Unity is Strength: A Formalization of Cross-Domain Maximal Extractable\n Value

Abstract

The multi-chain future is upon us. Modular architectures are coming to\nmaturity across the ecosystem to scale bandwidth and throughput of\ncryptocurrency. One example of such is the Ethereum modular architecture, with\nits beacon chain, its execution chain, its Layer 2s, and soon its shards. These\ncan all be thought as separate blockchains, heavily inter-connected with one\nanother, and together forming an ecosystem. In this work, we call each of these\ninterconnected blockchains "domains", and study the manifestation of Maximal\nExtractable Value (MEV, a generalization of "Miner Extractable Value") across\nthem. In other words, we investigate whether there exists extractable value\nthat depends on the ordering of transactions in two or more domains jointly. We\nfirst recall the definitions of Extractable and Maximal Extractable Value,\nbefore introducing a definition of Cross-Domain Maximal Extractable Value. We\nfind that Cross-Domain MEV can be used to measure the incentive for transaction\nsequencers in different domains to collude with one another, and study the\nscenarios in which there exists such an incentive. We end the work with a list\nof negative externalities that might arise from cross-domain MEV extraction and\nlay out several open questions. We note that the formalism in this work is a\nwork in progress, and we hope that it can serve as the basis for formal\nanalysis tools in the style of those presented in Clockwork Finance, as well as\nfor discussion on how to mitigate the upcoming negative externalities of\nsubstantial cross-domain MEV.\n