MEV, MEV-Boost, and MEV Rewards#

In the previous section, you learned about how node operators earn priority fees. Priority fees are a great boost to a node operator's income, but they aren't the only form of liquid reward available to you on the Execution layer. There is a supplemental form of rewards available, known as MEV rewards.

What is MEV#

When your validator creates a block, it usually does so with a very simple algorithm: keep track of a list of pending transactions, bundle as many as them into the block you're building as possible (prioritizing so the ones with the highest tips come first), and submit that block to the chain.

However, Ethereum network users have discovered an interesting side-effect of being able to see the publicly available pool of pending transactions (known as the mempool). Having this knowledge allows them to employ clever and sophisticated algorithms to modify the ordering of those transactions, and in some cases, introduce new transactions between them. These two techniques combined can be used to extract additional ETH from a block proposal.

This extra ETH is known as Maximal Extractable Value, or MEV for short.

In general, there are two "flavors" of MEV:

• MEV that comes from "benign" sources, such as being the first to arbitrage between exchanges after a large buy or sell
• MEV that comes at the cost of the Ethereum users, by front-running their transactions and profiting from the user's resulting slippage (see Sandwich Attacks for more information on this technique)

Block Builders and Relays#

Finding MEV opportunities is not an easy thing; state-of-the-art opportunity finders, known as searchers, require immensely powerful computers and employ complex AI algorithms to quickly identify and extract MEV. Searchers then take these opportunities and provide them to block builders - entities that aggregate these bundles of opportunities together to form a complete Ethereum block (which can be the searchers themselves or other parties).

The hardware and software requirements for running a profitable searcher prevent most node operators from using them (or at least using them competitively), and thus prevent them from finding their own MEV opportunities to capitalize on. Luckily, simply finding MEV opportunities is only half of the equation.

Every Epoch (6.4 minutes, or 32 slots), the Beacon Chain randomly selects a validator from the entire list of active validators to propose a block that will fit in one of the slots for in that Epoch. This list can be seen for the next upcoming Epoch, which means everyone can see which validators are assigned to each slot a few minutes in advance.

Some clever entities have leveraged this advance knowledge to essentially construct a kind of "marketplace" of sorts. In this marketplace, validators can register themselves when they have upcoming block proposals and block builders can submit bids for blocks they'd like the validators to propose. These bids always give the priority fees from each transaction in the block to the proposer, and they also offer a supplemental tip to the proposer that comes from the MEV the builder was able to extract for themselves.

The validators can then examine these bids, determine which one ultimately provides the most profit, and propose that block instead of building their own.

This "marketplace" where block builders interact with validators is known as a relay. Different relays have different rules (such as which of the aforementioned "flavors" of MEV they permit from block builders, and whether or not they comply with certain government sanction regulations), but ultimately they all serve this same marketplace function.

Rocket Pool currently offers its node operators access to multiple different relays:

If you're interested in exploring the relative market share and average tips per block from each of the relays, take a look at https://www.mevboost.org/. This site captures many metrics about the various MEV relays so you can better understand the popularity and returns of the relays.

MEV-Boost#

There are many relays out there, and having your node automatically register and maintain contact with each of them can be a burdensome task. Luckily, the engineers at Flashbots produced and maintain a program explicitly designed to handle this relay management known as MEV-Boost.

MEV-Boost is a simple program: you tell it which relays you want to use and tell your Consensus client how to reach it, and it takes care of all of the registration, bidding, blind signing, and proposal management in conjunction with your Consensus client. It lets you passively participate in this builder-proposer-marketplace, and thus earn extra rewards with zero effort on your part.

MEV-Boost is open source and has been audited.

Below is a good visual depiction of how the entire MEV ecosystem functions, and where MEV-Boost fits in:

Image courtesy of Flashbots

The Rocket Pool Smartnode comes with MEV-Boost directly bundled in by default, enabling our Docker Mode and Hybrid Mode node operators to seamlessly take advantage of it. Native Mode users will need to set it up manually.

Rocket Pool and MEV#

Because Rocket Pool validators are partially funded by the rETH stakers, the protocol requires that MEV rewards (as well as priority fees) be shared with the rETH stakers (minus the node operator's commission, of course). Node operators are not permitted to pocket the entire MEV reward for themselves when proposing with a Rocket Pool validator.

