Eliminating MEV: Understanding Pyth Network's New Product Express Relay

Author: Deep Tide TechFlow

In the crypto world, a day is like a year in the human world.

This phrase not only reflects the rapid fluctuations in asset prices in the crypto world but also indicates the swift development of projects.

What new developments can occur in a project after just three days?

Previously, the top oracle project Pyth Network quietly launched a countdown page on its official website, accompanied by intriguing hint text:

"Reclaim control, DeFi is different."

On July 11, with the commencement of EthCC, Pyth Network unveiled the mystery of this countdown --- a brand new product, Express Relay, directly addressing the challenging and opaque MEV (Miner Extractable Value) issue in the crypto dark forest.

Thus, this "reclaimed control" actually points to the value that DeFi projects and users should rightfully possess but has been taken away by MEV.

If you are a crypto practitioner or trader, you can easily understand the rising costs brought about by MEV when building projects and trading;

However, why can a project focused on oracle solutions address the issues caused by MEV?

If Pyth's previous functions were more focused on the pre-DeFi business phase (the price feeding stage), then targeting MEV with its product may indicate that Pyth has expanded its service scope into the DeFi business (trading/clearing).

From improving the data sources for DeFi protocols to enhancing the operation of the business itself, how does Express Relay technically achieve this?

What are the odds of success for Pyth Network's seemingly "off-topic" business expansion?

In this issue, let's delve into Express Relay and seek answers to the above questions.

The Dark Forest from Which There Is No Escape: DeFi Projects Hunted by MEV

To understand Express Relay, we first need to look at the problems faced by today's DeFi projects.

One subtle yet objectively existing situation is:

In the crypto dark forest, DeFi projects are actually also a vulnerable group, constantly hunted by MEV.

In this hunting ground, both DeFi projects and users collectively pay a higher price.

Here, the author does not intend to provide a detailed explanation of MEV; instead, let's use a more relatable example from the clearing processes that frequently occur in DeFi business:

• Clearing Begins: DeFi protocols (such as lending platforms) trigger the collateral liquidation process when users are insolvent.
• Searchers Mobilize: Individuals (searchers) specifically looking for and executing liquidation operations begin to act. Their motivation to execute liquidations comes from the rewards provided by DeFi protocols. These rewards typically stem from protocol fees or direct liquidation incentives, encouraging searchers to perform these operations.
• Miners and MEV: Since miners (Miner/Validator) control the transaction ordering rights, searchers must pay higher tips to ensure their transactions are prioritized, allowing miners to extract greater value.
• Result: The MEV problem arises, with most of the rewards paid by DeFi protocols being taken by miners rather than searchers or protocol users.

This situation is somewhat akin to ordering takeout at a higher price. Even if the price of the food itself remains unchanged, the platform and delivery services take a cut, ultimately raising the price you pay.

For DeFi projects themselves, the issues brought about by MEV can lead to a situation of "overpaying" liquidation bonuses, which essentially means that liquidations become more expensive:

Due to the need to share the MEV pie, lending protocols must offer high rewards to attract searchers to ensure timely liquidations. High liquidation rewards mean that more funds are used to pay these fees rather than improving the efficiency and profitability of other aspects of the protocol.

Public data shows that Aave and Compound on Ethereum have historically liquidated nearly $2.5 billion in collateral, with the debt itself being $2.35 billion, meaning that $150 million has turned into rewards provided by these two projects for liquidators, most of which flowed to miners.

Compared to the typical order depth, a 4-5% liquidation bonus seems excessive.

When liquidation rewards are overpaid, these additional costs may ultimately be passed on to users through higher interest rates or other fees.

In addition to the high costs, another point that cannot be overlooked is that emerging DeFi protocols find it challenging to source reliable liquidators.

Liquidation is decentralized across various protocols; with different liquidation interfaces, each protocol lacks available liquidators.

As a result, many potential searchers may hesitate to become liquidators. This could lead to low protocol availability and low diversity among searchers.

