also built in this way to cut through the water so that you can't detect it as it goes from point A to point B. And then on the other, and that's supposed to be in contrast to like this tugboat, which is like, I don't give a F, just like, get out of my way, liquidity, I'm pushing you aside, and I'm brute forcing my way. And so the these represent two different strategies from crossing for crossing Ethereum's waters. And now, remember, Ethereum doesn't do like, doesn't have an army. And so you're allowed to do as much MEV as possible, which is why, like, you know, in the normal world, we have like armies and military to protect us. But in the Ethereum world, which doesn't have an army, and anything is fair game, we

• 13:02David Hoffman?

  actually need to be more adversarial in how we choose to cross its liquidity oceans, because there's no army to protect us. And so we all need to develop strategies that are protective of our payloads, which are our swaps.

• 13:16Ryan Sean Adams?

  Ooh, these these metaphors, these analogies are starting to stack up here. Okay, but so before we continue on that, we'll park this idea of two different ships, an on-chain DEX trade, messy, huge, like, wake, it's just pushing the water out of its way, off-chain signed order, stealthy, sleek, cutting through water, below radar, undetectable. But what is an off-chain signed order? We know what an on-chain DEX trade is, okay? That's where you go to Uniswap, you make a swap, it's all on-chain, you could, everyone could see it. What is an off-chain signed order? And what does that have to do with what we were talking about in the intro? This this word intense?

• 13:50David Hoffman?

  Yeah, so an off-chain signed order stands in contrast to an on-chain DEX trade. So an off-chain signed order, it's actually pretty similar to an on-chain DEX trade, except that you don't actually execute it as a transaction. And because of that property, you can construct your transaction differently than if you had on like Uniswap or Sushi Swap or Curve or anything that's an on-chain DEX trade. So with an on-chain DEX trade, you put in certain parameters that are like fixing variables in your transaction, because if you don't fix them, then the MEV bots come and eat them, right? So like with our tugboat, who's just like bulldozing through Ethereum's liquidity,

• 14:33David Hoffman?

  it's a lot of things are hardcoded into them, because if they're not, then the MEV monsters will get in and eat that transaction up. And so like, what am I talking about here? We have token A, want token B. We are setting like, hey, we're only accepting 3% slippage. And then we're also going to go through this route. And so Uniswap actually has a product, and so does Sushi Swap, and you know, anything that has an order router, an order router, think of that as like loading up your ship, your tugboat, your slow, heavy tugboat with like a predetermined path through Ethereum's liquidity pools to get from point A to point B. And so you're saying, this is my path, and I'm only going to allow for 3% slippage to

• 15:18David Hoffman?

  get there. We're hard coding all these parameters in, in order to make sure that like when we get across this path, the MEV monsters only ate like 3% of our transaction, or 2%, whatever we set our slippage to. But these are parameters that we're all encoding into our transaction to protect us. It's like adding panels to our ship, big metal panels to our ship. And it actually, every single parameter that we hard code is also an additional gas cost. And that's just what it takes for individuals to get across Ethereum if they are going to construct their own ship using an on-chain DEX trade. We need to get across somehow, so we've got to build our own ship. And that's what Uniswap and any order router does when they help us make a transaction that is an on-chain DEX trade. We are basically custom building our own ships.

• 16:00David Hoffman?

  An off-chain transaction is very, very, is like the inverse of this. And so all you're doing when you sign an off-chain intent, and off-chain just means that you're not actually going to execute this as a transaction. You're going to, with your private keys, sign a transaction, but not broadcast the transaction with an intent.

• 16:21Ryan Sean Adams?

  So no gas?

• 16:22David Hoffman?

  No gas. You just-

• 16:23Ryan Sean Adams?

  Just sign transaction.

• 16:24David Hoffman?

  Yeah, so like, you can take an Ethereum transaction that you would broadcast to the mempool, and then you can just sign it and not broadcast it to the mempool. And that becomes an off-chain signed order. So like, an off-chain signed order is like a precursor to a transaction that's on-chain, but it does not become a transaction on-chain by you. And so what do you do with this off-chain signed order? Is that you just state your intent. I have 2,000 USDC on the Ethereum Layer 1. I would like 1 Ether on the Ethereum Layer 1. Or I actually would like 1 Ether on Optimism, or Arbitrum, or ZK thing, or whatever. You just sign, you just sign what you want, and your minimum amount of desired tokens on the other side.

• 17:07David Hoffman?

  And so you're saying, "I've got 2,000 USDC, and I will accept no less than 1 Ether." And anybody who can service this is free to take this transaction and execute it.

• 17:16Ryan Sean Adams?

