Season 4 | Episode 5

Join us on Bell Curve as we delve into the world of MEV Searchers with guests Dean Eigenman and Anish Agnihotri. We start with an introduction to the role of Searchers, today's Searcher landscape and the Searcher business model. Dean and Anish then explain how Searchers find MEV opportunities, the relationship between Searchers and Builders, atomic vs non-atomic trades, the role of latency and more. This is your chance for an inside look into the business model of an MEV Searcher!
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Timestamps:
(00:00) Intro: Pre-Interview
(02:36) Interview Start: Guest Backgrounds
(07:31) The MEV Searcher Landscape
(12:43) MEV Strategies Across Execution Environments
(23:55) Searcher Competition
(27:03) “Rook Ad”
(28:56) Searcher Competition
(35:29) The Relationship Between Searchers and Builders
(41:10) Searcher Capital Requirements
(43:11) Atomic vs Non-Atomic Trades
(51:29) Traditional HFT and How to Win at MEV
(55:40) The Role of Latency
(59:30) Centralization Concerns
(1:02:05) Minimizing MEV vs Maximal Extraction
(1:05:27) Qualities of a Great Searcher
(1:12:45) Recap: Post-Interview
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Follow Anish: https://twitter.com/_anishagnihotri
Follow Dean: https://twitter.com/deaneigenmann
Follow Hasu: https://twitter.com/hasufl
Follow Mike: https://twitter.com/MikeIppolito_

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This episode is brought to you by Rook. Close to a billion dollars has already been taken out of users’ pockets through MEV. Rook built a solution that automatically drives this value back to where it belongs: with the users and applications that create it.

If you use on-chain products, tell your wallet, favorite app and go-to node provider to use Rook; if you're a developer, message us today to find out how to integrate Rook with your product. Follow Rook on Twitter and them a message at https://twitter.com/Rook.
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Resources:
Interview With a Searcher (Hasu, Uncommon Core)
https://spoti.fi/43Bueyk

End Game by Vitalik
https://vitalik.ca/general/2021/12/06/endgame.html

Dialectic
https://dialectic.ch/
https://twitter.com/Dialectic_Group

Project Blanc
https://github.com/project-blanc
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Disclaimer: Nothing said on Bell Curve is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only, and any views expressed by anyone on the show are solely our opinions, not financial advice. Mike, Jason, Michael, Vance and our guests may hold positions in the companies, funds, or projects discussed.

All right, everyone, welcome back to another episode of bell curve.

Before we jump in quick disclaimer, the views expressed by my co-hosts today are their personal views, and they do not represent the views of any organization with which the co-hosts are associated with nothing in the episode is construed or relied upon as financial, technical, tax, legal, or other advice.

Before we get into it today, just want to give a quick shout out to this season's sponsor, Rook.

Close to a billion dollars worth of MEV has been taken out of users' pockets and that's just on Ethereum and that number is only getting larger, unfortunately.

Rook thinks that it's time for a change and they've built a solution which is going to automatically redirect that MEV back to where it belongs into your, the user's pocket.

So you're going to be hearing all about them later in the show.

I'm huge fan of this team and what they're building.

You can be a competent searcher and generate your own and be competitive as a searcher, then there's a high likelihood that you should also be a builder, right?

Simply because who are the best builders?

They're people that have their own order flow.

So today we're going to be talking to Dean Eigenman and Anish Agnihotri, a couple of searchers.

And I think this will be a very fun callback to the original.

I think the sort of canonical, there are very few interviews with searchers out there, but your interview with a searcher from 2020 really stands out.

So, yeah, why don't you tell listeners, like, what are we kind of trying to probe for here in this conversation?

Yeah, I mean, I look very much forward to talking to these 2 guys.

To Anisha, I would consider a friend of mine.

He's been on the podcast before he used to work for Paradigm at the same time when I was there.

And I think he's so good at breaking things down and explaining them in a concise way.

And yeah, it's really insane how young he is.

I think that's something that I mean, you'll be hard pressed to find a person who has kind of spent more of their time in crypto as a relative percent of the age, which is, I think it's very interesting.

Dean is, he's a super colorful character.

So he has his own MEV company, Project Blank.

I think they are mostly active on these alternative chains, so not predominantly on Ethereum.

I think they do a lot on kind of these like alternative EVM chains.

