YCabal: Monopolizing transaction flow for arbitrage batching with miner support

YCabal: Monopolizing transaction flow for arbitrage batching with miner support.

all_your_fees

Overview

Proposal: YCabal - A Backbone RPC Layer for Front Running Miners and Providing End Users Gas Free Trading
Project: SushiSwap / DEX’s
Status: Active
Timeframe: 60-90 days
GitHub: proposals/BACKBONE_CABAL.md at master · manifoldfinance/proposals · GitHub

This is a strategy that realizes a profit by smart transaction batching for the purposes of arbitrage by controlling transaction ordering.

Right now every user sends a transaction directly to the network mempool and thus gives away the arbitrage, front-running, back-running opportunities to miners(or random bots).

YCabal creates a virtualized mempool (i.e. a MEV-relay network) that aggregates transactions (batching), such transactions include:

Potential benefits including offering zero-cost trading fees (meaning profits from arbitrage are used to pay for user’s transactions). Additional benefits and potential applications are further discussed in this proposal.

DEX trades

Interactions with protocols

Auctions

etc

TL;DR - Users can opt in and send transactions to YCabal and in return for not having to pay for gas for their transaction we batch process it and take the arbitrage profit from it. Risk by inventory price risk is carried by a Vault, where Vault deposits are returned the profit the YCabal realizes

Background

Preliminary estimates obtained from MEV-Inspect show the following lower bounds:

10k of 443k blocks analyzed were wasted on inefficient MEV extraction
bots extracted 0.34 ETH of MEV per block through arbitrage and liquidations
18.7% of MEV extracted by bots is paid to miners through gas fees which makes up 3.7% of all transaction fees

Efficiency by Aggregation

By leveraging batching, miner transaction flow, and providing additional performant utilities (e.g. faster calculations for finalizing),
we can realize the following potential avenues for realizing profitable activities:

  • Meta Transaction Functionality
  • Order trades in different directions sequentially to produce positive slippage
  • Backrun Trades
  • Frontrun Trades
  • At least 21k in the base cost on every transaction is saved

If we have access to transactions before the network we can generate value because we can calculate future state, off-chain

**We realize greater capacity and reduced friction with a greater volume of transactions. In essence, miners will compete for this transaction flow

User Capture

The whole point of Backbone Cabal is to maximize profits from user actions which gets distributed for free to miners and bots.

  • We intend to extract this value and provide these profits as **cashback** to users.
  • Another possibility is providing a ‘boost’ to user accounts that are farming. Basically use the profits to increase yield on farming activities to those who use the service and are farming an eligible market (this is sushiswap specific).

For example: A SushiSwap trader who loses X% to slippage during his trade can now get X-Y % slippage on his trade because we were able to back run his trade and give him the arbitrage profits.

Backbone Cabal gets better and better as more transactions flow because there is less uncertainty about the future state of the network.

Gas Free Trading

  • SushiSwap as an example

Rebates

Profits can be rebated to end-users

Volume Mining

Other protocols can join the network and turn their transaction flow into a book of business with our network of participants

Solution Set

ArcherDAO

Manifold Finance

Kafka based JSON RPC and API Gateway

kdb+

Attack Vectors against the Backbone

DDoS

Exploits

Additional Disclosures forthcoming

Ecosystem Benefits

  • Can act as a failover web3 provider (e.g. Infura/AlchemyAPI outage)
  • Transaction Monitoring
  • Security Operations for Contracts

User Example

Proposed end-user transaction example for interacting with the YCabal

NOTE: Since the JSON-RPC spec allows responses to be returned in a different order than sent,
we need a mechanism for choosing a canonical id from a list that
doesn’t depend on the order. This chooses the “minimum” id by an arbitrary
ordering: the smallest string if possible, otherwise the smallest number, otherwise null.

order = {
	Give: ETH, 
	Want: DAI, 
	SlippageLimit: 10%, 
	Amount: 1000ETH,
	Cabal: 0xabc...,
	FeesIn: DAI,
	TargetDEX: SushiSwap, 
	Deadline: time.Now() + 1*time.Minute
	Signature: sign(order.SignBytes())
}

