The Solution to Oracle Extractable Value

Transcript

quintis is part of the flash Bots team and we can go deeper into how that works too um so that's the high level meev capture for Oracle updates um and we can talk about uh where that goes uh in the future too awesome so maybe to just sum up here and even zoom out and give listeners a little bit more context we're talking about attacking one of the major buckets of me that gets produced within the sort of ethereum Mev supply chain which is liquidations um and within our sort of solution here there four sort of stakeholders there's Uma there's chain link a and Flash Bots and I want to get into actually almost like the what this new supply chain that we're talking about ultimately looks

like but uh Hart quintis tun whoever wants to take this can you just give listeners who aren't as familiar with like what liquidation type me and how that actually works on a can you just describe what that entire bucket of me that gets generated is yeah should we do the um should we Quint should you do the one sentence or two sentence description of what me is anyways and whether we're going to call it Mev or me we should also answer that debate I'm a Mev guy I'm a m guy um a one- sentence description of what me is I feel like I'm going to have to use many commas and ands um what m is is um the most basic definition is it's value that a block producer right minor originally now like

validators indirectly can extract from sort of influencing the ordering or inclusion of exclusion of of transactions and in particular in this case it will be sort of the transaction which which uh follows an oracle update maybe specifically the liquidation stuff I think tun should should talk about but I can I guess can go into it as well maybe TR oh okay looked you looked Frozen uh thought he was thinking deeply about liquidations I thought he was just blown away by that definition that you gave quintis uh and just absorbing it but Quint maybe could you give us can you give us the like just kind of walk us through mechanically um how Meb is created on the sort of a liquidation

level yeah yeah so I mean generally what happens with a lot of D5 protocols is that there's some update which comes um you know the they rely on some information from the outside world like an oracle like a price feed for example know EC or some asset pair um and based on this they adjust some parameters for Lending protocols they say okay listen like we have you these um liquidation thresholds we have you know um this much collateral for a loan um and if the price moves below a certain threshold then suddenly the collateral is not enough to cover the loan anymore and it's going to become bad debt so automatically we make this this collateral um liquidable basically and

so anyone can come and and um it's different protocols do it differently but but basically if you you know give us if we lent out usdc for e collateral if you give us um enough usdc back you can take all this e collateral uh and usually they they sell this they let this happen at at a relative um discount so so the eat's going quite cheaply because they don't want to risk um sitting with bad debt and so the person who does this uh this trade and and supplies the um usdc and and takes off the eth makes quite a bit of money U because many people can do this it's permissionless um all that excess value ends up going to the valid as the different Liquidators bid uh to be the the the transaction that follows

the Oracle update and is able to extract this value yeah so do you want do you want to describe then I mean um what exactly oval does within this context and maybe just to hearken back for uh you know prior listeners of BCR we spent the entire season with Dan on the on the deck side talking about this idea of me apture which is going to be an idea that we refer to here within the context of how B Len protocols can recapture some of the me that's being directed to the proposer layer within ethereum but now maybe can you kind of like mechanically walk us through what oval actually is and how it sort of stands in the middle of a and um these chain link Oracle updates that are getting pushed

out yeah so to summarize like again what quintis was saying you have an oracle update come in um if it triggers a liquidation those liquidations are like juicy ARB trades and we can go into like what those look at look like before and this is where trun does have like a lot of expertise on Gauntlet where the thing that a and compound and those protocols care about first second third fourth the most important thing to them is when they need to sell collateral they sell the collateral otherwise everything breaks bad debt right um and so they need to sell the collateral cheap right uh they need to sell at a cheap price to make to absolutely make sure that

happens and currently those cheap prices that discount to whatever of kind of fair value is that's getting captured in this Mev supply chain and basically getting paid to validators so okay what um flash blots has shown us and what the ecosystem has shown us with these orderflow auctions um is we can use uh flash Bots Mev share infrastructure to run an auction um to for the right to use a transaction and what oval does essentially and says hey um when a chain link price update comes in a can't use it immediately no no Liquidator can use

that price immediately for the first three blocks so we're talking like 36 seconds here no Liquidator no Searcher can use this price for the first 36 seconds unless they go through Mev share so if you go through Mev share and we run an auction then you can use the price in those first 36 seconds if you don't go through meare don't go through oval um you can't use that price what this means is that the we are essentially auctioning off the first right to use a chain link price through the oval flash Bots Mev share infrastructure and that auction allows us to recapture all this Mev that these Protocols are losing we'll stop there yeah