So I think we get a very broad picture here.

Welcome back to another episode of Bell Curve.

Today, Hasu and I are joined by Anish Agnihotri and Dean Eigenman.

For this episode, we're going to be kind of diving deep into both of your roles as searchers in the MEV ecosystem.

But I think before we get into that, I think Hasu and I would love to know, kind of just to kick things off, could you guys just give our audience a little bit of a background about each of you and how you kind of got into the space.

I think that'd be a very interesting segue into our conversation.

I've been in the space for a while, starting like

I met a guy on Reddit called Matthew DeFerente.

We were talking about smart contracts at the time and he was running an audit shop called ZK Labs and was part-time on the Ethereum security team.

And so I started working together with him and then around the same time Nick Johnson was looking for help on ENS because he was the sole developer there.

Started helping Nick Johnson and then was doing those things full-time for a while.

At 1 point we shut down ZK labs because auditing is grueling and not really at 1 point worth it anymore.

Then I left that, kind of took a little bit of a break and then joined Status working on protocol research for messaging.

Worked on some of the peer-to-peer message protocols there that are still being used and iterated on, like the iterations of Whisper that the EF had originally proposed.

And around that time as well, I co-founded Dialectic together with Ryan, who was previously a co-founder at Polychain.

Yeah, and been doing dialectic ever since.

That's been like almost 3 years ago now, I think.

were doing at dialectic, we wanted to look into MEV and started a fully fledged team from there to kind of, yeah, do MEV.

Dean, to stay with you for a second, how would you say, what would you say was the relationship between what you did previously, which is kind of security auditing and protocol research?

How did that allow you to transition into searching?

And what would you say was your first big break as a searcher that made you realize this is something that I can do for a living, that's something that I find really interesting and so on?

I mean, when it comes from the protocol research and things like that, the main thing is, for the research I was doing, it required a fundamental understanding of the full stack, which you kind of need for MEV as well, which is 1 of the reasons why I like spending so much time on MEV and I find it the most compelling thing to do in crypto right now is because it incorporates everything, right?

You need to understand the networking, you have to understand the clients, how they function, you have to understand how the EVM works in detail and things like that.

And so, for example, for the EVM part, my experience from auditing obviously helps there, because we had probably a better understanding of that paradigm than just a normal smart contract developer would have.

So coming up on 10 years next year, which should be exciting as an enthusiast.

Similar story to Dean, was on Reddit, making websites for people, got paid in Bitcoin because that was the only way as a kid and so stuck around since then.

And you say how old you are to make people realize how crazy and how long you've been in this space.

And since I've stuck around, it's the most exciting thing to me.

It's the closest hands-on I can get with anything in crypto, and so that's why I've stuck around.

I unfortunately was a kid so I didn't buy into the Ethereum presale, but I got my parents to buy me a bunch of R9 280x graphics cards and was a miner early on.

Stuck around the ecosystem, did a bunch of open source work with Gitcoin, eventually found myself in senior year of high school joining Polychain, another place where Dean's co-founders work and co-founded I think.

There was a part of a prop team for about a year in early DeFi summer, where we arbed the yield from borrowing across centralized exchanges and put capital into the new and, you know, protocols that had only been around for 2 or 3 days at that point of time.

Left that in 2021 and joined Paradigm as a researcher where I worked mostly on open source protocols and building tooling and about 10 months ago left that to go independent as a MEV searcher solo.

I think maybe to start at a super high level, I think it'd be great to give the audience sort of a perspective of what is the landscape look like for searchers today?

When I say that, I mean, I think at least for me going into this season, when I thought of MEV searchers, I thought of kind of, you know, a bunch of individuals kind of writing bots that were looking for MEV and finding a way to profit.

Is that a realistic understanding of the landscape or has it kind of professionalized and are there, is it kind of dominated by larger shops that are searching for MEV?

Like what does that whole kind of landscape of searchers look like?

It's hard to be able to actually tell because you don't know who's saying, who's speaking the truth and who's not, right?

The only thing you actually know for certain is what's happening in on-chain.

From my like feeling and kind of what I can see is I think if not professionalizing people are starting to group together.

I think there's probably a lot less solo searchers than there were 1 or 2 years ago because yeah the competition has just gotten so much more fierce.

