Applied MEV protection via Shutter’s threshold encryption

Welcome to today's deep dive into the complex world of blockchain and cryptocurrency. In this segment, we're unraveling the intricacies of Maximal Extractable Value, or MEV, and how it's shaping the blockchain experience for users. At the heart of blockchain technology lies the promise of transparency. However, this very feature has given rise to a phenomenon known as MEV, which allows certain actors to exploit the system by determining the order and inclusion of transactions within a block. MEV issues are prevalent across many blockchains, stemming from the public visibility of mempools—where transactions await confirmation. This transparency has inadvertently paved the way for block producers and others to engage in practices like frontrunning, where they capitalize on upcoming transactions. Ethereum, in particular, has been a hotspot for MEV, with an extraction rate that's equivalent to a staggering 11% of block rewards. In fact, data from September highlighted that nearly $300,000 was lost to sandwich attacks, illustrating that MEV isn't a trivial concern but a significant hidden cost that disproportionately impacts large trades, especially in volatile markets. To counteract MEV, various cryptographic solutions have been proposed, with threshold encryption emerging as a promising approach. This technique encrypts transactions before they join the mempool, keeping them hidden until the transaction order is finalized, effectively preventing MEV through sequence manipulation. Shutter Network has taken the lead with the first threshold-encryption protocol designed specifically to combat MEV. It's currently deployed on the Gnosis Chain mainnet, standing out as the only operational threshold-based solution. Threshold encryption distributes the decryption key among a committee, ensuring no single entity can unilaterally decrypt a transaction. This process involves a Distributed Key Generation to create both a public key for users to encrypt their transactions and private key shares for committee members. Once users submit their encrypted transactions, block proposers organize them into a block. After finalization, committee members reveal their decryption shares, which are then combined to decrypt the transactions for execution. Despite being an offchain service, the threshold committee is consensus-agnostic, meaning it can integrate with most blockchains without altering consensus rules. However, it's crucial to note that the committee in Shutter's system is permissioned and thus requires a degree of trust. Governance within Shutter selects committee members, known as Keypers. Shutter initially used per-epoch encryption, which grouped transactions under a single encryption key for efficiency. This approach, however, exposed transactions to MEV once the epoch key was revealed. To address this, Shutter's deployment on Gnosis Chain switched to per-transaction encryption, trading efficiency for increased privacy. Looking ahead, Shutter is exploring batched threshold encryption to balance efficiency and privacy. The team is also developing an encrypted mempool module for the OP Stack on an Optimism testnet, which ties transactions to specific blocks, enhancing security. Despite its innovative approach, Shutter isn't entirely trustless and faces challenges like high latency in its current deployment. The path toward a fully encrypted and trust-minimized mempool on Ethereum and other EVM chains is a work in progress, requiring collaboration across various ecosystem players. As we conclude, remember that every investment and trading move involves risk. It's imperative to conduct thorough research before making decisions. Follow Read2Earn for more in-depth crypto insights and to stay informed on the evolving landscape of blockchain technology. — Follow @Read2EarnXYZ for deep crypto insights, daily. 🚀 #crypto #Applied #Mev #Protection #Shutter’s #Threshold