RyanLion 🌖
RyanLion 🌖 3 minutes reading from Terra

BREAKING: Meets MEV on Terra

Let’s consider a practical application of MEV on Terra.

Let’s say that LUNA is trading at 2.70 on @astroport_fi and 2.50 on @terraswap_io

This creates an arbitrage opportunity to buy LUNA on Terraswap and sell on Astroport to lock in in instant profits… 👇🏻

Normally a retail investor won’t get the chance to perform this sort of arbitrage as searchers with bots constantly reading the mempool will front run any manual trade attempt.

At the point the opportunity presents itself bots will race to be the first to submit a transaction.

The first bot to submit the transaction will win the opportunity with several other bots returning failed transactions and wasting gas fees. Bots may also engage in spamming transactions to keep others out, wasting block space & slowing down the network.

Let’s say in our example that the opportunity offers 1K instant profits. In a situation where MEV is enabled, bots could use @SkipProtocols sealed bid process to pay a tip to validators to prioritise their transaction above others in the block.

What % of the potential profits would an arbitrageur pay to ensure they secure the transaction? Well over on ETH searchers have been willing to pay 90%+ of the potential profit in tips to validators to ensure they win the opportunity.

This means that instead of arbitrage profits going exclusively to a small number of wallets that have the skills and infrastructure to perform such arbitrages, the profits are instead shared with validators and stakers of the network.

In our example this would result in an additional 900 in staking revenue. However thinking on a larger scale, MEV has already generated in excess of 1Bn of revenue across other chains. Helping to make chains more sustainable, and reduce the need for emissions.

The added benefit is that as only the winning bid is forwarded to validators, we avoid scenarios where spam transactions clog up the network and searchers wasting gas trying to win the opportunity, if their bid fails they incur zero cost of participation.

The opportunities for arbitrage across Cosmos zones is only going to increase as we see an influx of AMMs & order book style trading platforms.

Seems bullish to me to try and generate revenue from these opportunities that is shared with all network participants.

This post is based on this twitter thread.

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