To that end, MEV-Boost is a critical component of the Rocket Pool network for several reasons:

• It provides easy access to the network of MEV relays
• It ensures that the node operator isn't building their own blocks; this is important to ensure that a node operator isn't running their own searcher and stealing MEV without sharing it with the rETH stakers
• It increases the overall returns for the rETH stakers, which keeps the protocol competitive with other, more centralized staking providers

The second point here is important: Rocket Pool as a protocol will ultimately rely on a Trusted Block Builder (or more accurately, a Trusted Relay) design to ensure that rETH stakers always receive their fair share of MEV rewards and priority fees.

Each of the relays listed above currently act in this role.

We are taking a three-phase approach towards transitioning to the Trusted Block Builder design:

Phase 1: Opt-In!#

In phase 1, MEV-Boost is provided to all node operators as an opt-in configuration. Node operators are encouraged to use it because it improves rETH's returns and thus keeps the protocol competitive, but are not required to use it. Node operators can elect to use one or more of the trusted relays listed above but cannot use a custom (untrusted) relay.

This phase ended in November 2022.

Phase 2: Opt-Out#

In phase 2, MEV-Boost is enabled by default for all node operators. Node operators can elect to use one or more of the trusted relays listed above but cannot use a custom (untrusted) relay. Node operators that choose to opt-out of MEV-boost must do so explicitly before starting the Smartnode.

This is the current phase.

Phase 3: Required#

In phase 3, MEV-Boost is no longer optional; it will be required for all node operators. Node operators must elect to use one or more of the trusted relays listed above but cannot use a custom (untrusted) relay.

There is currently no scheduled date for this phase.

Configuring MEV-Boost in the Smartnode#

To learn how to configure MEV-Boost, please select which mode you are using below.

Docker Mode

Hybrid Mode

Native Mode

Configuring MEV-Boost is easy with the Smartnode's configuration TUI. Start by running rocketpool service config and navigate to the MEV-Boost option:

Check the box labeled Enable MEV-Boost to enable it.

Once enabled, The screen will look like this (as of Smartnode v1.7.0):

Below is a description of each option and how to use them.

• The MEV-Boost Mode box lets you toggle between a MEV-Boost instance that Rocket Pool manages, and an external one that you manage on your own. This is meant for advanced users that already have MEV-Boost set up and simply want to use it instead of having Rocket Pool run a second copy. Regular Docker Mode users should just leave this set to Locally Managed.

• The Selection Mode box lets you switch between Profile Mode and Relay Mode.

• Profile Mode is the default. It lets you select which relays to enable based on their "profiles". A relay's profile is made of the following choices:

• Whether it's regulated (complies with government sanctions lists such as the OFAC list and blacklists certain addresses) or unregulated (does not censor any transactions based on any blacklists)

• Whether it allows all types of MEV or explicitly prohibits bundles that involve sandwich attacks or front-running Ethereum users

• You can select multiple profiles.

• Each profile you select has a set of relays that adhere to it which are listed in the description box; enabling that profile will enable all of those relays.

• Advanced users can change this to Relay Mode, which lets them explicitly select which relays they would like to use.

• The Port box is not important for Docker mode users.

• The Expose API Port box is not important for Docker mode users.

• The Container Tag box is useful to manually upgrade the version of MEV-Boost that the Smartnode runs if Flashbots releases a new high-priority version you want to use before a Smartnode update with it is released.

• The Additional Flags box is used if you want to add supplemental config flags or parameters directly to the MEV-Boost container. Normally, it will not be useful.

Once you've enabled MEV-Boost and enabled the relays you'd like, simply save and exit. The Smartnode will restart the relevant containers for you, and automatically set it all up for you.

See below for instructions on how to check that it's working as expected.

Checking MEV-Boost's Logs#

To check on MEV-Boost's logs, run the following command (for Docker Mode users and Hybrid users with a locally-managed container):

rocketpool service logs mev-boost

The output will show you which relays you've enabled, their connection status, and begin listening for traffic from your Beacon Node:

This indicates that it's running properly.

If you have validators already up and running, you will see messages like this every few minutes in the logs:

This indicates that your Beacon node was able to properly connect to it and register its validators, indicating that your node is now actively engaging with the MEV relays and is ready to receive blocks from block builders!

Next Steps#

Now that MEV-Boost has been set up, you're ready to create a new minipool and start validating on the Ethereum network! Read the next section to walk through this process.