Briefing
The foundational problem of Maximal Extractable Value (MEV) stems from information asymmetry in public mempools, leading to frontrunning and economic instability. The proposed cryptographic solution, threshold encrypted mempools (TEMs), utilizes distributed key shares to hide transaction content until block commitment, preventing malicious ordering. This research demonstrates that this cryptographic privacy mechanism does not eliminate the adversarial risk; it merely shifts it, introducing new, non-cryptographic vulnerabilities.
Specifically, the paper highlights that the decryptor committee gains a critical, early information advantage, creating a potent incentive for inconspicuous collusion that is far harder to detect and penalize than traditional consensus faults. The most important implication is that securing transaction ordering requires a complete architectural shift from relying solely on cryptographic primitives to integrating robust, game-theoretic mechanism design to align the incentives of the key-holders.
Context
The prevailing theoretical limitation in decentralized finance is the inability to guarantee fair transaction ordering, a problem exacerbated by public mempools that expose pending user transactions to rational, adversarial actors. This information asymmetry allows for the extraction of MEV through frontrunning and sandwich attacks, which undermines user welfare and protocol stability. The established class of solutions, encrypted mempools, attempts to resolve this by leveraging cryptographic techniques like threshold encryption. This approach ensures that transaction content remains hidden from block proposers and searchers until a predefined threshold of block finality is reached, fundamentally challenging the economic viability of order-dependent MEV extraction.
Analysis
The paper’s core mechanism analysis centers on the failure modes of the threshold encryption primitive within an adversarial economic context. Threshold encryption splits a master decryption key into shares distributed among a committee of key-holders, or Keypers. Decryption requires a minimum number of these shares to be combined. The breakthrough observation is that this distributed decryption process creates a temporary, but economically valuable, informational advantage for the Keypers.
They are the first to observe the plaintext transactions just before or during block inclusion. This early access incentivizes Keypers to collude with block proposers or delay the decryption process to exploit the information, effectively re-introducing MEV extraction through a new, cryptographically-enabled vector. This form of collusion is inconspicuous because it does not violate the underlying cryptographic proof system or the consensus protocol’s liveness guarantees, making it difficult to detect and prevent with existing slashing mechanisms.
Parameters
- Risk Vector Shift → The adversarial risk moves from public mempool frontrunning to private decryptor collusion.
- Trust Assumption → Threshold Encrypted Mempools fundamentally rely on the honesty of a minimum t out of n Keypers (the threshold trust assumption).
- Collusion Detectability → Inconspicuous Collusion Risk → Collusion among decryptors is far harder to detect than standard consensus faults.
- Economic Efficiency Trade-off → Encrypted transactions can preclude economically efficient outcomes such as timely liquidations or orderings that prevent reversions.
Outlook
This research mandates a strategic pivot in MEV mitigation research. The next phase of development must move beyond pure cryptography to focus on hybrid cryptoeconomic mechanism design. Future protocols will require anti-collusion mechanisms that impose economic penalties, such as slashing conditions, on Keypers and proposers who are proven to have colluded or delayed decryption.
This opens a new avenue for research into verifiable delay functions and commitment schemes that can cryptographically enforce a fixed decryption time and penalize deviations. Over the next three to five years, this work will drive the creation of more robust, incentive-aligned transaction ordering systems that secure both cryptographic integrity and economic fairness.
Verdict
This research fundamentally re-frames MEV mitigation, demonstrating that cryptographic solutions alone are insufficient without robust, game-theoretic incentive alignment to prevent new forms of inconspicuous collusion.
