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Equilibrium’s Infra Bulletin #3: MEV Protection in DAGs, Privacy of Shielded Sets, and Proto-danksharding
Equilibrium Labs builds the state-of-the-art of decentralised infrastructure. We are a global team of ~35 people who tackle challenges around security, privacy and scaling.
This newsletter allows us to share more about what we read, what excites us and what we think is relevant to the space. In addition, you will get a glimpse into the organisation and our culture.
Research, Articles and Industry News:
While not all MEV is bad and removing arbitrage leads to more efficient markets, it also introduces some negative externalities like network & chain congestion. A promising way of preventing MEV is Blind Order-Fairness - a commit-reveal scheme that extends the BFT consensus core so that no validator can see the content of transactions until they are committed to a total ordering.
Directed Acyclic Graphs (DAGs), on the other hand, focus on scaling the BFT consensus of blockchains via a DAG communication substrate. One of their key benefits is "zero-overhead" consensus ordering. This means validators can interpret their DAG locally without exchanging more messages and determine a total ordering of accumulated transactions.
The paper combines the two concepts by introducing a DAG-based protocol called Fino. It integrates MEV-resistance features into DAG-based BFT without delaying the steady spreading of transactions by the DAG transport and still achieves zero message overhead (a hallmark of the DAG-riding approach).
Key Takeaway: Fino combines two active areas of research - MEV resistance and DAGs - into a single protocol. While Fino is a prototype, its MEV protection could possibly be incorporated into other DAG-based solutions, such as Narwhal-Bullshark.
Most blockchains are transparent by design and reveal a lot of user data, but even privacy chains are less private than they might seem at first glance. By using techniques like the Danaan-gift attack, on-chain analysts can create “digital fingerprints” that help link transparent addresses going in and out of shielded pools like on Zcash or Aztec’s ZK Money. Most of the data is leaked whenever a transparent address is involved, and the least data is leaked when interactions remain within the shielded set.
The privacy of a shielded set is affected by the number of users (the bigger, the better) and the number of transactions within it (more transactions, lower survivability of fingerprints). Sometimes there is no option than to unshield, however, such as when moving from one shielded set to an upgraded one.
Siloed systems are more private due to smaller attack surfaces, but also quite limiting in terms of what applications can be built. While the general direction of blockchain development is towards interoperability, interoperability protocols (bridges etc.) are generally really bad for privacy. Cross-chain transactions are pseudonymous as bridging requires users to unshield. This is true even when bridging between two shielded sets as seen below (for now at least).
Key takeaway: Most of the data is leaked whenever a transparent address is involved. In order to maximise privacy for individual transactions, we should aim to grow the shielded set infinitely and incentivise transacting within the shielded set (for example by having privacy as the default option, like in Aleo). In addition, simple tricks like randomizing values, times and fees can make linking of transactions more challenging.
Proto-danksharding (PDS) is an Ethereum proposal (EIP 4844) that aims to improve the data and storage requirements for rollups. Currently, transactions are stored as CALLDATA on Ethereum, which is costly (up to 90% of rollup fees). PDS introduces a new transaction type called blobs that creates dedicated storage space for rollup data. Blobs can be attached to Ethereum blocks without impacting/crowding out existing blockspace for processing regular transactions.
The main benefits of PDS are increased storage space (128kb per blob, so a total of 512kb or 768kb depending on whether core developers settle on 4 or 6 blobs per block) and the creation of a separate fee market for pricing blobs (separate from regular transactions, which should make rollup fees more stable). In addition, Blob transactions will be stored on the consensus layer (CL) of Ethereum for ~3 weeks rather than indefinitely on Ethereum.
Key Takeaway: PDS does not scale the Ethereum base layer, but instead supports Ethereum’s transition to a rollup-centric future. The introduction of blobs should make it cheaper for rollups to post transaction data on Ethereum and also sets the stage for full Danksharding (increasing the number of blobs to 64 per block and introducing new features such as data-availability sampling). While PDS has been discussed for some time already and is part of the Cancun upgrade (expected for Q4 2023), we felt this explainer was better than most and worth highlighting.
Personal recommendations from our team:
📚Reading: A Daytime Nap Is Good For The Brain: New research seems to indicate that daytime naps can prevent ageing. While we are no experts on nap science and can’t comment on the accuracy of the study, the internal consensus is that short afternoon naps significantly boost productivity! What’s your take on naps - yay or nay?
🎧Listening: The Brain Dance - Animals As Leaders: Trying to keep up with the rhythm sure does make your brain dance 😵💫
💡Other: The golden days of arbitrage seem to be long gone (Below referring to this)
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