But whether or how much of the space looks like that, yeah It's hard to say for certain.

Yeah, if I were to ballpark numbers, I feel like today there's probably an upper limit of 500 searchers total, just based on...

But of course, it's like you can't guess from addresses, but at least that's what my high level number is.

And of them, I'd say a majority are probably in like small teams of like under 10 people.

I even think for all of crypto that 500 is a very optimistic number.

Yeah, like I'm counting this as anyone that has sent maybe like, you know, a bundle in the last year or like a couple of dollars in the last year to a relay.

Practically speaking it might even be like a fraction of that number.

There might be 500 but then I think the amount making money is like, yeah.

Because there's a lot of people who do MEB just for the fun of it who aren't actually making any money.

I've seen like a lot of the various MEV discords is just like people messing around like Mike on Ticketmaster.

I'll tell you guys a little MEV story how I lost a bunch of money.

Dean, you mentioned that the searching landscape was getting much more competitive.

Could you describe, just give the listeners a little bit more of an understanding of what that means and maybe in particular, how is searching or the landscape for searching changed based on when you first got into it and what it looks like today.

I mean, should we count the stuff we were doing in 2017 with like Ether Delta ARBs and stuff like that as searching?

Because I mean back then, back then it was easy, right?

You didn't really have to you that you didn't even have to PGA back then, right?

You could just kind of do Transactions and that was it And then you know people started PGA and there was more competition and things like that And then at 1 point Flashbots came and what Flashbots did was democratize, I guess, you know, this dark mem- or yeah, democratize access to validators or democratize collusion of sorts.

And what that effectively did is it caused a race to 0 on the known strategies that other people are doing because now you're competing on a different landscape, right?

And So I think from those strategies, the things that people are doing over flashbots and stuff like that, the competition has become a lot more professional because they need to optimize for like very few things to be able to win in that paradigm.

And so you see, yeah, a smaller concentration of people doing those things.

And I guess probably more people are looking for stuff outside of there that they can do without having to pay minors tips and things like that.

Yeah, yeah, I think like the the Overton window of, you know, MEV has shifted a lot over the last couple of years where in 2017, 2018 like Dean mentioned, I remember you know, arming on 0x by just point and clicking tokens.

For context, Uniswap v1, I think, came out DevCon 4 of 2018, and we didn't see any sophisticated actors for that pop up for a long time afterwards.

And so it's sort of just like as we've seen volume rise up, people have started to, you know, more eyes are looking at this and saying, hey, there's opportunity here and because of that a window has shifted to now this is more mainstream.

And, you know, there's trading firms out there that are now dealing with MEV, which, you know, 4 years ago, I couldn't have told you there was anyone beyond, you know, friends and family type of thing, you know, people I see at conferences who are just arbing this by clicking.

To put All of this into a little bit of context, so you probably can't go into super great detail, but as to you 2, can you describe in broad strokes, like what do you do in MEV?

What kinds of opportunities are you focused on?

And are you doing this alone or as part of

Yeah, so I am a solo searcher, so it's just myself.

Because of that, I focus mostly on the long tail.

So differentiating here between the short tail, which is the usual, you know, arbitrage liquidations, things that large teams are mostly focused on.

Most of my work is on a broad, long tail of opportunities, which looks like, you know, NFT market making, NFT mints, probabilistic back running on protocols that don't have solutions like flash bots, spam, keeper bots, a wide range of the obscure things that you need to keep the chain running, but aren't necessarily as sexy as say arbitrage or atomic liquidations and things like that.

As for chains I'd say predominantly on Ethereum mainnet although I basically deploy the code that I have to any EVM-based execution environment, since most of it is largely the same across each and every single 1.

And that includes some of the new upstarts like EVM on Cosmos, similar to Canto and things like that, where there's opportunity.

How would you say, to stick with you for a second before we go back to Dean, as someone who is active on all EVM chains, at least in theory, How has so far the kind of shift to rollups in terms of like rollups have now surpassed Ethereum in pure volume numbers, but how would you say this has impacted the MEV that's available on these chains and maybe related to that also.

How is working on these chains different for you, given that they don't have, they don't have kind of MEV auctions, or they have these sequences that kind of order transactions in

The first 1 probably with as transaction flow moves to L2s, how that's shaped up for the MEV world.

I think for me it's not much of a difference.