  So that's why we call these intents, right? It's an intent. So I intend to provide 2,000 USDC in exchange for 1 Ether. And you kind of broadcast that. You're not broadcasting that on-chain. You're broadcasting this to all of the MEV bots.

• 17:33David Hoffman?

  You're broadcasting it to the MEV stack, which is usually the thing that you're trying to hide from. But instead, you just actually tell them what you want. And that is the big unlock.

• 17:44Ryan Sean Adams?

  Who's in the MEV stack? What is the swarm?

• 17:47David Hoffman?

  All the monsters. So you have MEV arbitragers, like liquidity pool balancers, sandwich attackers. You've got like just DEX arbitragers. So if two different pools on Uniswap and SushiSwap are unbalanced, then they'll reorder it. The entire spectrum of possible arbitrage opportunities are encoded into MEV bots on Ethereum.

• 18:10David Hoffman?

  Around Ethereum, they're like this swarm of things around Ethereum that makes sure that everything inside of Ethereum is maximally efficient. So like when you say like, what is it? It's like, it's everything that is relevant to markets.

• 18:22Ryan Sean Adams?

  It's the hive. It's whoever can make a profit, profit, whether these are like market makers or bots or some combination, you know, it's any, anyone who is willing to make a profit on this exchange here.

• 18:34David Hoffman?

  Right. And part of this stack is it's probably becoming very, very verticalized. So, so market makers and MEV bots are probably collapsing into the same, same vertical, for example. So this just turns into a vertical of like the, the efficiency checkers of Ethereum markets. So like if anything is disturbed in Ethereum, then they will rebalance it. And this is why we go back to this metaphor of liquidity and disturbing, or here's a word, dislocating pools, dislocating Ethereum's pools or liquidity is like when you take 2,000 USDC out of the Uniswap pool and you put it into the Uniswap Ether Pool, like you're

• 19:16David Hoffman?

  taking, you take water, scoop it up out of one pool and you dump it in another pool because you just made a trade. Well, all of a sudden you've dislocated Ethereum's pools and that is like signals to MEV, the MEV boss, like, ooh, chaos disturbances, I need to go consume that chaos and rebalance the pools because of that's what arbitrage is. So this is why the tugboat that's like blasting its way through the waters of Ethereum because it's just a super inefficient ship. It like attracts every single MEV bot under the sun because it's creating imbalances in its wake. That's why you don't want to leave a wake because you attract MEV bots. And so all of these custom-built ships that we're making, when we make a transaction on Uniswap or Sushi Swap, we're just using, we're making like a one-time ship to get us

• 20:01David Hoffman?

  from point A to point B. And it's like super messy and heavy and laden and gas inefficient because we have to layer on all these MEV protection mechanisms or else we'll get eaten. And so this is what MEV bots do. They rebalance dislocated pools. And this is why there's this antagonistic relationship between on-chain DEX trades and MEV bots, because MEV bots abhor chaos. They want to absorb that chaos and turn it back into order and that order is an efficient market.

• 20:30Ryan Sean Adams?

  This is kind of cool. Going back to that example, if you have 2,000 USDC and you want one Ether for that. So say you broadcast your intent to this bot network that you're saying to buy one ETH on Optimism using 2,000 USDC. You start your offer at 2,010 USDC and ratchet the order increments downward to 2,000 USDC. With this, a million ships appear to inspect your offer, all in a standoff with each other. The order begins at 2,010 USDC, but that's ludicrous. ETH isn't worth a tenth of a penny, more than 2,003.75. Where? In some other market that's trading.

• 21:10David Hoffman?

  I'm just making these numbers in this scenario, yeah.

• 21:13Ryan Sean Adams?

  Of course. And this process goes down until some, you say, some bot finds the price point at which it wants to fulfill this order. And then suddenly, pop, out of the swarm, a single ship emerges, darts forward, grabs the payload, and stuffs it inside of it and zips off to the horizon to fulfill the job. What was the execution price? In these made up numbers examples, 2,004.31 cents. All the MEV bots update their price model for ETH, and now we have the market price of ETH. It's $2,004.31.

• 21:46David Hoffman?