that's really I mean TR and I'd love to get your and for for listeners who might be a little bit more used to hearing about this again from sort of the deck perspective this is almost similar to like the top of block auction that gets bid in sexto deex Arbitrage and the right to bid against an amm that would be sort of an analogy or framework that you might apply onto this specific situation but tun as someone who's been at you know one of the founders of Gauntlet and obviously very familiar from the the sort of a perspective you guys have done a lot of work with them can you just talk a little bit uh you know putting that back on like why this might be something that OB is super interested in yeah so I mean I guess there are a couple couple reasons so so

you know you're making initially you were talking about sort of this comparison to centralized decentralized Arbitrage you should think of that type of me as sort of the the the standard picking pennies in front of a steamroller type of thing where you're like every every block every second there's like some amount of me but it's small it's like a you know 0.1 basis point or something like that in Sandwich profits or me profits so like I put in a dollar I get a dollar .01 right it's like a very small profit these liquidation events are actually quite different they're more like lottery ticket high-risk style me so they're not very frequent they don't

exist on every block they exist on particular times um and when they happen it's usually quite a large uh incentive part of the reason for this is that um you know in the traditional Finance world if I have a loan that needs to get liquidated usually the Brank or the broker internalizes it so that means that they sort of hold the position and they slowly sell out of it so like let's say I have a bunch of Tesla stock I borrow a bunch of cash against it the Tesla stock goes down 20% now the bank margin calls me they slowly liquidate but that means the bank holds risk in most D5 protocols um although I think this is changing a little bit slowly

over time uh the protocols themselves especially the ones from 2019 and 2020 when there was no onchain liquidity can't hold positions you should basically think of them as like they can't hold negative positions like lossy positions which you know people call bad debt but it's sort of it's sort of a weird thing because it the debt is floating price so the price could go go back and suddenly it's good debt so the bad debt thing is is a pet peeve of mine of of uh crypto people not paying attention to what you know what the the thing is and instead giving it a meme name um and anyway so the idea is if you can't hold risk you need to fire sell as

as kind of Hart was saying so the question is like how do you choose how much of a discount you give and like how you know and and one way of thinking about it is like if I give a 1% discount um and there's sort of a you know let let I'm I'm making up numbers here but this is just for ill illustrative purposes let's say I I I'm willing to to sell you collateral at a 1% discount to the Oracle price and there is a you know 50% chance of there being a 90% drop in the asset and a or sorry a 50% chance of a 50% drop and then and a 1% chance of a 90% drop in the case where I have the 90% drop that 1% incentive won't be sufficiently

high because there's a lot of volatility in the asset there's likely not going to be much liquidity at that time um and so what you're really trading off is like probability of bad debt which is based on probability of a really taale event where there's no liquidity versus um you know being cheap like not not having the lenders lose much money on this liquidation and so in this vein you know there's a lot of different parameters you can tune in these protocols whether it's liquidation threshold so like do we start liquidating them early so that means sort of like uh you know if your health factor is not one if it's like 1.05 you start getting slowly liquidated to push you back up to 1.1 a lot of the

newer lending protocols a lot of lending protocols that have amm uh shares as collateral do things like this um and uh an interesting point another interesting point is like if I have a very lossy Oracle price then I actually can't make that I can't make those parameters as aggressive um in the sense that like I have to give a higher discount if I have to tolerate some volatility in the the Oracle price because like as I said earlier the discount is sort of tied to some notion of uncertainty over some time interval whether it's price uncertainty liquidity uncertainty things of those and the hope I think with you know an oracle

where the price that someone is conveying to pay to backround or front run theorical is that it should be giving you some signal about this extra protocol information like the liquidity information like if someone is not willing to pay much then that means there's not as much liquidity because they have a ton of costs to source that liquidity um and so the hope is that with this extra information you can you can kind of these protocols don't have to spend as much in the long run um remains to be seen because historically Oracle volatility relative to centr exchange is insanely High um and so may maybe maybe I'll stop there because that was like a long lot of stuff well TR I

love God I love the way you explain things um too but you're let me put some concrete numbers around some of what trun saying for the readers here too so um trun talked about like this concept of fire sale like you just have to make sure I'll use his favorite word bad debt you have to make sure bad get debt gets liquidated um so a right now uh sells uh their collateral at between a five and 10% discount to the chain link price um when it comes in so if a liquidation gets triggered by a chain link price they sell it at a discount it depends on the asset it's the parameters that you can tune but it's between five and 10% um and if you think about it like