Thus, for emerging DeFi protocols, establishing a reliable and cost-effective liquidation network is very time-consuming and expensive. Developers need to spend significant time and resources convincing searchers to integrate their protocols while also addressing the MEV issue.

In summary, in the dark forest environment where end users find it hard to perceive, we always lack a unified, open, and user-friendly industry standard in scenarios like the aforementioned liquidation processes or more DeFi business activities:

• To redirect the value flowing to miners (validators) due to MEV back to DeFi protocols, users, and searchers;
• To enable DeFi protocols to connect to a high-quality searcher network for reliable liquidation.

And this is the starting point for the launch of Pyth Express Relay.

Express Relay: Efficient Order Flow Auctions to Reclaim Leaked Value

Oracles are not just oracles.

Douro Labs, behind Pyth Network, has been experimenting with a solution to make the liquidation process in DeFi more cost-effective and to minimize the impact of MEV, based on its experience in developing low-latency data oracle protocols for blockchains.

This solution ultimately results in what we now see as Pyth Express Relay (hereinafter referred to as ER).

To quickly understand the effects that ER can achieve, it can be summarized in one sentence:

MEV is not unavoidable; everyone can be a winner.

If we break it down by different participant roles, we can directly provide a TL;DR version of the benefits of using ER:

• Protocols and users can better reclaim the value previously taken by miners/validators.
• Developers can deploy applications more quickly.
• Searchers can more easily participate in liquidations and other processes, benefiting themselves while also being altruistic.

Focusing on the implementation details of ER, its design concept is to isolate off-chain order flow auctions, separating a portion of transactions to reduce the MEV space for miners.

You can think of it as Express Relay directly connecting DeFi protocols to a self-established searcher network, allowing searchers to bid on transaction submission priority; the ordering of these transactions is determined in an independent auction not controlled by miners, thereby eliminating their ability to extract MEV value.

This is equivalent to having already undergone a round of filtering, sorting, optimization, and packaging before the transactions are submitted to miners for ordering; by the time the transactions reach miners, the value has already been clearly arranged.

By enabling DeFi protocols to auction the priority of these critical operations, Express Relay ensures that searchers can compete more actively for transaction value. A direct benefit is that DeFi protocols can spend funds more effectively on activities like setting liquidation rewards and pass these savings on to users and other stakeholders of the protocol.

If you're still unclear, the image above abstracts away all the technical details and illustrates the difference between using Express Relay and not using it in the most intuitive way:

The left side shows the traditional transaction workflow, where the value created by the protocol is leaked to block miners. In contrast, Express Relay eliminates the miners' ability to extract value from searchers scanning opportunities, allowing DeFi protocols to capture most of the value from searchers.

In simpler terms, the flow of transaction value is no longer directed towards miners.

We can further understand how Express Relay protects value through a practical workflow.

Relevant Roles

• Protocol: DeFi protocols submit transaction opportunities (Submit Opportunity) to the auction server. These opportunities may include potential arbitrage opportunities, liquidation opportunities, etc.
• Auction Server: The auction server receives transaction opportunities from the protocol and publicly shares these opportunities with searchers. Searchers bid (Bid) on these opportunities, submitting their offers. The auction server selects the highest bidder and submits the winning transaction back to the protocol (Submit winning transactions).
• Searchers: After receiving transaction opportunities from the auction server, searchers bid (Bid) on them. Successful bidders submit their transactions to the auction server, which then submits these transactions to the protocol.

Detailed Steps

• Submit Transaction Opportunities: When the protocol identifies certain transaction opportunities, it submits these opportunities to the auction server.
• Bidding Process: The auction server displays these transaction opportunities to all searchers. Searchers analyze these opportunities and submit their bidding prices.
• Selecting Winners: The auction server selects the highest bidder based on the bids from searchers. The winning searcher submits their transaction to the auction server.
• Submit Transaction: The auction server submits the winning transaction back to the protocol, which then packages these transactions and submits them to the blockchain network.

As we can see, this isolated off-chain priority auction design connects DeFi protocols directly with searchers through secure auctions, enhancing market efficiency in transactions. Express Relay ultimately strips miners/validators from the MEV supply chain and empowers protocols to manage their own transaction priorities, reclaiming control.