It's mostly just a different execution environment with most of the same paradigm.

I think it's a difference in the node software and the networking.

Wherever volume goes, generally MEV searchers will track that very well and go there as well.

And so we already see there's dominant teams that are across Arbitrum, right?

And just the way that they do it is slightly different.

So on Arbitrum and on Optimism, these L2s you currently have centralized sequencers.

And so it's much more of a networking game of how close can we be to the sequencers?

How close can we be to the sequencers, how close can we be to the order flow originators, where these transactions are originating from, how quickly can we take a look at what state transitions are happening and then send and fire off a transaction, versus on Ethereum where you have solutions like Flashbots and so it's much more competing over the tip to the validator for at least most short tail opportunities.

So that I'd say is probably what the initial difference is.

As for the differences that I notice moving across L2s and other execution environments.

I'd say for at least a long tail searcher like myself, it's much more beneficial to build up a domain expertise in networks that aren't Ethereum.

Like if I can understand the quirks of a smaller L1, if I can go deep into the protocol code that sometimes is a fork of geth but has its own modifications that change up the way that you know networking works or changes the way the mempool works, it makes it much more competitive for me to compete on that chain versus say you know any random searcher from Ethereum that can come and deploy their code on any EVM environment.

And so for me, it pays to basically double down on these more obscure L1s that trading firms and other large teams don't focus on to get that competitive edge.

What do you do broadly and how has it evolved?

So we kind of do the opposite of the niche right now.

I think long tail is less viable for teams, more viable for independent searchers.

And yeah, the thing we do as well as we deploy right now pretty much on any EVM compatible chain and are also ensuring to get expertise to corner markets outside of EVM compatible chains, especially with things like roll ups coming right now.

You know, the Cosmos ecosystem gaining traction and things like that.

I think that looking around in that space is going to be very interesting.

Can you guys, just in terms of when you're sort of looking out there in terms of the world and trying to assess different opportunities, can you describe what sort of makes for a fertile environment in terms of extracting MEV?

So Anish, you mentioned that where kind of transactions and volumes go, right?

So like layer twos for Ethereum, for instance.

But what about the applications that are built on top of those L2s?

Like for instance, there's been, you know, Uniswap v3, for instance, there's been that's very fertile ground for extracting MEV and kind of the whole AMM model.

So outside of just where volumes are, like what about the apps that are existing in these environments?

Like how does that also play into where opportunity exists for you as a searcher?

06.10.10 06.10.15 As a long tail searcher, at least I'm app agnostic.

And my work basically pushes me to whichever apps have the highest volumes with the least competition.

So I'd say in the short tail, maybe, you know, you're looking at how can I optimize these AMM hot paths?

How can I get really good at this type of liquidation?

And that carries well over to other different types of protocols.

I want to go places where people have not fared because that gives me the competitive advantage, right?

So a lot of my work is in absolutely new apps and new protocols that are doing experimental things that aren't very well defined by like an AMM structure, since that lets me get very deep into those code bases, understand how they work and find out where those inefficiencies are before other people have figured it out.

And so at least in the life cycle of an opportunity for me, it's much more important to be there early and not even to do well, but to just be there early and understand everything than it is to say, you know, understand the intricacies of Uniswap v3 very well and then adapt my strategy across every network where that's deployed.

And can you, you know, maybe without definitely revealing anything that you're working on right now, but maybe like an example of, you know, a past opportunity that you were able to exploit.

I'd love to just kind of get in the nitty gritty of what that actually means.

So like, how do you go about, what are kind of the steps for determining sort of the logic of different applications?

And then maybe if you could just give listeners 1 sort of concrete example of An exploit or an opportunity, maybe that's expired just so we get more of a concrete understanding of what that looks like in practice.

I'll give 1 that's been spoken about decently well and has repos of people that have worked on it.

A lot of my work, I'd say greater than 50% is in the data ingestion analysis of what happens on chain.

So it's consuming a bunch of Ethereum data, other chain data, and then writing rules on top of that to identify what a profitable transaction looks like.

So say a very naive rule could be analyze every single transaction over the last year where a user has inputted less than what they received in output.

And a good example of what that catches is say something like keepers for a protocol where a user is spending gas fees to get some protocol token in exchange for running some services for a smart contract or a protocol or an app.