Now if the Cabal broadcasts this transaction with an arbitrage order, the transaction contains 2 orders:

Note: the transaction below is a mock-up for the proposed data fields

transactions = [
	{
		Give: ETH, 
		Want: DAI, 
		SlippageLimit: 10%, 
		Amount: 1000ETH,
		Cabal: 0xabc...,
		FeesIn: DAI,
		TargetDEX: SushiSwap, 
		Deadline: time.Now() + 1*time.Minute
		Signature: sign(order.SignBytes())
	},
	{
		Give: DAI, 
		Want: ETH, 
		SlippageLimit: 1%, 
		Amount: 10ETH,
		Cabal: 0xabc...,
		FeesIn: DAI,
		TargetDEX: SushiSwap, 
		Deadline: time.Now() + 1*time.Minute
		Signature: sign(order.SignBytes()),
		IsBackbone Cabal: true,
		TransferProfitTo: transactions[0].signer
	}
]

The arbitrage profit generated by second order is sent to the msg.sender of the first order.

The first order will still lose 5%(assumption) in slippage.

Arbitrage profits will rarely be more than the slippage loss.

If someone front runs the transaction sent by the Cabal:

  1. They pay for the gas while post confirmation of transaction the fees for order1 goes to the relayer in the signed order.
  2. They lose 5% in slippage as our real user does.

Engine

YCabal uses a batch auction-based matching engine to execute orders. Batch auctions were
chosen to reduce the impact of frontrunning on the exchange.

  1. All orders for the given market are collected.

  2. Orders beyond their time-in-force are canceled.

  3. Orders are placed into separate lists by market side, and aggregate supply and
    demand curves are calculated.

  4. The matching engine discovers the price at which the aggregate supply and demand
    curves cross, which yields the clearing price. If there is a horizontal cross - i.e., two
    prices for which aggregate supply and demand are equal - then the clearing price is the
    midpoint between the two prices.

  5. If both sides of the market have equal volume, then all orders are completely filled. If
    one side has more volume than the other, then the side with higher volume is rationed
    pro-rata based on how much its volume exceeds the other side. For example, if
    aggregate demand is 100 and aggregate supply is 90, then every order on the demand
    side of the market will be matched by 90%.

Orders are sorted based on their price, and order ID. Order IDs are generated at post time and
is the only part of the matching engine that is time-dependent. However, the oldest order IDs
are matched first so there is no incentive to post an order ahead of someone else’s.

Additional Solutions

  • An Integration with ArcherDAO was started last week
  • Integration with a large mining pool is under discussion

Links

Sorry - New users are limited to just 2 links!

Notes

Think of this as creating a Netting Settlement System (whereas blockchains are a real-time gross settlement system)

For

enter the outcome of the For side

Against

enter the outcome of the Against side

Poll

Build a poll using the Build Poll function, check out this link (https://meta.discourse.org/t/how-to-create-polls/77548) for a guide on how to build a poll

4 Likes

yoooooo this is lit.

Additional uses include:

  • users who opt-in get to participate in a ‘lottery’. The lottery would be funded in part from a % of the profits from the service.

  • Creating a Clearing Network among SushiSwap and other projects such that liquidity transfers are minimized

  • Incentivize LP’s to come to SushiSwap as more volume will be on SushiSwap

  • Rebates: Subsidize the cost of LP’s moving entirely.

  • Sponsoring: This also works as a refund mechanism for gas-free transactions, in that non-Sushiswap originating transactions (i.e. transactions coming into SushiSwap) could get refunded

Profit Modeling and Simulations

Over the course of the next wek, we will begin disclosing our data and research. Here is a trivial nodejs simulator for arbitrage and exchange transaction iteration: https://github.com/sambacha/cabal-sushiswap-model.git

Formal Design Specification

Currently typesetting and migrating into a proper format, you can see a sneak peek here: https://backbone-spec.netlify.app/

またね、シェフ,.

I have a weird feeling this is a hobby project by a bored employee at Citadel/Virtu.
Can’t help thinking of what exactly you are after in sushi’s orderflow.
But.
Mempool hunters are evil, and this proposition should be discussed further.

Although ‘cabal’ should be changed. Too much negative connotations in it.