Flashbots

Flashbots was launched as an independent research and development organization with an aim to lessen the adverse effects of the Maximal Extractable Value (MEV) extraction.


What Is Flashbots?

Flashbots was launched as an independent research and development organization with an aim to lessen the adverse effects of the Maximal Extractable Value (MEV) extraction. At the same time, the organization works to avoid the existential risk MEV poses to a stateful blockchain such as Ethereum.

Flashbots aims to provide a platform for MEV transactions that is fair, transparent and permissionless. Flashbots comes with three main goals:

  • Making the MEV revenue public

  • Making the MEV activity transparent

  • Making the distribution of MEV revenue fair

MEV Crisis

The Maximal Extractable Value is the maximum value extracted from block production in Ethereum. MEV benefits not only the transactors but also the miners (or validators). With the recent increase in the usage of Ethereum, the MEV system’s mechanism issues have posed threats to network security. The increase in demand for DeFi caused Ethereum to be congested. 
As a result, Ethereum introduced an independent centralized R&D organization, FlashBots, which takes the MEV transactions off the main public chain. Flashbots keep transactions private and increase network security. They connect mining pools and searchers directly with each other while keeping information secure, making them perfect for DeFi.

How Flashbots Work?

Searchers look through the whole network for MEV opportunities. As they come across one, they launch the transaction protocol for that opportunity and upload this to the Flashbot server instead of broadcasting it to the whole Ethereum chain. 

Then the Flashbots server comes into play. The bot transfers the transaction details to network miners, and a private auction takes place where miners bid on the transaction to build a block on it. Miners are also allowed to include non-MEV transactions from the public network to these blocks.

Drawbacks

Flashbots is working to make the MEV public to execute its core goal of making the blockchain network transparent and permissionless. But the mechanism is not entirely transparent. The process of generating MEV is still a black box for users.

Furthermore, Flashbots is not the only solution to the MEV crisis. Several other networks have also launched their programs for the solution.