  So I'm glad that this, like, little scenario that I made up made sense to you because I actually effed up and got the numbers wrong. It should actually go up, not down. And so I should have said, like, we start the price at $1,990, and then it increments upwards until a bot actually fulfills that. But like, the idea is that you actually get the idea. So like, here, the idea, this is the Dutch auction, this is the part that Uniswap X has brought to the intense landscape, is this idea of a Dutch auction. So what is a Dutch auction? It's like, you start selling something and you start really high, traditionally. So like, saying you're selling a widget for 10,000 units. And then you start incrementing

• 22:27David Hoffman?

  down, like, 10,000 units, 9,000 units, 8,000 units, until someone buys it. And the person that wants it the most, that is going to pay the highest price, is going to buy it first. And that's what the elegance of a Dutch auction. So this is what we're doing. This is what Uniswap X is doing with its off-chain signed orders. And so it creates an off-chain signed order that is also imbued with a Dutch auction in it. And so swappers want the best price. And using a Dutch auction, we can naturally find the MEV bot that is the best, most suited MEV bot for that one particular job. That is better than all the other MEV bots for that one particular job to fulfill your order at the best possible price. And the mechanism that allows for this is by not actually

• 23:12David Hoffman?

  hard coding and entering this on-chain, but allowing this to be just broadcasted across the landscape of MEV bots and saying, hey, I have this desire for this thing to happen. I will pay the minimum amount necessary according to the most efficient MEV bot that can execute this order to get this job done. And so you invert the relationship between MEV trying to eat you and MEV being a service provider for you.

• 23:36Ryan Sean Adams?

  You've got this analogy of like polytrades from Dune riding the sandworm here. And you say, instead of fighting MEV bot monsters, we ride them. It's basically what you're doing is you're using all of these sandworms essentially, and you're using them for your own purposes. When normally, they just want to kind of eat you and steal your lunch. Instead, you're kind of harnessing the power of these things to give you the best price on a trade? And that's all Uniswap X is, essentially. So what are the implications of this, David? Like, how does this change the landscape? It seems like now we can start to fulfill

• 24:15Ryan Sean Adams?

  these types of orders off-chain. Does that have an impact on, you know, how much liquidity is actually on-chain? Does that create kind of a stealth, non-Mempool-style transaction market? Like, is this good? Is it bad? What are the implications of scaling, right? How many transactions per second can this thing support? Have you given any thoughts to these things?

• 24:40David Hoffman?

  So yeah, there's a number of like second, third order consequences. I think the easiest one to understand is that you actually don't need to spend gas anymore. The gas cost of your transaction just comes as a spread. And so it's just part of the USDC that you pay to buy your Ether. You're just gonna get like a slightly less amount of Ether because the gas cost is a part of the calculus that the MEV bot does when they are looking at your order. But the point is, is like if you're just trading two tokens that aren't Ether, you will trade tokens and the Ether balance in your wallet will stay the same. Because you are not the one spending gas. The MEV monster is, the MEV bot is. Gas is spent, an equivalent amount.

• 25:25David Hoffman?

  Actually, this less gas will be spent per transaction because we don't have to load up all of those like hardcoded parameters to in order to get this done. And so the average swap on Ethereum is actually going to become more efficient because of this. And that's the first reason why the average swap on Ethereum will become more gas efficient. The second one is that part of the competition for MEV bots is to actually aggregate intents. And so say you intend to buy one Ether for 2,000 USDC and someone else is meant to intends to sell one Ether also for 2,000 USDC. In the current example of in the current meta,

• 26:10David Hoffman?

  you would have both buyer and seller line up at the Uniswap desk and they would each take their bucket and scoop liquidity out of the USDC pool and put it back into the Ether pool. And then the next person would come and they would take the same size bucket and they would take it out of the Ether pool and put it back into the USDC pool. Both cost gas, both got arbbed by MEV bots and both happened in two separate transactions that were both on-chain. If they were both intents instead of on-chain signed orders, an MEV bot would be able to match these two orders together and just like cancel each other out? And almost like no gas cost between the two of them because they can each they just can just pay each other. And so like all of the aggregation of intents can kind of like, you know, like remember

• 26:55David Hoffman?

  in algebra where you have like things above the line and below the line and you like cross off the variable above the line and below the line if they're equivalent variables, kind of like that. That's what, that's what you can do with intents because they haven't settled on chain yet. So in MEV bot can aggregate many, many, many different intents together and they can cancel a lot of the coincidence of wants between intents out before going on to Ethereum and settling up in one gigantic settlement that disturbs a bunch of liquidity pools. So instead of having 10,000 transactions disturb Ethereum's liquidity pool 10,000 times, an MEV bot can aggregate 10,000 intents, cancel out like

• 27:38David Hoffman?

  most of them, and then just disturb Ethereum's liquidity pools in aggregate of the 10,000 transactions, which would be like, I don't know, one, one hundredth the amount of disturbances across Ethereum's liquidity pools that would otherwise be the case. So that, all of that makes sense?

• 27:55Ryan Sean Adams?

