Skip, Composable and the path towards sustainable cross-ecosystem MEV
As we continue to explore the long-term sustainability of cross-ecosystem DeFi we are consistently seeking ways to equitably reward all the different network participants. This is a critical component to the connection of different ecosystems via IBC and we are happy to announce an extension in our efforts via an additional collaboration in this regard. We believe that collaborative competition is essential in building a robust decentralized market, and providing DeFi users with various options for value accrual and aggregation leads us toward an increasingly decentralized future. Thus, we are happy to announce that Skip will collaborate with Composable, along with Mekatek, to mitigate negative externalities created by cross-chain MEV, while allowing Composable to extend its cross-chain execution capabilities.
Composable collaborates with Skip to introduce equitable distribution of cross-ecosystem MEV to users
Composable is currently the first blockchain network beyond the Cosmos ecosystem that is utilizing the Inter-Blockchain Communication (IBC) protocol to establish connections between Polkadot, Kusama, Cosmos, and NEAR. As we begin to consider how to enhance the integration of execution mechanisms across diverse ecosystems, this collaboration is intended to optimize XCVM orderflow over Centauri, the IBC transfer protocol.
With Skip’s order flow auctions architecture, Composable can utilize Skip’s validator mempools, allowing us to anticipate a future where blockchain networks will demonstrate a growing interest in expressing preferences over their blockspace. These preferences are intended to be matched at the protocol level, allowing users to eventually become the order flow providers.
The use cases mentioned in the article are merely preliminary versions of what utilizing Skip in XCVM cross-chain programs would involve. The demands of protocols and users may evolve as we see more activity in places across various ecosystems once Centauri is launched.
Currently we are still in the early stages of cross-chain MEV and protocol MEV capture. In order for the vision outlined above to become a reality there are a few key steps which need to be taken first:
Relayer incentivization & XCVM order flow auctions
One of the main benefits of protocol MEV capture is that it allows for the fair distribution of revenue among all network participants. Currently, relayers are not fairly rewarded for their role as order flow providers. However, with Skip’s solutions such as protocol-owned builders (PoB) and order flow auctions, relayers can now broadcast their transactions directly to the block builders and be rewarded for the order flow they provide.
This is made possible through Composable’s cross-chain virtual machine (XCVM) which enables generalized cross-chain message passing for various functionality including swaps, borrowing, and lending. Through the XCVM, transactions can be initiated on one chain (e.g. Picasso) and routed through our Hyperspace relayer for execution on another chain (e.g Osmosis). As protocol-owned builders allow for MEV recapture, the order-flow provided by relayers becomes a lucrative opportunity for any of the aforementioned functionalities.
Using Osmosis as an example a swap could be initiated on Picasso, and routed through the XCVM/Hyperspace to Osmosis. Once the transaction is executed on Osmosis and the PoB module secures the MEV, the relayer is rewarded with a portion of the MEV collected due to their role in providing order flow to the Osmosis DEX.
Finally, cross-chain order matching allows for different protocols to collaborate in a way that creates the maximum benefit for the protocols in question, as well as their users. As IBC continues to expand the need for cross-chain settlement becomes increasingly important. With cross-chain order matching users can set their transaction preferences and have their transaction matched with a chain willing to fulfill all of their requirements.
These MEV solutions serve as a method for aligning incentives for all network participants and we are looking forward to continuing these efforts with Skip Protocol and Mekatek as we continue our journey of bringing IBC everywhere for a more inclusive and collaborative future for DeFi.
The Skip team identified that the crux of these problems was protocol/builder separation (PBS), where off-chain builders are responsible for block composition on Cosmos app-chains. For the reasons mentioned above, PBS can undermine the sovereignty of app-chains as developers are no longer in complete control over their own blockspace/internal economy. These off-chain builders are encouraged to act with their own best interests in mind, with little incentive to distribute their revenue in a fair and equitable manner to other network participants.
Skip introduces sovereign MEV solutions for sovereign blockchains. As such, Skip helps sovereign blockchain ecosystems leverage their blockspace markets to enrich network stakeholders and protect users from the harmful effects of MEV. Skip currently has three distinct product offerings:
However, with recent updates to the Cosmos SDK the Skip team can now bake their solution directly into any Cosmos-based chain’s runtime with their ProtoRev module. Skip’s ProtoRev empowers app-chains by removing the need for off-chain builders, allowing app-chain teams complete control over MEV and fee markets with full transparency for users.
Protocol-owned builders (PoB)
ProtoRev performs only a small amount of block construction by inserting cyclic arbitrage transactions needed to rebalance LP pools. The next step is the implementation of protocol-owned builders (POB). POBs will unlock a new paradigm of block-building that encourages sovereign MEV. Similar to the ProtoRev module, POBs will be able to remove dependencies on off-chain builders and take block construction on-chain.
Order flow auctions
As outlined in the proposal below, order flow auctions can be utilized to provide sustainable, non-inflationary revenue for protocols who implement Skip’s solution.
At Composable Finance we have always held a strong belief that the user comes first. In order for the underlying infrastructure, protocols, and dApps that we are building to ever truly rival the TVL of traditional finance we need to ensure that user preferences are met first and foremost. In order for this to happen, the revenue generated from MEV must be shifted to the protocol level in order to better align incentives and ensure that all network participants are being fairly compensated for their role in DeFi.
About Composable & Picasso:
Composable Finance (“Composable”) is dedicated to improving the accessibility, quality, transparency, efficiency, and security of decentralized finance (DeFi). We aim to do this by pioneering innovative Web3 user experiences in a trustless, non-custodial, and decentralized manner. Composable’s technology stack enables and combines key services across different DeFi ecosystems and protocols, such as Ethereum, Polkadot, Kusama, Cosmos, and the NEAR Protocol.
Picasso is our layer 1 blockchain acting as an infrastructure layer to pioneer interoperable DeFi solutions, with a native token named $PICA which is available at the Pablo DEX. Picasso is equipped with a robust set of novel DeFi primitives that are built as modular pallets. These pallets are designed to attract liquidity from the broader DeFi landscape whilst promoting interoperability between various ecosystems.
For more information about Composable and how it is architecting the unified DeFi landscape of the future, check out these useful links: