On July 11, during EthCC, Pyth Network unveiled the countdown mystery—Express Relay, a new product tackling the elusive and troublesome MEV issue in the crypto world.

The “reclaimed control” refers to DeFi projects and users recovering value that MEV has taken from them. For those in the crypto industry, the cost increase caused by MEV is a familiar challenge.

But how can an oracle project address the problems posed by MEV?

Previously, Pyth’s primary function was price feeds before DeFi activities began. Targeting MEV suggests Pyth is expanding its services into the operational phases of DeFi, such as trading and settlement.

How does Express Relay technically achieve this transition from improving DeFi protocol data sources to enhancing operational efficiency? What are the chances of success for this seemingly offbeat expansion by Pyth Network?

In this article, we’ll delve into Express Relay to answer these questions.

The Inescapable Dark Forest: DeFi Under Siege by MEV

To understand Express Relay, we must first examine the challenges faced by today’s DeFi projects. A subtle yet pervasive reality is that in the crypto dark forest, DeFi projects are vulnerable, constantly hunted by MEV. This relentless predation forces DeFi projects and users to incur additional costs.

Instead of a detailed explanation of MEV, let’s consider a more relatable example from DeFi operations: liquidation.

The Liquidation Process:

1. Initiation: DeFi protocols (e.g., lending platforms) trigger the collateral liquidation process when users become insolvent.
2. Searchers in Action: Searchers, who specialize in finding and executing liquidation operations, step in. They are incentivized by rewards from the DeFi protocol, which typically come from protocol fees or direct liquidation rewards.
3. Miners and MEV: Miners (or validators) control transaction ordering. To ensure their transactions are prioritized, searchers must pay higher fees, allowing miners to extract more value.
4. Outcome: The MEV problem arises, with miners taking most of the rewards intended for searchers or protocol users.

This is somewhat like ordering food delivery at a higher price. Even if the food’s base price remains unchanged, the platform and delivery services take a cut, ultimately raising the cost of your order.

For DeFi projects, MEV issues lead to an overpayment situation for liquidation rewards, making liquidations more expensive. To ensure timely liquidations while dealing with MEV, lending protocols must offer high rewards to attract searchers. These high liquidation rewards mean more funds are spent on these fees rather than improving other aspects of the protocol’s efficiency and returns.

Public data shows that Aave and Compound on Ethereum have historically liquidated nearly $2.5 billion in collateral, with $1.5 billion going to searcher rewards, most of which end up with miners. A 4-5% liquidation bonus is quite excessive compared to standard order depths. Overpaid liquidation rewards eventually lead to higher interest rates or other fees for users.

Beyond the high costs, emerging DeFi protocols also struggle to find reliable liquidators. Liquidation is fragmented across protocols with different interfaces, resulting in a shortage of available liquidators for each protocol. This fragmentation causes potential searchers to hesitate, leading to low protocol availability and diversity of searchers.

Therefore, establishing a reliable and cost-effective liquidation network is time-consuming and expensive for new DeFi protocols. Developers must spend significant time and resources convincing searchers to integrate with their protocols and deal with MEV issues.

In summary, in the dark forest environment that is difficult for end users to perceive, we lack a unified, open, and user-friendly industry standard for liquidation and other DeFi operations to:

• Redirect value lost to MEV back to DeFi protocols, users, and searchers.
• Connect DeFi protocols to a high-quality searcher network for reliable liquidation.

This is the starting point for Pyth Express Relay.

Express Relay: Efficient Order Flow Auctions, Reclaiming Lost Value

An oracle is not just an oracle.

Douro Labs, the team behind Pyth Network, has leveraged its experience in developing low-latency data oracle protocols to experiment with a solution aimed at making DeFi liquidation more cost-effective and minimizing the impact of MEV. This solution is what we now know as Pyth Express Relay (ER).

To quickly grasp the impact of ER, it can be summed up in one sentence: MEV is not unavoidable; everyone can be a winner.

Benefits of Using Pyth Express Relay (PER):

Protocols and Users: Better reclaim value previously captured by miners/validators.

Developers: Deploy applications more quickly.

Searchers: Participate in liquidation and other processes more easily, benefiting both themselves and others.

How PER Works:

PER is designed to minimize miner MEV by isolating certain transactions through off-chain order flow auctions. This means ER connects DeFi protocols directly to a custom searcher network, allowing searchers to bid for transaction priority. These transactions are ordered through an independent auction, free from miner control, eliminating their ability to extract MEV value.

In essence, transactions are pre-filtered, sorted, optimized, and bundled before reaching the miners. By the time transactions are submitted for miner sorting, their value has already been efficiently allocated.

Key Advantages:

By allowing DeFi protocols to auction the priority of these critical operations, Express Relay encourages searchers to compete more actively for transaction value. A direct benefit is that DeFi protocols can spend funds more effectively on setting liquidation rewards and similar activities, passing these savings on to protocol users and other stakeholders.

If you’re still unclear, the following illustration strips away all the technical details to show the difference between using Express Relay and not using it:

• Left Side: Traditional transaction workflow where the value created by the protocol is leaked to block miners.
• Right Side: Express Relay eliminates the miners’ ability to extract value from searchers’ scanning opportunities, allowing the DeFi protocol to capture most of the value from searchers.

In simple terms, the value flow of transactions no longer goes to the miners.

We can also use an actual workflow to further understand how Express Relay protects value.