  It does. Yeah. You say, you say this in your article, with intents, a lot of the complexities between cross-chain liquidity, chain swapping and bridge selection are all choices that will be made by the technical backend service providers, by essentially these MEV bots are making that choice. Am I reading that correctly? And all users have to do is hop on the ship and enjoy the ride. So this makes this multi-chain ecosystem a lot easier for, for users to navigate. This really shifts the role of like what I thought, what we thought collectively under the old paradigm bridges were for, right? Cause then like, you don't need bridges for as many things, do you? As long as you have kind of the trustless bridge between main net and a roll up, that's kind of the bridge you need to preserve. A

• 28:40Ryan Sean Adams?

  lot of the, you know, moving of assets from one chain to the other can happen in this MEV bot world, in these off-chain orders with these intent-based orders. Is that right?

• 28:52David Hoffman?

  Yeah, a hundred percent. So it really puts the synchronicity back into Ethereum. Where every single layer two is an asynchronous network, but the MEV bots work to make them all synchronous networks. Once again, they synchronize the state, the state of liquidity across all of these layer twos. And people, experts are, you know, work for margins in order to get that done. And so these are like this, this off-chain meta of off-chain MEV bots is like this other part of Ethereum. That's not actually the Ethereum protocol. It's not the estate of Ethereum. But it's the swarm, the swarm of MEV that makes sure that all of Ethereum's liquidity and state is synchronous across chains. Even if there's like a few block, block time delays between any individual chain.

• 29:38Ryan Sean Adams?

  Okay. So what does this paradigm shift, I guess in closing, really, really mean moving forward? I think there's more to unpack in this rabbit hole and we certainly haven't unpacked everything today. I think a lot of the, you know, the bankless episodes in the future will be sort of going deeper down this rabbit hole. Obviously, order-based exchange, like exchanges are going to trade, are going to change, right? So less on-chain sorts of orders and transactions, more off-chain. We've already talked about bridges. It seems like these off-chain orders aren't subject to the constraints of transactions per second on Ethereum main net or roll up either. So we have like, do we have like infinity transactions per second out there?

• 30:24Ryan Sean Adams?

  There's also a conversation about like centralization. Is this kind of a centralizing force? Is this sort of, are we losing the transparency of our on-chain markets? What do you think we have to unpack still in this intense-based conversation?

• 30:38David Hoffman?

  Yeah, the convergence of this, these players, these off-chain players is like the convergence between MEV experts and market makers. So like tech and capital, how those, how these landscapes converge is going to be interesting. How much we can actually squeeze into one of these things? So like I said, you could put like 10,000 intents together and then compress them down with efficiency and computation. Off-chain computation, AKA your CPU in some market maker MEV bot's house, office, wherever. Like, so like, yeah, you can, you can get a lot of scale out of this. One of the cool ways that tech scales, to use another metaphor. The original, if you look at the original Xbox games.

• 31:23David Hoffman?

  The graphics sucked. And then if you looked at the late-stage Xbox games, the graphics were like orders of magnitude better, but it was the same hardware. How did that happen? It's because the software got better. And so this is the software of Ethereum layer, improving what we can do with the hardware layer of Ethereum. And so we're scaling transactions per second, like in a pseudo way, in a roundabout way, that way, through intents, by allowing like a thousand intents to come together and represent the same size of like what would have ultimately been just like five or six normal swap transactions. So that's a whole other rabbit hole. It's like, what kind of scale do we get out of this thing? How layer twos relate to this? And how fast can the MEV swarm sync up a layer two to

• 32:08David Hoffman?

  a layer one? There's another vertical to explore. And I bet you there's so much more. It's a very large field.

• 32:15Ryan Sean Adams?

  It totally is. And I think there's a lot of investable opportunities that you could find here around sort of how the MEV supply chain, the block builder supply chain is going to completely change how all of these orders are going to be aggregated, what this means for the future of exchanges. If you actually want to go use intents today, I don't think Uniswap X is live.

• 32:37David Hoffman?

  It's not live by default. You can go and set it to live and you can make some trades on Uniswap X.

• 32:41Ryan Sean Adams?

  Ah, okay. And there's, of course, CowSwap as well. That's at swap.cow.fi. And it's basically when you put a transaction, when you put an intent in, that's actually the MEV bots that are fulfilling, that are filling that transaction. So you can see how it works that way. So a lot more on this in the future. David, is there anything else you'd end with? Or did we, did we cover it here?

• 33:04David Hoffman?

  There's, I'm sure there's going to be more articles that are continuations of this. And so stay tuned for that.

• 33:10Ryan Sean Adams?

  Hope you liked the episode. Bankless Nation, we've got some action items for you, including David's article, "A Hitchhiker's Guide to Riding the MEV Bot." There's also some episodes that we've done previously on Uniswap X, one with Dan Robinson that you absolutely have to go check out. We'll include those in the show notes. As always, gotta let you know, crypto is risky. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.