that is it doesn't cost 10% to sell that collateral uh they're just inserting that threshold because they need to make sure it gets done so what oval's doing via running this like Mev share auction is we're inserting a market mechanism to actually price how much that discount should be per liquidation um and to put concrete numbers like a V2 and V3 uh have liquidated about 1.2 uh billion dollars of collateral um these are numbers our teams pulled um and of that $1.2 billion in collateral the average discount is like five six%

um it's been like 62 million dollars of discounts that A's paid uh to get that collateral um uh Liquidator that collateral sold and there's going to be some cost to selling that collateral but it's not 62 $2 million worth it's far smaller than that right um compound uh V2 and V3 it's about the same about a billion dollars of collateral has been liquidated um and they've paid about 71 million of discounts um by our calculations too and again that's just way more than they need to pay so the entire concept here is now we get more price information more signal by running this auction this competitive auction

that Searchers bidding for how much they want to buy this discounted collateral for we're able to recapture that Mev and redirect it back to the protocol okay that's that's really helpful basically just to like sum up and even just you know five-year-old type language from the a perspective there's an imperative to liquidate you know if we want to call it bad debt pricey whatever whatever we want to call it we don't want to be on the hook for this position and in theory you know the more volatile the the price of the asset is the more of uh you know the more uh Marg room for margin or margin of error you need to give yourself and you're kind of Flying Blind right you don't exactly know how to price that so you're

saying to arbitrageur or anyone who's going to come in and liquidate like hey I I kind of I don't really know how much it's going to be to incentivize you to come do this but I really don't want to take this risk so let's say 10% so with the addition of this uh swaave sort of auction we can just get more granular pricing information how should we think about this from the a perspective is this like what is the actual flow of funds look like is this reducing a cost for a is this an additional stream of revenue for a like what is the um how would you actually characterize this I guess it kind of Nets out to the same thing but how would you characterize this from the a perspective it it's sort of two things um and like I think I think one thing that's worth pointing

out as a technical note is it's not it's not immediately obvious that this will lead to you know like a huge discount in fact because there's sort of this weird tradeoff that occurs in these liquidation auctions where the average liquidation auction will have a lot of very good signal where people are basically bidding what they think the liquidity elsewhere is but the liquidation auction on very edge case scenarios so like when igov was almost defaulting on curve um when you know you know 2022 November 2022 style stuff stuff that happened when stake de uh was deviated from par note I didn't use the

word pegging despite the idiotic usage of the word pegging for something that shouldn't be pegged that doesn't have a natural Peg uh and there's there's kind of this uh thing where like in the worst case scenarios it may not actually improve pricing for liquidations but in the average case scenario it does improve pricing so there's kind of this trade-off of like in the worst case scenarios people are even afraid to bid high because because the centralized exchange they can't clear the other side on the centralized exchange or a de because there's not as much liquidity um so I would I would view this as as a way of reducing average costs so like the average liquidation that exists will

have generally have lower costs the worst case liquidations probably don't change as much and you should really be characterizing this as sort of this trade-off between how much does the protocol value bad debt at a certain size so like I have a million doll loan versus a hundred million loan you know the hundred million loans bad debt is worth x to the protocol and the 1 million is probably worth less than x over 100 right like because it's relative size relative to the total liquidity supplies is quite high so because of that you're you're sort of can view the savings as implicitly the market defining this trade-off curve for the protocol of like

how much it's valuing uh each loan and the discount on loan and it's you could think of the market as pricing this for the lenders because the lenders are passive generally right in these protocols they you said it and forget it you put your cash in and you hope that there's not too many liquidations but there's some sense in which what you're doing is trying to make the market do some active management for the lenders by doing for these passive lenders and that's why I'm saying on the average case it it does a good job in the worst case though it's not totally clear it the way I would simplify what tr's saying um though is uh what we are doing is delaying uh free access to the the chain link price

by three three slots by 36 seconds although there's still free access just through this auction mechanism and so the trade-off from the protocol is um uh you're you're really just capturing like this this free money you're having the market price price how much they value running this liquidation um and I agree with tun there's like edge cases where maybe it does actually cost a lot to liquidate that collateral like maybe it costs 7% of your 10% but you still are using a market and an auction mechanism to recapture the the the uh the excess or the remainder and I I got actually one analogy that I'm kind of curious if

