The Money in Ethereum's Middleware: Can Flashbots Still Call Itself a 'Public Good'?

Should a “public good” have a $1 billion valuation?

AccessTimeIconJan 25, 2023 at 12:30 p.m. UTC
Updated Apr 25, 2023 at 7:26 p.m. UTC

Ethereum research and development firm Flashbots pitched its MEV-Boost middleware as a “public good,” and the software is now used by a majority of the validators that run the network. But recently revealed fundraising plans have opened Flashbots to criticism that it may have exploited community goodwill in order to make a profit.

“Middleware” services are built on top of (rather than into) Ethereum’s core protocol, offering essential tools for app builders and the validators that run the network. Although validators and developers aren’t required to use any middleware programs, some, like Flashbots’ MEV-Boost, have become so ubiquitous that they may as well be built into the core protocol.

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Hasu, who leads strategy at Flashbots, has at times referred to its MEV-Boost middleware as a “public good,” a term used to designate infrastructure that is built to benefit the wider community. But earlier this month, The Block reported that Flashbots is looking to raise $50 million at a $1 billion valuation. The round is being led by Paradigm, a venture firm where Hasu works as a researcher.

Flashbots’ high valuation isn’t all that surprising: More than 90% of the blocks that are written to Ethereum’s network are pre-assembled by MEV-Boost’s marketplace of third-party “builders.” Validators source blocks from MEV-Boost – rather than build blocks themselves – because MEV-Boost kicks back extra profit called maximal extractable value (MEV).

“MEV is more or less a tax from unsophisticated traders to sophisticated ones, whereby users with high levels of technical know-how extract value from users who are less informed,” Darius Tabatabai, CEO at Vertex Protocol, explained in an email to CoinDesk.

Flashbots was supposed to reduce the negative impact of MEV by making it accessible to virtually any validator, and it has largely succeeded in its goal. But Flashbots has also introduced problems as a result of its massive growth.

Some people believe Flashbots’ approach to solving MEV has only worsened the problem, turning MEV into a multibillion-dollar cottage industry when it should instead be engineered out of existence. Others say that Flashbots’ dominant market position has helped to facilitate increased censorship on the network, centralizing Ethereum’s block-production apparatus and making it easier for governments to stop certain types of transactions.

Though it has faced criticism throughout its existence, Flashbots owes much of its growth to its community-centric marketing. It is unclear whether MEV-Boost would have been adopted so readily by the Ethereum community if it had pitched itself as a normal startup from the beginning.

Flashbots has been mindful of community criticism. "Even Flashbots knows it has a lot of responsibility in their hands and has recognized that it needs to move further into the Ethereum-native system and distribute that authority more evenly," Or Dadosh, CEO of the crypto security service Ironblocks, told CoinDesk.

But with its reported fundraising efforts, the Flashbots-as-a-public-good pitch is beginning to feel disingenuous.

“While they set out to ‘mitigate’ [harmful MEV strategies] by recycling value to validators, etc., I just don’t think it addresses the core issue – that raising money for such an activity feels kind of questionable by relation,” explained Tabatabai.


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Sam Kessler

Sam is CoinDesk's deputy managing editor for tech and protocols. He reports on decentralized technology, infrastructure and governance. He owns ETH and BTC.