Related roles

Key Roles:

1. Protocol: The DeFi protocol submits transaction opportunities (e.g., potential arbitrage or liquidation opportunities) to the auction server.
2. Auction Server: The auction server receives transaction opportunities from the protocol and exposes them to searchers, who bid on these opportunities. The highest bidder wins, and their transactions are submitted back to the protocol.
3. Searchers: Searchers analyze the transaction opportunities and place bids. The winning searcher submits their transaction to the auction server, which then forwards it to the protocol.

Detailed Steps:

1. Submit Transaction Opportunities: The protocol identifies transaction opportunities and submits them to the auction server.
2. Bidding Process: The auction server displays these opportunities to all searchers. Searchers analyze them and submit their bid prices.
3. Select Winner: The auction server selects the highest bidder. The winning searcher submits their transaction to the auction server.
4. Submit Transactions: The auction server submits the winning transactions back to the protocol, which then packages and submits them to the blockchain network.

This isolated off-chain priority auction design connects DeFi protocols directly with searchers through secure auctions to enhance market-efficient transactions. Express Relay ultimately removes miners/validators from the MEV supply chain and gives protocols the keys to manage their own transaction priority, reclaiming control.

Instant Use, No Need to Start from Scratch

It seems that Express Relay addresses the first problem we mentioned earlier: the high costs of clearing DeFi protocols.

Another issue is that emerging DeFi protocols struggle to find reliable sources of clearing agents. Express Relay’s solution is “instant use.”

For early-stage protocols, Express Relay provides an accelerated deployment solution. Without Express Relay, developers need to build their own clearing network and convince searchers to integrate with their protocol. With Express Relay, new protocols can seamlessly connect to an established network of top searchers to kickstart their clearing needs.

Protocols don’t even need to go through any paper contract signing process. They can simply call the Pyth Express Relay contract and deploy it, quickly establishing their own clearing network.

At the same time, for searchers, Express Relay aggregates the clearing of multiple DeFi protocols and other valuable trading opportunities in one place. Searchers can compete for all these opportunities without having to write custom code for each protocol’s interface. By reducing integration costs, Express Relay enables searchers to operate more efficiently, solving the problem of finding clearing agents.

You might ask, with this setup, protocols are more convenient, but what if miners/validators can’t get the MEV value they used to and refuse to participate?

If more and more DeFi protocols and searchers adopt Express Relay, this technology will gradually become the industry standard. As adoption rates increase, miners will have to adapt to this new transaction model since most high-value transactions will go through Express Relay or similar technologies.

Moreover, considering Pyth Network’s extensive connections in the oracle space, Express Relay can collaborate with multiple major DeFi protocols, forming an alliance to jointly promote this technology, increasing its adoption rate and influence.

After all, who wouldn’t like a ready-to-use, beneficial solution?

Seemingly Diversifying, Actually Growing Stronger

Pyth Network is still closely associated with oracles in people’s minds. Therefore, it’s easy to question whether venturing into MEV (Maximum Extractable Value) is a distraction from their core mission. Can they effectively manage multiple roles?

The situation is quite the opposite.

The broad network mentioned earlier has already proven its value in Express Relay. The existing oracle business acts as a foundation, creating a significant and transferable network effect on both the supply and demand sides.

From the supply side, take the searcher network built by Express Relay, for instance. The top market makers previously collaborating with Pyth have already committed to acting as searchers for the new product. Official information indicates that seven market makers—Wintermute, Flow Traders, Flowdesk, Auros, Caladan, Tokka Labs, and Swaap Finance—have quickly become searchers, assisting DeFi protocols with clearing operations.

By leveraging its extensive network and connections within the oracle space, Pyth Network is not only branching out but also strengthening its position in the DeFi ecosystem. Their involvement in MEV and the creation of Express Relay exemplifies how they are harnessing their established relationships to create a more integrated and efficient clearing solution, further solidifying their industry presence.

This means Pyth’s Express Relay hardly needs to worry about the cold start problem. Several top market makers naturally “bring their own funds” to become pioneers of this newly established searcher network. This is an unparalleled advantage for a new MEV-related project.

On the demand side, most projects already serviced by the existing oracle business are in the lending and perpetual contracts (Perps) sectors of DeFi. These projects need price feeds and clearing network support. If both needs can be met by different products offered by Pyth, why not take advantage of it?

This is very similar to traffic monetization in Web2. Once you have traffic, you can rely on your user base to expand into more businesses. For Pyth, the previous oracle business has already accumulated a legitimate, extensive, and closely-knit business foundation. With over 100 data publishers, 500+ price feed data points, 300+ integrated dApps, and support for 60 chains, the golden shovel effect is not only evident in the airdrop domain but also in business expansion and migration, acting as a catalyst.

The Future of a Multi-Talented Star

In the entertainment industry, it’s common for actors to branch into singing when they excel in their craft. Similarly, Pyth Network is evolving into a multi-talented entity, expanding from oracles to MEV. They address multiple crucial, behind-the-scenes needs that users may not notice but are essential for projects.

When a project becomes a comprehensive coordinator in the crypto world, providing DeFi protocols with more efficient and cost-effective services, the streamlined backstage work enables the frontend actors to perform better, and the audience enjoys a better experience. The better Web3 has never been about individual project heroism, but the efforts of behind-the-scenes contributors deserve recognition.

For more information about Pyth Express Relay, visit the official Express Relay website.

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