both quintis and trun agree with here too um so I was thinking about this more and you know when you when you we kind of most of the people in the ecosystem now know that if you were to go into Unis Swap and try to sell uh a million dollars of eth um and you put in a a 7% slippage uh number in your Unis swap trade and didn't use any Mev protection most people know that you would like pay that PR you'd lose 7% you're G to get like sandwiched and lose and pay the worst possible possible price um and essentially I look at what and I'm curious if TR agrees with this but when a lot of these lending protocols

auction off collateral they're effectively doing that they're sending like a it's like a Unis swap Dex trade with a really really wide slippage window um and that hurts they get the worst possible execution um what flash Bots did with like flash Bots protect so flash Bots protect is like the consumer version of this Mev share um orderflow auction infrastructure and Flash blots protect lets users when they send uh their Unis swap Dex trades uh run an orderflow auction to recapture this Mev that they might lose and they're trying to like in this example I have with the unisab trade with 7% slippage flash Bots protect should run an auction to recapture most of that um what oval's

kind of doing here is doing the similar thing for Flash blots protect but for transactions that um originate from the protocol so here transactions that originate from a lending protocol and maybe we can talk in a second about how it could be extended to other use cases too but I'm curious what like quintis and drone think about this analogy of saying like Hey we're basically this like unprotected Dex trade on Unis Swap and uh if that if you agree with that like kind of that's what a and compound are doing and uh how oval sort of analogous to flash buts protect here yeah I think that that that makes a lot of sense we actually see this um a lot with people trading shitcoins where

they'll set a big slippage limit and sort of give us a technical definition of a shitcoin yeah just just look up my my you can see some examples but but um okay so so so the definition of a shitcoin just for for formality sake is any any coin quintus owns um you want to Brand your coin of shitcoin just send his enss a little bit of your supply I I guess I guess um yeah yeah that that's no no no don't do that um so I think I guess here the useful definition for shitcoin is

something that's high volatility um right so when people are trading these these um shitcoins often they'll set a high Sage limit because there's a lot of competition to access the I guess May specific form of high volatility but um they're trying to access a price that set at the top of the block or really they just they don't even need the top of the block price they just need to get in the block and because there's so much competition because you know the token is pumping or whatever um it's not clear how to get in the block and you could like directly pay a bribe to the to the miner um validator or block Builder however you want to think about it um but instead it's just easier for for you know uh speculators to

set the S Li High get sandwiched and then get included in the block and it's exactly this kind of trade you talking about where it's of like Risk versus a quality of execution so they're willing to take a worse price as long as this thing just gets done um which is you know the trade-off you were describing for for Lending protocol so I think that that captures it quite nicely I I think one tiny caveat I would give to this is that the you know I think there's there's a big differ between liquidations that are of low liquidity coins versus high liquidity coins um and in the high liquidity coins I think the You could argue that the slippage limit might as well be zero

because it will you know there's a sufficient liquidity and sufficiently many people sandwiching that it comes out to to net to zero but for the very low liquidity coins I think that's where you get the biggest benefit and that's because you effectively have to trade with a High slippage to even kind of fulfill those orders um but TR just on on that though just because the analogy here it's like if aan compound are selling collateral of mostly very high liquidity assets right but they're selling it with like high slippage limits that's they they are they are selling with high slippage limits but I I think again the problem is you're picking a a static cell rate for

something that depends on market conditions right and like arguably the point of the auction is to try to correct that um yeah you could think of sorry turn I feel like you can think of the auction as like a second Oracle right that that uh Imports some more Market information so you you get the yeah you get the chain link Oracle it's saying oh you know you should probably liquidate and then you're doing another check like okay but at what rate should I liquidate basically yeah quintis that's actually a pretty cool way of thinking about it it's like the chain link Oracle is what trigger your liquidation right um so that's saying yeah and like super robust liquidation needs to happen chain link it's not particularly granular like

those updates are relatively infrequent but they're like super secure right and then I I do like that uh the this oval auction is the second auction about like what what should we actually pay to liquidate this collateral yeah I mean one important thing and this is why I bring up this notion of the average case vers worst case is orderflow auctions in general are sort of like you can't really make them incentive compatible there's a lot of ways that like the biders can collude and if they collude then like you're not real the bids are not really reflecting the true market information um but but collusion sounds much worse right it sounds like there's this nefarious Discord Channel where everyone is like trying to [ __ ] each other um it's a

little less like that it's more oftentimes they're colluding indirectly the cost of of liquidity just went up so they're all lowering their bids because they went on binance and they can't sell anything um a ton of people got liquidated on binance so like now there's just like no no kind of resting ORD on the other side um so there's a a sense in which these types of mechanisms are good as a second Oracle when people are reporting close to truthfully what they what they see in the cases that they don't so like you know again when there's no could be then then it's sort of like it that there's sort of like the amount of information you're getting goes to zero and so this is this is why I think the correct way to think about

these things is they're really good at these average case behaviors and you have you know in these worst case behaviors though you you still need other mechanisms and I think a lot of this is where a lot of the Innovation and lending protocols lately has been happening is some protocols like compound V3 for instance will hold some of the position for a longer period of time um and then if you look at some of the the other lending protocols like the morphos of the world AA Etc they actually are willing to tolerate some amount of quote bad debt for some amount of time uh indirectly and they kind of do can kind of do this type of more passive thing where they wait and see

hey Will the Market correct before we immediately sell because one sort of problem for these protocols is the time that they are for selling even at a discount is also the time the market is going down so they they could cause this spiral effect right like they sell cause the price go down cause other liquidations happen right that that's like the worst case you know that's maker black Thursday type of thing right um but the uh I think the idea of this like holding positions longer piece I think in a lot of ways that is one of the things that you know in the new new lending protocols you're seeing a lot of like you know kind of interesting takes on

liquidation mechanisms that that do that where the protocol holds more risk and I think there's kind of this this two-pronged approach of things like improving the the true price dynamically by having Market participants convey it plus also having the protocols hold some risk on their own um is probably like the the future in long run so I wanna I want to sort of drill down here and and off the the sort of benefit from the a protocol perspective but also like the a users perspective and then um I want to kind of zoom out and and focus on this this uh trend of protocols recapturing the the meev that they generate so you know basically to sum up what I've heard from from all of

you is that I I really like also that analogy um quintis as oval is basically a second Oracle where you're allowing more basically you're facilitating more granular pricing of liquidations and that could be based on the volatility of the asset that could be based on the size of the position whatever that ultimately ends up being what I would guess is that that's ultimately that benefit to a from the perspective of not taking on risk but also basically quoting you know being less um uh being more forgiving in terms of liquidations for users I would guess from the perspective of a they don't want to be liquidating their users so if you have more granular access to pricing uh for their underlying loans I mean you could theoretically choose to liquidate

less right I mean is that accurate that's sort of the this idea of like the protocol holding more risk they would basically they they'd be willing to tolerate Health fact like suppose you know you got liquidated at you know Health Factor equals one Health factor is just sort of a ratio of the value of uh your collateral to your debt with some correction sometimes uh you know say you get liquid Health Factor one maybe the protocol instead says hey we'll hold your position but you can't with draw uh until Health Factor 0.9 if it goes below 0.9 we start selling if it's above if it stays below one and above 0.9 for a while we just liquidate you slowly until you go above one right

so we and that's what I mean by most the the new designs you see kind of try to do the soft liquidation piece which it boils down if you squint enough to the protocol holding risk right the protocol is holding a bad debt position but again just like pegging is a [ __ ] stupid Concept in for for a St for a liquid staking bad debt is also a bad concept because it makes it sound like oh you should never be holding risk well this [ __ ] thing is a trading strategy just like just like any D5 protocol it's a trading strategy with users and it's it's trading and it obviously has to have some risk so I I I think this is

all just come this all comes from some Hocus Pocus [ __ ] version of the world where everyone thinks like there are some God dictum laws like you know Ste has to be greater than ly always you're making me you're making me more likely to say bad that now I know that's the problem this I know I'm I know I'm the mid curve me okay like but I'm at least acknowledging Mike uh you're gonna have to do a whole episode on bad dead and tun that's a whole other thing but I think I'm going to push tun where to really agree is all of this more sophisticated mechanisms um that we're talking about they all

require like market-based information uh to to make those decisions like I I I I we could go deeper on some of these other designs but like how much of the bad debt the protocol should hold on to you're going to want to use like Market participants to understand like what the health ratio is and that sort of thing and so essentially you're going to end up running auctions the way I look at this you're always going to be end end up running auctions here and this goes a little bit to like you know what Dan Robinson and your last season you know is if there's any problem you kind of hit in crypto the right answer is just to add an auction that's how you uh you solve it so right now if I zoom out here and think about again the direction

we're going and then maybe we can tie this back into oval capture um or sorry Med capture generally um this is a another mechanism for a protocol originated transaction to run an orderflow auction um and that's that's sort of what oval's doing and I think it's the first step in a bunch of directions where we could be getting auction based information um back into defi protocols or others yeah so Hart totally agree with that but if I could just even go one like like the ultimate problem that auctions are trying to solve is a redistribution of Mev the the basic the idea is that there's kind of like ethereum as this neutral platform and apps get built on it and these apps