Ready to Use, No Need to Start from Scratch

It seems that Express Relay addresses the first problem we mentioned earlier: the high costs of liquidation for DeFi protocols.

Another issue is that emerging DeFi protocols find it difficult to source reliable liquidators; Express Relay's countermeasure is "ready to use."

For early-stage protocols, Express Relay provides an accelerated deployment solution: without Express Relay, developers need to build their own liquidation networks and persuade searchers to integrate with their protocols; with Express Relay, new protocols can seamlessly connect to an established top-tier searcher network to kickstart their liquidation needs.

Protocols don't even need to go through any paper contract signing processes; they can directly call the Pyth Express Relay contract and deploy it to quickly establish their own liquidation network.

At the same time, for searchers, Express Relay aggregates the liquidation and other valuable transaction opportunities of multiple DeFi protocols in one place. Searchers can compete for all these opportunities without having to write custom code for each protocol's interface. By lowering integration costs, Express Relay enables searchers to operate more efficiently, resolving the dilemma of sourcing liquidators.

You might ask, if this operation makes it more convenient for protocols, what happens if miners/validators can no longer obtain the MEV value they used to get?

If more and more DeFi protocols and searchers adopt Express Relay, this technology will gradually become the industry standard. As adoption increases, miners will have to adapt to this new transaction model, as most high-value transactions will be conducted through Express Relay or similar technologies.

Moreover, considering Pyth Network's characteristic of forming extensive partnerships in the oracle space, Express Relay can collaborate with multiple large DeFi protocols to form an alliance to jointly promote this technology, increasing its adoption and influence.

After all, who doesn't like a ready-to-use solution that also brings benefits?

Seemingly Off-Topic, Yet Actually Growing Stronger

Pyth Network, in everyone's impression, is still closely tied to oracles.

Thus, it's easy to question whether focusing on oracles and then venturing into MEV is a form of being off-topic. Can one juggle multiple roles effectively?

The reality is quite the opposite of the doubts.

The extensive partnerships mentioned earlier have already played a role in Express Relay. The existing oracle business has essentially laid out a network, creating a significant network effect that can be transferred on both the supply and demand sides.

From the supply side, take the searcher network built by Express Relay as an example; the top market makers that previously collaborated with Pyth have already confirmed their roles as searchers in the new product.

Official information shows that currently, seven market makers, including Wintermute, Flow Traders, Flowdesk, Auros, Caladan, Tokka Labs, and Swaap Finance, have quickly become searchers assisting DeFi protocols in liquidation operations.

This means that Pyth's Express Relay hardly needs to consider cold start issues, as several top MM naturally "bring capital into the group," becoming the vanguard of this newly established searcher network.

This is an unparalleled advantage for a new project engaging in MEV-related business.

Similarly, on the demand side, projects already served by the oracle business are mostly in the DeFi space, such as lending and Perps, which not only require data feeds but also need support from a liquidation network;

If both needs can be addressed by different products offered by the same Pyth, why not?

Thus, this is very much like traffic monetization in Web2, where once traffic is established, more business can be developed based on the user base; for Pyth, the previous oracle business has already accumulated a legitimate, broad, and closely-knit business foundation.

100+ data publishers, 500+ price feed data, 300+ integrated dApps, and 60 supported chains… The golden shovel effect clearly plays a role not only in the airdrop space but also facilitates business expansion and transition.

The Future of a Multi-Talented Star

In the entertainment industry, a common development path for artists is to excel in one area and then branch out into others.

From the perspective of Express Relay, when business capabilities are strong and different businesses are interconnected, Pyth Network is also evolving towards a multi-talented artist, addressing multiple behind-the-scenes issues that users find hard to perceive but are crucial for projects, from oracles to MEV.

When a project becomes a master orchestrator behind the scenes in the crypto world, providing DeFi protocols with more efficient and cost-effective services, the behind-the-scenes work gradually becomes streamlined, allowing the front-stage actors to perform better and providing the audience with a better experience.