A Day in the Crypto World, A Year in the Real World

This saying not only highlights the rapid price fluctuations of assets in the crypto world but also emphasizes the swift business developments of projects. When revisiting a project after a short period, what new developments might one expect?

Recently, the leading oracle project Pyth Network quietly launched a countdown page on its official website, accompanied by intriguing hints: “Take back control, DeFi will be different.”

On July 11, coinciding with the EthCC conference, Pyth Network unveiled the mystery behind this countdown—a brand-new product called Express Relay, directly addressing the elusive yet troublesome issue of MEV (Miner Extractable Value) in the crypto dark forest.

Thus, the “control” to be taken back refers to the value in DeFi projects and users that should rightfully be theirs but has been snatched away by MEV. If you are a crypto practitioner or trader, you likely understand the cost increase problems that MEV brings when building projects and trading.

But why can a project focused on oracles solve the problems brought by MEV? Previously, Pyth’s functions primarily impacted the initial stages of DeFi business (price feeding). Targeting MEV now might indicate that Pyth has expanded its services into the core of DeFi operations (trading/liquidation).

From providing better data sources for DeFi protocols to improving the actual operations of the business itself, how does Express Relay achieve this technically? What are the chances of success for Pyth Network’s seemingly “off-track” business expansion?

In this article, we will delve into Express Relay and seek answers to these questions.

The Inescapable Dark Forest: DeFi Projects Hunted by MEV

To understand Express Relay, one must first examine the problems faced by today’s DeFi projects. An often unnoticed but objectively existing reality is that in the crypto dark forest, DeFi projects are actually vulnerable entities, constantly hunted by MEV (Miner Extractable Value). Both DeFi projects and their users collectively pay a higher price in this hunt.

Rather than providing a detailed explanation of MEV, let’s use a common DeFi operation—liquidation—to illustrate:

1. Initiation of Liquidation: In DeFi protocols (e.g., lending platforms), the liquidation process is triggered when users’ collateral becomes insufficient to cover their debts.
2. Searchers in Action: Searchers, individuals who specialize in finding and executing liquidation opportunities, begin their operations. They are incentivized to perform liquidations because DeFi protocols offer rewards. These rewards typically come from protocol fees or direct liquidation bonuses, motivating searchers to execute these actions.
3. Miners and MEV: Because miners (or validators) control the order of transactions, searchers must pay higher tips to ensure their transactions are prioritized. Consequently, miners extract greater value.
4. Outcome: This results in the MEV issue where the majority of the rewards paid by the DeFi protocol end up with the miners rather than the searchers or protocol users.

Express Relay aims to address these challenges by offering a solution that mitigates the adverse effects of MEV, ensuring that DeFi projects and users retain more of the value rightfully theirs. In the following sections, we will delve deeper into how Express Relay technically achieves this and the broader implications for the DeFi ecosystem.

Consider the situation similar to ordering takeout, where the final price is higher despite the base price of the food remaining the same. This is because the platform and delivery services take a cut, leading to an increased final cost.

For DeFi projects, the problems brought by MEV create a situation of “overpaying” for liquidation bonuses, effectively making liquidations more expensive. To ensure timely liquidations and to attract searchers, lending protocols must offer high rewards. This means a larger portion of funds goes toward these fees instead of improving other aspects of the protocol’s efficiency and returns.

Public data shows that historically, Aave and Compound on Ethereum have liquidated nearly $2.5 billion worth of collateral. Out of this, $2.35 billion represents the debt itself, meaning $150 million was paid out as liquidation rewards. However, a significant portion of these rewards ended up with the miners.

A 4-5% liquidation bonus, compared to regular order depth, seems excessively high. When these rewards are overpaid, the additional costs are likely passed on to users through higher interest rates or other fees.

Besides the high costs, another critical issue is that new DeFi protocols struggle to find reliable liquidators. Liquidations are fragmented across various protocols with different interfaces, resulting in a shortage of available liquidators. Many potential searchers might hesitate to become liquidators due to this fragmentation, leading to low protocol usability and searcher diversity.

For emerging DeFi protocols, establishing a reliable and cost-effective liquidation network is time-consuming and expensive. Developers must spend considerable time and resources convincing searchers to integrate their protocols, all while contending with the MEV issue.

In the dark forest environment, difficult for end-users to perceive, there is a persistent lack of a unified, public, and user-friendly industry standard for processes like liquidation and other DeFi operations.

There is a need for a solution that:

• Redirects the value lost to MEV back to DeFi protocols, users, and searchers.
• Connects DeFi protocols to a high-quality network of searchers to ensure reliable liquidations.

This is the foundational idea behind the introduction of Pyth Express Relay. It aims to create a more efficient and cost-effective liquidation process, mitigating the adverse effects of MEV and providing a robust solution for DeFi protocols.

Express Relay: Efficient Order Flow Auctions to Reclaim Lost Value

An oracle is more than just an oracle. Douro Labs, the team behind Pyth Network, has leveraged their experience in developing low-latency data oracle protocols to experiment with a solution that makes the DeFi liquidation process more cost-effective and minimizes the impact of MEV. This solution is what we now know as Pyth Express Relay (ER).

What is Pyth Express Relay?

In essence, Express Relay (ER) is designed to ensure that MEV is not an inevitable cost, making everyone a winner.

Benefits of Using PER for Different Participants

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

Developers: Faster application deployment.

Searchers: Easier participation in liquidation and other processes, benefiting both altruistically and personally.