create a lot of Mev of extractable value and if you look at the way that the supply chain in ethereum is set up today you know if you tried to look at um who ultimately is maybe getting paid too much and extracting a disproportionate amount of that value I think what most people in that are close to that supply chain would say is ultimately it's the proposer right so from the perspective of someone like could be Unis swap could be a could be an nft trading platform whatever it is the creators of these inefficiencies that ultimately end up getting arbed out that you could make a really strong argument that that value should flow back either to the protocol or to the users who frankly been getting a pretty poor ux experience for a really

long time and so I I think that's why something like Mev share and swab is exciting because the auctions are the mechanism of redistributing that value away from proposers I don't know if you guys would agree with that underlying sentiment agreed I mean um I'm actually again curious what TR and quintes think but kind of my mental model for this is like you think of a lot of these protocols um they like create this like Mev exhaust it's like you use the protocol a user using the protocol in a natural way um is creating transactions that have some reorg or censorship or otherwise type value that we're calling Mev and using the more you use the protocol the more Mev is created

um and the the bigger picture model is like well okay if we can design mechanisms that actually recapture this like Mev exhaust um we can use it to improve the protocol and that could be like make make the fees cheaper for users um pay for costs like one of the goals for oval is to actually pay chain link for the cost of providing their Oracle service um uh or you can imagine like you use the oval rev in a to uh lower or um reimburse gas fees for using the a protocol we like made it better or you use it as a revenue Stream So a token holders earn the Mev from the protocol

and now we have like a cool business model um for how a is is gonna support itself um so yeah I think that's super interesting where we're using Mev to power as either a business model or to improve the product yeah I I I um I agree with that I think another way of of stating this uh coming back to what Mike was saying is that you know there actually is always an auction for these things it's just that the auctioneer is the Bator SL proposer you know um because they have the sort of Monopoly rights to you know do these liquidations and and um sandwich and I guess whatever Arbitrage whatever strategy you care about and what the sort of protocol IM V capture

um discussion and saying saying like hey let's let's build an auction or build some mechanism to redirect that value so it so the auctioneer doesn't end up being the proposer and this is like really interesting because I think there's a different school of thought which is said listen like there's no way we can escape the proposer as the auctioneer we can't escape all this value flowing to validators and not to the to the applications or to the users so we're going to build app chains and have th those be integrated right have the validat and the application sort of be the same kind of thing and having um application Level imv capture without having app chains is I think a yeah without yeah needing to launch a

new chain is a really strong response um from the sort of General chain um side of things and so if we can get more applications capturing the MV or you know doing these kinds of hybrid off protoc offchain onchain Solutions using them to capture M then the sort of chains like ethereum look a lot more appealing than than app chains you know one thing to expand on that um Quint like I was talking to Mike about this a little bit before um too but um you know it doesn't really make S using your app chain analogy it doesn't really make sense to make an app chain for your like your nft collection that seems like uh not really a good use of

an app chain um maybe I'm wrong there's other nft experts out there um but um uh it one natural extension of where like something like oval goes or what oval could do um would be to recapture a lot of the Mev uh lost in um nft collection drops like in an nft Mint or something like that um I'm not really an nft expert but I I do know that at least in V1 of like a lot of these drops there's like huge amount of gas like just gas getting wasted and Crazy Prices or whatever and you know you could instead be running oval auctions using like flash Bots me share infrastructure to recapture that and then the NF collection could decide what they want

to do with it um and so to your example like for this is a use case where an app chain doesn't really make sense but you can use all these similar Concepts to recapture the Mev that your application your use case is leaking and do useful things with it um which I think is cool so I've got a uh one question we haven't really focused as much on the The Flash Bots component of what this auction actually looks like but you know one uh question quintis that I've been trying to at least think about for a little while is like the value proposition here of like very general sort of order flow auctions like a swab versus more app

specific order flow auctions and you can sort of see Unis swap moving in that direction so I guess like are we just seeing two there could be sort of two different Market structures here where for someone like a like hey I'm leaking a whole bunch of Mev through my liquidations process it's not I'm not getting granular pricing sort of information I want to get that redirected back to my protocol so I'm just going to plug into Suave as opposed to Unis swap who is clearly said I'd like to build that internally myself so is there like could you expand a little bit on how you think about like app specific versus General orderflow auctions and then how that market structure eventually ends up shaking out yeah so I think there's like some small details which separate these kind of auctions at the moment does it happen in