A concrete example being say Beanstalk Protocol where they have a keeper that you can run.

It's a simple smart contract function you call once an hour that progresses some activity in their smart contract and in exchange of that they emit you some quantity of Bean token which is their dollar denominated staple coin.

And so essentially it says something like, you know, every hour you can get, I think now 25, but previously used to be $100 for just calling this function.

And that's an easy opportunity to spot on chain since you're looking for transactions where users spend very little in gas fees and Ethereum and get a decent amount of dollar denominated stablecoin on the other end.

And so that's something that pops up across 1 of the trackers that I'll write.

It's even easier because that's something that's on a fixed schedule, right?

It happens once every hour, Which means that if I do some naive clustering, I can easily see, okay, there's somebody calling something every hour that makes them money.

And so I will go in and I'll investigate, okay, what does this look like?

Is it worth it for me to go and write the code?

Naively you would think, oh, 100 bucks an hour for free?

You do the math out, $2, 400 a day, 30 days, that's almost a million dollars a year.

Practically that's usually not how it works.

For starters, if I'm finding an opportunity that somebody else is already doing, there's that aspect of competition, where it's likely that it's already been bid up to the point where you're paying upwards of 90% of the validator.

And So in the case of Bean, if you're trying to do that today, you will maybe make a couple of cents every time you call it, simply because it's such an easy strategy that 99% of the tip, of the extracted value goes as a tip to the validators, and so there's not much there.

But like I said earlier, it pays to be early, right?

So if you were 1 of the initial people to come across this, and or if you do it in some unique way, right?

Like for a period of time last year, I did it where when MEV Boost first came out, there was upwards of 10 to 15% of stake that hadn't onboarded to MVP Boost, right?

You had 80% adoption of people using the relays versus 20% not.

So if you just defaulted back to that 20% of people that weren't using a relay and just submit transactions in the mempool, you actually got better price execution on running these keeper bots, which meant that you were much more profitable compared to somebody who was, you know, a less sophisticated actor paying 99% tips directly to flashbots or some other relay.

That's, I think, a concrete example of the type of work where it's much more figure out what's going on on-chain, where's the opportunity, and then find some unique way to extract that value.

You touched on so many interesting points there, Anish, and I'd be interested to hear your take, Dean, on just the competitive aspect of searching.

So Mike was asking, well, what makes it for a fertile ground for searching?

And sure, like you need some opportunity to be there, but then the other big thing that you need is like, you want low competition, right?

So you can actually, as you were saying, corner a market because like, it doesn't matter if the opportunity is big, if the competition is also big, you're not going to catch much, but if an opportunity is small, but you can control it entirely, then probably you can make a very nice return.

So how do you think about the different layers of competition?

Like, searcher versus user, searcher versus searcher, searcher versus builder, if that exists on any of the chains that you're on, but also kind of searcher versus validator, how do you think about kind of the, these different layers and how do you try to position yourselves within them in order to get the best possible outcome?

Yeah, I mean, Validator is the absolute endgame of competition, right?

So that's, I think that's, that's a problem that a lot of MEVs probably haven't thought about enough, given what happened.

For those who don't know, there was a validator who ended up MUZing a searcher last week.

I mean, the way we look at it, the way we try to analyze competition is not like what is the value of a given strategy, it's what is the maximum extractable value for us given that we joined this competition?

Are we able or do we think that looking at this competition and doing an analysis of it which includes analyzing the way they send transactions, analyzing all of their smart contracts, do we think that we're able to easily push them out?

Because that's a strategy as well, which we've employed, right?

You don't always have to have the biggest pie in the beginning, but you might be able to easily burn competition out, right?

That's kind of the thing, the way I like to go about it, because a lot of the strategies that we do are pretty common, but From what we can tell, sometimes it's still solo searchers and things like that.

And then they don't have 24-hour coverage to optimize their strategies and react to everything that's happening on the network, whereas we do.

And so, yeah, I like to burn out competition and corner them as much as possible.

We don't go into things where we see that the competition is sophisticated as well as employing some of the strategies that we do.

So as Anish said, a lot of his job is doing data analysis.

We do a lot of data collection and run various tools to kind of find anomalies on the network, find patterns, things like that.

Hey guys, quick break from the show here.

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Interview with a Searcher 2.0 | Dean Eigenman, Anish Agnihotri