How To Use Flashbots And Why To Use It?
Flashbots is a research and development organization aimed at making the Maximum Extractable Value (MEV) market more efficient, distributed, and democratic. Not familiar with MEV? Check out our guide to learn what MEV is.
Front-running tactics on the Ethereum network will likely always exist. Flashbots is working to channel that behavior and minimize the negative externalities of MEV.
Flashbots operates as a for-profit entity headquartered in the Cayman Islands and was co-founded by Stephane Gosselin and Phil Daian in 2020. That same year (according to Crunchbase), the company received seed funding from Paradigm, a crypto venture capital firm.
In January 2023, it was widely reported that Flashbots was aiming to raise $30 to $50 million at a ~$1 billion valuation. No official funding announcements have been made to date.
How To Use Flashbots
Ethereum users can use Flashbots by adding support for the Flashbots Protect RPC in their wallet interface. The detailed steps for how to do this are outlined later in this below.
Ethereum validators can outsource block building by running the Flashbots MEV-Boost validator software. Steps for how to install the software and configure it can be found here.
For infrastructure providers, resources for how to become a Flashbots block builder can be found here. And resources for how to operate a Flashbots relay can be found here.
How To Set Up Flashbots Protect?
For those familiar with the MetaMask wallet browser extension, enabling Flashbots Protect is simple.
You’ll need to open the browser extension, choose “Ethereum Mainnet” as the network, and click on “Add Network” at the bottom of the dropdown …
… this will redirect you to a browser window where you select “add a network manually” at the bottom …
… when prompted, input the following information to add the Flashbots RPC:
- Name: User can choose whatever name they prefer
- RPC URL: https://rpc.flashbots.net
- Chain ID: 1
- Symbol: ETH
… click save, and voila – you can now submit Ethereum transactions with the peace of mind that trades will not be front-run and fees will only be paid if transactions go through.
What Products Does Flashbots Offer?
Flashbots offers 4 products to Ethereum users, infrastructure providers (i.e., validators and block builders), and community members.
- Flashbots Protect (Ethereum users) is a remote procedure call (RPC) endpoint that any Ethereum user can use to prevent their trades from being front-run by MEV bots (like jaredfromsubway.eth). It also prevents users from paying transaction fees for failed transactions.
- Flashbots Auction (Ethereum infra providers) is a marketplace for optimal transaction ordering. It allows validators to outsource the work of block construction to a network of third-party block builders that maximize block profitability.
- MEV-Boost (Ethereum infra providers) is open-source middleware built by Flashbots and run by Ethereum validators. Validators running MEV-Boost essentially sell their blockspace in the open market to increase their staking yields by sourcing blocks assembled via the Flashbots Auction process.
- Flashbots Data (Ethereum community) is a suite of tools and dashboards aimed at providing transparent insight into Flashbots Auctions and, more broadly, MEV activity on Ethereum.
Flashbots Auction
The Flashbots Auction architecture aims to employ three separate entities: searchers, builders, and relayers to construct blocks.
- Searchers and builders assemble blocks such that the transactions included in blocks and their ordering maximize profitability. As of May 2023, ~9 different entities were serving as builders on Flashbots.
- Relayers pass along these blocks to validators who propose them to be appended to the Ethereum Mainnet blockchain. As of May 2023, ~10 different entities were serving as MEV-Boost relays.
Historically, Flashbots has been the dominant relay – thus wielding significant influence over block construction and representing a centralization chokepoint. But since the company open sourced its relay software in November 2022, the relay market has become more competitive. There are now ~10 different entities which are serving as relays.
MEV-Boost
Mev-Boost is open source software that connects Ethereum validators to this distributed base of relays. It is “middleware” in the sense that it allows validators to source the most profitable blocks assembled via the Flashbots auction process thus bolstering their revenue (i.e., staking yield).
Since being launched on proof-of-stake Ethereum in September 2022, MEV-Boost has seen widespread adoption. As of May 2023, ~90% of all Ethereum blocks were proposed by validators that were running MEV-Boost.
Given that ~$350M worth of MEV has been generated on Ethereum since “The Merge,” that is not too surprising. Not running MEV-Boost is like leaving money on the table if you are a validator.
Flashbots Data
In an effort to provide transparency on how much MEV is being generated on Ethereum, who is generating it, and how decentralized the MEV landscape is, Flashbots provides tooling (e.g., APIs and dashboards) which is freely accessible to the Ethereum community.
Frequently Asked Questions
MEV refers to the incremental revenue that blockchain validators can earn by including, excluding, or changing the order of transactions before blocks are finalized. Similar to transaction fees, MEV is a cost borne by users (even if they are unaware of it) that use public blockchains. Some refer to it as an “invisible tax.”
Top examples of MEV sources include sandwich attacks, DEX arbitrage, and liquidation attacks:
- Sandwich Attacks: A mempool observer spots a large buy order for one asset, places an order ahead of that large buy order, and then sells the asset after the large buy order has pushed up the market price of the asset.
- DEX Arbitrage: Buying an asset at a low price on one decentralized exchange and selling it atomically (i.e., within the same transaction) at a higher price on another decentralized exchange.
- Liquidations: Transactions whereby observers intentionally try to manipulate or change the price of an asset such that a user sees their leveraged position liquidated and benefits by reaping the transaction fees.
Setting up the Flashbots Protect RPC will protect users from some of the negative externalities associated with MEV. Users can submit transactions through the Flashbots RPC by following the steps outlined above in this article.
Flashbots is currently only live on Ethereum.
Flashbots refers to a suite of software products that allow Ethereum users and infrastructure providers to capture and mitigate MEV. Infrastructure providers that run Flashbots software ensure that Ethereum transactions are ordered in such a way that their profitability is maximized.
Following Ethereum’s merge to proof-of-stake (PoS) in September 2022, Flashbots is used by PoS validators rather than proof-of-work (PoW) miners. The percentage of validators using Flashbots MEV-Boost can be found here.
Flashbots RPC refers to the Flashbots Protect remote procedure call (RPC) endpoint. It allows users to submit their transactions to the Flashbots protocol for inclusion in blocks rather than the Ethereum Mainnet mempool.
The percentage of Ethereum blocks sourced via Flashbots MEV-Boost relays can be found here.