one transaction or two um and these feel like sort of like more like implementation details and maybe they're like there some like trust assumptions which are you know specific to the applications we have now um but they don't it's something which I think in the long run isn't that important um what I think you know what separates something like me share from unisoft X like like you were saying is that unop X is basically like something for filling limit orders where is meare is um you know this General protocol for saying hey I have a a transaction I'm just going to create some State transition and you can sort of bid to to back around this this transaction um I think that that you know I think tun probably based on some

of his work before agrees that you know in the long run having different kinds of auctions for different use cases make sense um and some sense that's what oval is doing they're saying listen we we have a specific kind of um auction for for um you know blending protocols yes we're using this General Mev share platform but okay we're going to add some details in where after 36 seconds or after some you know parameter um that the protocol can choose the auction sort of terminates and if we you know didn't send the unlocked transaction that that people are trying to back run then everything goes back to normal the and the and the um the protocol is safe and

then you know the the bad debt can be liquidated um and so maybe just to connect this with the the whole flashboards Direction yes we're running M mshare now but I think we we also think that um there's going to be some need for differentiation of auctions and that's why we're building a general platform for defining these kinds of things so that different protocols or different use cases can go and say okay well you know I need an auction but it looks a little bit like this so it's a little bit different this in this way and um you can you know Fork some like some you know auction pattern that's that's already available and make the tweaks you want to make um and do this in a relatively trusters or whatever decentralized way quintis can I um interrupt you to like strong agree on

that um um so like Suave is something that's like out there right um and look there's like you need like a lot of podcast episodes do I think really understand sve but like my takeaway is it's going to be uh one of the things it can do is be a really useful um uh service to program auctions or platform to program auctions um and I very much do think of oval as uh a very focused type of auction for Oracle price updates um and I think that it can naturally expand to other types of uh uh of of protocol transactions types um uh and I

think it's a very cool like example Le of uh an example you can use today um and start integrating today for uh the types of specialized auctions that something like Suave might support in the future um and so I really like this as a natural progression where something like oval uses like Rock Solid trusted flash Bots and chain link infrastructure today to allow you to capture Mev and it can be a little bit of a preview to the types of specialized auctions that you're able to run on suave in the future um and so I think that's kind of cool um so I guess I'll instead of um giving a chorus of agreement I will give

the take the dialectic and also give the the ne the the negative case um so I think for Oracle auctions it makes a ton of sense um there's sort of a notion of like a bounded payoff that you can expect right you kind of know the absolute best payoff you can get so you sort of also know a lot about how people you know if I looked in hindsight at like are people cheating are they colluding it's actually very easy to attribute that they did that and so there's sort of a nice story that like hey I have this measuring stick that I can Benchmark people in the future to know if they're bad and I smack them by slashing them or something right the problem is for the most General possible value functions like

you know the most General possible payoffs when you have tons of uncertainty in the possibility of like what transfers are made what payments are made between different users then it becomes much harder then these kind of auctions kind of stop working as well and I think and to some extent that is sort of the reason you have the intent slun swap X Style part of the world because that is trying to fulfill something where instead of trying to find the optimal sort of payoff I'm willing to wait longer and by waiting longer it someone can find you know something that satisfies my desire to trade something reasonably well so I think there's kind of this Duality and for oracles it's just an amazing use

case because the thing you're bidding on is the thing that gives you the exact Benchmark to price things by right it's it is the price information so you you really can bound the best payoff and worst payoff um but there are examples and I think routing in amm sometimes has some properties like this where that that's much harder to do because people could remove liquidity in front of you people could and change effectively change the optimal route people can you know put trap tokens I mean I haven't heard so much about this in 2024 but 2022 there were just so many of these binance smart chain rug pool tokens where like basically they would like fill a liquidity pool with with a ton of this token so it look like a

really good route to take when you're trading tokens but then it turned out to have like a malicious transfer function and then you you know you transfer into a pool and then you can't transfer out and then the pool operator pulls all liquidity and that would be how they rug pulled you that's the type of stuff you have to worry about when dealing with much more complex payoffs versus an oracle I get the Benchmark I know the payoff I can I can tell you how the auction should work so I would make sure that you think about this in terms of this clear whe When you understand a payoff auction good when you have a lot uncertainty in the payoff auction bad and that's that's like my dumb you know left curve description of what I think the tradeoff

