Proof of Encryption Eliminates MEV, Securing Decentralized Finance ∞ Research

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Briefing

This research addresses the pervasive problem of Maximal Extractable Value (MEV) by introducing Proof of Encryption (PoE), a groundbreaking consensus mechanism. PoE, powered by the Blockchain Integrated Threshold Encryption (BITE) Protocol, fundamentally alters blockchain architecture by encrypting all transaction data before it enters the consensus process, ensuring validators cannot exploit visible transaction ordering. This innovation’s most significant implication is the cryptographic guarantee of transaction privacy and fairness, which is poised to unlock trillions in institutional capital and enable secure, manipulation-free decentralized finance and agentic AI operations.

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Context

Before this research, a fundamental theoretical limitation in public blockchain architecture was the inherent transparency of transactions during the consensus process. This visibility enabled Maximal Extractable Value (MEV), where network participants, such as validators or block builders, could reorder, censor, or insert transactions to extract value at the expense of users. This prevailing academic challenge created an “invisible tax” on network participants, leading to market inefficiencies, reduced fairness, and a significant barrier to institutional adoption due to the lack of transaction confidentiality and predictable execution.

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Analysis

The paper’s core mechanism, Proof of Encryption (PoE), operates by integrating encryption directly into the consensus layer, a departure from previous approaches that exposed transaction data during validation. The underlying primitive is the Blockchain Integrated Threshold Encryption (BITE) Protocol. Conceptually, BITE encrypts every transaction before it is broadcast to the network and remains encrypted throughout the consensus process. Validators confirm blocks without seeing the contents of individual transactions.

Only after a block is finalized are the transactions decrypted and revealed. This “commit-then-reveal” design ensures that no party can front-run or sandwich transactions, as the information required for such exploits is cryptographically concealed until it is too late to manipulate. This fundamentally differs from prior MEV mitigation strategies, which often relied on off-chain solutions or complex game-theoretic incentives, by providing a protocol-level, cryptographic guarantee of fairness.

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Parameters

Core Concept ∞ Proof of Encryption (PoE)
New System/Protocol ∞ BITE Protocol (Blockchain Integrated Threshold Encryption)
Associated Network ∞ SKALE
Problem Addressed ∞ Maximal Extractable Value (MEV)
Publication Date ∞ September 9, 2025

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Outlook

This research opens new avenues for blockchain development, particularly in areas requiring high degrees of privacy and fair execution. In the next 3-5 years, this theory could unlock widespread real-world applications such as truly private decentralized finance (DeFi) trading, confidential institutional asset management on public blockchains, and robust, manipulation-resistant autonomous AI agent execution. It also paves the way for further academic exploration into encrypted mempools and consensus-level privacy primitives, potentially redefining the security and economic models of future decentralized systems.

This research establishes a foundational shift in blockchain security, delivering a cryptographic guarantee against Maximal Extractable Value and enabling a new era of verifiable on-chain privacy.

Signal Acquired from ∞ SKALE