MEV theft occurs when validators, swayed by the temptation of larger block rewards, change their --fee recipient address to divert rewards away from the pool. This not only undermines trust but also disproportionately impacts the rewards distribution among all pool participants.
Balancing Security and Accessibility
To prevent such occurrences, we've implemented a bond requirement for each validator. The bond acts as a security deposit – its size is crucial in deterring MEV theft. The logic is straightforward: for MEV theft to be financially viable for a malicious actor, the potential block reward must exceed twice the bond amount plus any accrued rewards. This formula ensures that MEV theft is economically unfeasible in over 99% of blocks.
However, we faced a pivotal decision: to significantly increase the bond to cover outlier cases of very large block rewards, or to set a more accessible bond. We chose the latter, setting the bond at 0.5 ETH. This decision was informed by several factors:
Technical Barrier: Knowingly executing MEV theft based on bid amount requires a high level of technical complexity which also exposes the validator to potential slashing risks.
Community Trust: We believe in the goodwill and integrity of our participants. The Smoothly Protocol is built on mutual trust, with safeguards like the bond in place without imposing prohibitive barriers.
Impact on Rewards: While large block rewards are a significant portion of total pool rewards, increasing the bond excessively could deter many potential validators from participating.