Implementation Details of PER

The core design philosophy of PER is to reduce miners’ MEV space by isolating and auctioning off-chain order flows. Essentially, Express Relay allows DeFi protocols to connect directly to a self-established searcher network and permits searchers to bid for transaction submission priority. These transactions are then ordered through an independent auction, free from miner control, eliminating their opportunity to extract MEV value.

This means that before transactions are handed over to miners for ordering, they have already undergone a round of selection, sorting, optimization, and bundling. The value is clearly allocated before reaching the miners.

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

If you still don’t understand, the above picture abstracts away all the technical details and tells you the difference between using Express Relay and not using it in the most intuitive way:

In contrast to the traditional transaction workflow shown on the left, where the value created by the protocol is leaked to block miners, Express Relay removes the ability of miners to extract value for searchers to scan for opportunities and enables DeFi protocols to extract value from searches get most of the value there.

In simpler terms, the value of transactions no longer flows to the miners.

We can also further understand Express Relay through an actual workflow How to protect value?

Key Roles

• Protocol: DeFi protocols submit transaction opportunities (e.g., potential arbitrage, liquidation opportunities) to the auction server.
• Auction Server: Receives transaction opportunities from protocols and makes them available to searchers, who then bid on these opportunities. The auction server selects the highest bidder and submits the winning transactions back to the protocol.
• Searchers: Analyze and bid on transaction opportunities provided by the auction server. The winning searchers submit their transactions to the auction server, which then forwards them to the protocol.

Detailed Steps

1. Submit Transaction Opportunities: Protocols identify transaction opportunities and submit them to the auction server.
2. Bidding Process: The auction server presents these opportunities to all searchers, who analyze and submit their bid prices.
3. Selecting the Winner: The auction server chooses the highest bidder among the searchers. The winning searcher then submits their transaction to the auction server.
4. Submitting Transactions: The auction server sends the winning transactions back to the protocol, which packages and submits them to the blockchain network.

This isolated off-chain priority auction design connects DeFi protocols directly with searchers through secure auctions, enhancing market efficiency. Ultimately, Express Relay removes miners/validators from the MEV supply chain and gives protocols control over the priority of their transactions, regaining control over value allocation.

Ready to Use, No Need to Start from Scratch

It appears that Express Relay has addressed the first issue we previously mentioned: the high cost of liquidation in DeFi protocols.

Another problem is that emerging DeFi protocols struggle to find reliable liquidators. Express Relay’s solution to this is “ready to use.”

For early-stage protocols, Express Relay offers an accelerated deployment solution: without Express Relay, developers need to build their own liquidation 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 initiate their liquidation needs.

Protocols don’t even need to go through the process of signing paper contracts; they can directly call the Pyth Express Relay contract and deploy it to quickly establish their own liquidation network.

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

You might ask, while this operation makes things more convenient for protocols, what if miners/validators are unhappy because they no longer receive the MEV (Miner Extractable Value) they used to get?

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

Additionally, considering Pyth Network’s extensive partnerships in the oracle space, Express Relay can collaborate with multiple major DeFi protocols to form an alliance promoting this technology, increasing its adoption and influence.

After all, who wouldn’t like a ready-to-use solution that also offers benefits?

Seemingly Off Track, But Actually Expanding and Strengthening

Pyth Network is still largely associated with oracles in everyone’s minds. So, it’s easy to question whether venturing into MEV (Miner Extractable Value) from oracles seems like going off track. Can they successfully manage both roles?

Contrary to these concerns, the situation is quite favorable. The extensive partnerships mentioned earlier are already benefiting Express Relay. The existing oracle business is more like a wide-reaching network that creates significant, transferable network effects on both the supply and demand sides.

From the supply side, take the searcher network built by Express Relay as an example. The top market makers who previously partnered with Pyth have already confirmed their roles as searchers in the new product. According to official information, seven market makers—Wintermute, Flow Traders, Flowdesk, Auros, Caladan, Tokka Labs, and Swaap Finance—have quickly become searchers assisting DeFi protocols with liquidation services.

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

On the demand side, most projects served by the existing oracle business are in DeFi fields such as lending and Perps (perpetual contracts), which not only require data feeds but also need liquidation network support. If both needs can be met by different products from the same provider, Pyth, why not take advantage of it?

This situation is very much like traffic monetization in Web2. Once you have traffic, you leverage your user base to expand into more businesses. For Pyth, the previous oracle business has already accumulated a legitimate, widespread, and closely-knit business foundation.

With over 100 data publishers, 500+ price feed data points, 300+ integrated dApps, and support for 60 blockchains, the “golden shovel effect” not only plays a role in the airdrop domain but also significantly aids in business expansion and migration.

The Future of a Versatile Star

In the entertainment industry, it’s common for artists to transition from acting to singing as their careers progress. Similarly, Pyth Network is evolving into a versatile performer in the crypto space. When business capabilities are strong and different business lines are interconnected, Pyth Network is branching out from oracles to MEV, addressing crucial behind-the-scenes issues that are vital for projects but not easily perceived by users.

When a project becomes a master orchestrator in the crypto world, providing DeFi protocols with more efficient and cost-effective services, the behind-the-scenes work becomes streamlined. This allows the front-end actors to perform better and gives the audience a better experience.

A better Web3 has never been about individual heroism of a single project, but the efforts of behind-the-scenes contributors deserve recognition as well.

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

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