About the editor: Spencer Noon is Co-founder & General Partner at Variant Fund.

Note from the editor:

Today’s newsletter covers multiple topics, one of which is MEV. For those of you who are new to this concept, I recommend checking out the below overview and video:

MEV stands for Maximal Extractable Value (previously defined as Miner Extractable Value). On any smart-contract blockchain, MEV is the maximal value that can be permissionlessly extracted from transaction ordering. This includes both 'basic' value such as transactions fees and block rewards, as well as 'advanced' value such as any kind of arbitrary inclusion, exclusion and re-ordering of transactions.

On Ethereum today, miners have the most permissionless power with respect to transaction ordering. MEV exists on both layer 1 and layer 2 architecture, and will still exist in the future after Ethereum shifts to 2.0. (Source: Flashbots)

Network coverage:
Coverage on Lens, Farcaster, plus MEV on Ethereum and Solana.

• Lens Protocol is a composable and decentralized social graph, incubated and supercharged by AAVE Companies. Launched in May 2022, days after the UST death spiral and weeks before the 3AC fallout, market conditions have hampered Lens’ organic growth. Still, the protocol has surpassed 63k profiles minted to-date (across ~59k unique holders), with high volume spurts seen around strategic growth enabled partnerships.

• Its most popular app – Lenster, a “web3 Twitter” - has amassed nearly 250k posts. Following a second partnership with learn and earn platform, RabbitHole, the protocol saw average daily posts jump from ~2k to ~4k. Despite some regression, daily posts remain elevated well above the June–August plateau.

• Lens uses NFTs on the Polygon network to mint and trade profiles, collect posts, and bring your following across applications. Over 37k MATIC (~$30k) has been used for gas fees on Lens since launch, with those high volume events and open addition mints aligning with surges in daily gas fees consumed.

• Two early Coinbase employees (Dan and Varun) have been building a new chapter of Web3-native social app that they call a “sufficiently decentralized” social network. Basically, Farcaster is a cross between signing messages on-chain from wallet identity, RSS, and early days of the open Twitter platform. In the past year, Farcaster has reached 100k “casts” from nearly 1k monthly active users on the network.

• Farcaster has a web3-first “identity” that links across multiple platforms and wallets. For example, 58% of users have linked an on-chain NFT as their profile picture, by proving their ownership. Eventually, users will be able to link wallet details using zero-knowledge proofs.

• The combination of an open platform and new available primitives seems to be fertile ground for experimentation. So far, 20 projects have been built in the recent months. These include open tools for search, bookmarking, overall network usage, events, and more.

• Flashbots is a R&D organization formed to mitigate the negative externalities posed by MEV to stateful blockchains, starting with Ethereum. With the Merge upcoming, MEV payments from Flashbots auctions on Ethereum will be moving from miners to validators. Chorus One is a staking provider that is actively participating in MEV research. Our most recent contribution from analyst Umberto is a Dune dashboard that looks at the value extracted and split between types and participants. It also contains a first analysis of sandwiching - a type of “bad” MEV - which turns out to make up a majority of the estimated $774.21m extracted.

• In total, 1,406 unique searchers participated in MEV through Flashbots over the last year, with about 100 of them being active on a daily basis.

• For both sandwiching and arbitrage, a very small subset of searchers end up taking most of the profits. The most profitable one netting $39m, which corresponds to over 30% of the total profits of $125.7m (after subtracting miner payments) made by arbitraging DEXes this past year.