is that's a that's a good thing to keep in mind Hart maybe I know we we've got a close down here pretty soon so obviously you know oval is is extremely relevant for sort of borrow lend protocols like a today but can you give us a sense of who else this applies to maybe that would be slightly less obvious like could be nft platform something like that you mentioned um being able to recapture some of the me that leaks like during a mint or something like that but just trying to give a sense for folks who might be listening and working at these protocols like where else this might apply yeah so um I think there's kind of two directions to go here um first direction is anyone that uses like a chain link price feed um and then of that there's like L1 versus like L2

stuff so if you use a chain link price feed on L1 oval should consider using today and she come talk to us about the use case so the major use cases there are like the lending protocols like a and comp compound and all the other ones um but there are others so chain link price feeds that are leaking Mev information oval can capture on um ethereum mainnet today um I think uh capturing this type of uh Oracle Mev on l2s is very interesting that's like something we're actively researching um but I think that there's a lot of uh value in um per dexes where there is still this like latency

game this is like a a deeper research topic and I actually think TR I haven't talked to tr about this but I bet he has real thoughts um where uh the the trading prices of these per Dees and the actual real price on binance there is some latency or some Gap in there and that is a form of Mev or Arbitrage um that's getting lost and I think there's kind of really cool ways uh to think about how you could capture that so that's one direction that I think obal gets excited about how a um capture Mev from chain link price updates on l2s um and then the other direction like I mentioned before is not in the Oracle space um not in the price update space but rather are there other types of

protocol originated transactions uh that create a bunch of Nev and that if we were to run an auction around them we could capture that um and the ones that come to mind obviously here are like um like nft drops where there's some transaction that originates from uh a protocol that is leaking Mev I think there's probably a lot of others and that's where I'm really excited to kind of be open and live about this to uh to get uh crypto Twitter's thoughts of where else we could capture Mev from protocol originated transactions quintis I saw you smiling do you have like brilliant thought no I

don't have a I don't have a brilliant thought I I but I I feel like I can summarize very nicely what oval does so I'll just do it in a sentence which is think we've we've always known sorry har are you hiring for marketing yeah we are okay wait T's got me a job and some free [ __ ] coins today that's great um amazing Red Bull though yeah I I still waiting for the fridge Red Bull you [ __ ] you guys missed the pre-show to ruin Red Bull rant but but anyway I think so we've always on how to run these auctions what Uma has done really well

is come in with oval and said listen we want to do this in a minimally invasive way and we introduce like a trusted actor assumption but it really isn't that important because we have this window um in which you're trusting the actor which and after which we we fall back to the protocol acting as normal and the next like step or two that we should take is is taking this trusted actor role and decentralizing that and that's what I'm really excited about and once you've once you've done that you can pull these pretty cool trustless protocols that do um Mev capture for many applications on chain yeah um well said there quintis I heart I also like that um that question you have any brilliant thoughts that's uh I'm GNA start using that on these

podcast just put people on the spot uh raise the expectations um but uh We've go a we've got a wrap wrap it up here so Hart if there are devs or founders of protocols that are listening to this and think hey this might be relevant for me and what's the best way to get in touch with you or Folks at the team yeah I mean um first of all our doc site we actually put a lot of effort in our doc site explaining the mechanisms here um too so if you're like if you're like quintis tun wanabe nerd like go check out the doc site it's doc. oval. XYZ um but if you are a protocol looking to integrate us uh go to uh oval. XYZ and we have like a contact us type form and we're going

to be super responsive because we're really excited to hear uh about people's thoughts here and want to help you guys integrate this um the whole thing is like open source and permission list and all that good stuff um so you know you can go play yourself um but uh we want to we want to help people out and handhold them through some of these first Integrations because uh that's that's the way to do it um and yeah and then follow me on Twitter and DM me and stuff like that awesome I'm GNA end with one last comment which is I think oval V2 thing should be uh selling Futures future auction rights or F options on future rights so like I get to participate in

the next auction at at least this price and here's how TR nerd Snipes people let's do it uh I think that's a good idea second that idea I I as long as we're still using the egg as the um as the meme for this then I'm un no no no now when you're buying the Futures you're buying the carton carton of EGS man the memes WR themselves did you buy the chicken that seems that seems a slightly cooler thei chicken before the age man the chicken Finance man I don't know good you bu I didn't know it went this deep guys seems like it seems like we should have ended the episode a minute

ago I was going to say we went like one too far I think let's just end while we're ah heading guys this has been a ton of fun congrats hearts on oval tyin