Captain's log:
- Today’s integration with Skip Protocol helps Terra mainnet users preserve MEV
- MEV sharing is enabled by default on Astroport.fi – meaning your trades will automatically utilize Skip’s MEV solutions if (and only if) Skip can save you money
- In the coming months, Skip aims to open-source a backrunning bot for Astroport to the community, so that anyone can use it to compete in order flow auctions
- After fees, MEV profits from trades are split 50-50 between the user making the trade and ASTRO stakers
Miner extractable value (MEV) refers to the value that can be extracted by third parties when you transact on Terra (or any other public blockchain). Since all transactions are visible in the mempool before they’re finalized, validators and MEV-searchers can potentially reorder, front-run or backrun transactions to make money off your trades.
“Bad” MEV, like frontrunning and sandwiching, are almost impossible to perform on chains that Astroport runs on because Cosmos has First-In-First-Out mempool ordering, making it difficult for MEV bots to put their transactions before others.
However, benign or “good” MEV like arbitrage or backrunning happens both cross-chain and between pools on single chains (called cyclic arbitrage). For example, a bot might see that you’re placing a buy order for 1,000 LUNA from a LUNA-ASTRO pool.
Since that purchase will impact the price of LUNA and ASTRO, they could theoretically tack an arbitrage trade onto the end of your transaction with a backrunning trade – i.e. cheaply buying ASTRO from the LUNA-ASTRO pool after your trade and selling it for a profit in another pool.
Although these kinds of trades are important to balance prices, they are effectively lost profit opportunities for the users and LPs who create them in the first place. On Terra, this has amounted to tens of thousands of dollars in MEV extraction a year.
On a single chain, this is called cyclic arbitrage, and is effectively money leaking out of Astroport that could be recaptured for users and LPs.
Today, Astrochad fights back by integrating MEV sharing on the frontend at app.astroport.fi on Terra mainnet. The feature is powered by Skip Protocol, which has built out a robust MEV marketplace. Initially permissioned, the marketplace will allow MEV search bots to bid on transactions and – if successful – capture profits, which are shared back with the Astroport community.
MEV sharing on Astroport.fi
From a user perspective, little has changed. MEV sharing is enabled by default on Astroport.fi, and you’ll see it on the swap screen before you execute your trade. A green checkmark will appear whenever the marketplace identifies a MEV opportunity for your trade.
A red "x" means there is no MEV share opportunity available and a hyphen means there's no data available to explore MEV opportunities in advance of your trade. Please note that you need to specify a number of tokens to swap before the MEV indicator displays a checkmark or x.
Once your trade is submitted, it will be routed through Skip’s marketplace. If a MEV searching bot sees an opportunity to capture value on your trade, they may place a backrunning bid, which is attached to your trade order. The only way this backrunning transaction executes is if it will save you money on your trade – meaning you’ll receive more tokens than you otherwise might have.
The integration has safeguards that aim to make sure backruns will not result in a failed trade including requiring searchers to use their own liquidity. If there is no MEV opportunity - trades will still execute as normal.
By routing trades through Skip’s marketplace, your trades aren’t subject to purely extractive MEV searchers. Instead, they're routed through a marketplace where MEV searchers are willing to share their profits with Astroport users, ASTRO stakers (xASTRO holders), and in the future, Astroport LPs. These MEV-capture opportunities are only revealed to bidders who can then attach backrunning messages to your trade.
Unsigned transactions are shared with the Skip marketplace before they hit the mempool to ensure privacy. Since Skip bots get to see your transactions before anyone else, they can extract the value, which would otherwise be captured by third parties who are unwilling to share that value back with traders, xASTRO stakers, and other participants. In effect, they’re preemptively capturing value that would otherwise leak out of the system, and that makes it a win for everyone involved!
If you’d prefer to exclude your trades from the Skip marketplace, simply open the Settings popup on the swap screen and unselect the MEV capture option as shown below.
What’s next?
Skip-powered MEV sharing was integrated as a result of ARC-49, which was approved by the Astral Assembly. Skip’s MEV marketplace is currently permissioned. However, as part of the proposal, Skip contributors committed to make its MEV auction house progressively permissionless, meaning more searchers can participate in the backrunning auction.
Skip will take a 5% fee on all auctions. The remainder of MEV profits are split 50/50 between ASTRO stakers (xASTRO holders) and the user who submitted the transaction. In the future, Astroport LPs will also be included in the rewards. Note that this fee is only taken from profits that would otherwise go to MEV searchers.
Initial MEV searchers will be permissioned. However, Skip plans to open up the auction to more searchers by the end of August 2023. In the future, Skip will also explore more sophisticated order flow auction designs that allow for MEV recapture beyond simple backrunning.
Learn more about Skip’s MEV solutions at skip.money or in the Astroport proposal. Then, voyage to app.astroport.fi and select the Terra network to experience the magic of MEV sharing now.
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DISCLAIMER
Remember, Terra, Injective, Skip and Astroport are experimental technologies. This article does not constitute investment advice and is subject to and limited by the Astroport disclaimers, which you should review before interacting with the protocol.
