Wallchain, A New MEV Arbitrage Redistribution Mechanism

The unstoppable trend of MEV democracy is getting more materialized day by day.

Sep 28, 2023

The DeFi industry is buzzing with excitement over MEV (Maximal Extractable Value) redistribution. Previously, we discussed MEV Blocker's kickback system, which used three transactions. In contrast, Wallchain integrates the trader's signal transaction, back-run arbitrage, and refunds for both the trader and protocol into a single transaction.

Let’s look at a real-world case.

Here is the one-liner explaining the strategy of the transaction.

Strategy One-liner

Wallchain Transaction Upgrade Service combines swap and profit capturing in a single transaction and shares the profit between the DEX and the user.

Click here to view the bigger token flow chart below.

Key Steps

Stage 1: Swap

When a user (from address) submits a swap intention through the ApeSwap DEX, the DEX creates a transaction calling the standard ApeSwap Router to perform the swap. However, instead of sending it directly to a wallet for confirmation, it is sent to Wallchain Service API to check if a profitable upgrade is possible.

In this case, the profitable strategy has been found, and an upgraded transaction is sent in response to the API request (Otherwise, the API request will return the original transaction). The upgraded transaction is instead processed through the Wallchain Router, and three parties will receive a Swap Bonus.

In the token flow chart, Steps 0-5 correspond to the swap stage, and the user swaps 146 BNB for 24.7033 ETH at PancakeSwap.

Stage 2: Arbitrage

Following the swap stage, ApeSwap DEX's Wallchain Router calls Wallchain Master, 0x178...57bf3, to capture available arbitrage profit in the same transaction.

Steps 6, 10: Wallchain Master borrowed WBNB from Pancakeswap, using flash swap, to gather enough assets for the back-run arbitrage in Steps 7-9.
Steps 7-9: Wallchain Master finished the arbitrage between ApeSwap and PancakeSwap and reaped revenue of 6.1786 WBNB.

After deducting the flash loan fee of 0.227787 WBNB paid to Pancake, there is 5.9508 WBNB ($1,267.23 at the time) in the remaining profit available for distribution.

Stage 3: Distribution

In the last stage, Wallchain Master shares arbitrage proceeds with both the swap user and ApeSwap DEX.

Step 11: Wallchain Master distributes 1.785 BNB (30%) to the swap user's from address.
Step 12: Wallchain Master distributes 2.975 BNB (50%) to the ApeSwap treasury.

Finally, Wallchain Master keeps 1.190 BNB (20%) as its own reward. And the cost of the whole transaction is only $0.46!

Key Protocols

Wallchain: A MEV redistribution protocol integrates with DeFi platforms and helps capture these profits by combining user swap and searcher backrunning into a single transaction. Visit here to see how it works.
PancakeSwap: A leading DEX running on L1s like Aptos BNB Smart Chain, Ethereum, Polygon, and L2s like Arbitrum and Base.
ApeSwap: Another leading DEX on BNB Smart Chain, Ethereum, Polygon, and Arbitrum.

Key Addresses

User's EOA, marked as "from" in step 0: 0x5df43Cbb11d1014EA5410E941d94B85c9224b332.
Wallchain Master, in steps 6, 7, and more: 0x178C075a1d413f8637B3C6623c9501167D457bf3
ApeSwap's treasury wallet receiving arbitrage revenue, marked as "leaf" in step 12: 0x20ef6C5Ecfc0445B06FB70Cf991C6fFF27E09aB5
ApeSwap Router Manager in step 0: 0x5471F99bCB8F682f4Fd2b463Fd3609DadD56A929
ApeSwap Router in step 1: 0xcF0feBd3f17CEf5b47b0cD257aCf6025c5BFf3b7
ApeSwap Liquidity Pool trading ETH and WBNB in step 4: 0xA0C3Ef24414ED9C9B456740128d8E63D016A9e11
PancakeSwap Liquidity Pool trading ETH and WBNB in step 7: 0x74E4716E431f45807DCF19f284c7aA99F18a4fbc
PancakeSwap Liquidity Pool trading WBNB and CAKE for flash swap, a Flash Loan feature, in step 6: 0x0eD7e52944161450477ee417DE9Cd3a859b14fD0
BNB Wrapper in step 3: 0xbb4CdB9CBd36B01bD1cBaEBF2De08d9173bc095c.

Key Assets

$BNB, $ETH, $WBNB

Simplified Illustration

The red lines are the arbitrage loop done by Wallchain Master. The yellow lines indicate the flash swap done by Wallchain Master, while the MEV redistribution process by Wallchain Master is exhibited in red lines.

Step-by-step Decoding

Click the link to view the bigger token flow chart.

Step 0: The user sent 146 BNB to ApeSwap's Route Manager to swap for ETH.

Step 1: ApeSwap's Route Manager sent the user's BNB to ApeSwap's router contract.

Steps 2 and 3: ApeSwap's router contract wrapped the BNB as WBNB.

Step 4: ApeSwap's router contract sent the 146 WBNB to ApeSwap Liquidity Pool trading ETH and WBNB.

Step 5: ApeSwap Liquidity Pool trading ETH and WBNB sent the exchanged 24.7033 ETH back to the user. A back-run arbitrage opportunity was created.

Step 6. Using the flash swap feature, Wallchain Master borrowed 90.887 WBNB from PancakeSwap Liquidity Pool as the flash loan.

Step 7. Combined with its previous WBNB position, Wallchain Master sent 127.8327 WBNB to PancakeSwap Liquidity Pool trading ETH and WBNB.

Step 8: Asked by Wallchain Master, PancakeSwap Liquidity Pool trading ETH and WBNB sent 22.6722 ETH to ApeSwap Liquidity Pool trading ETH and WBNB.

Step 9: ApeSwap Liquidity Pool trading ETH and WBNB swapped 22.6722 ETH for 134.0113 WBNB and sent it to Wallchain Master.

Step 10: Wallchain Master paid back the flash swap with 91.1148 WBNB with the extra fee.

Step 11: Wallchain Master sent part of the back-run revenue, 1.7852 WBNB, to the user.

Step 12: Wallchain Master sent the left back-run revenue, 2.9754 WBNB, to ApeSwap's treasury wallet.

More Details

We can calculate the revenue of this transaction.

The revenue of the back-run arbitrage is 6.1786 WBNB, resulting from 134.0113 WBNB in step 9 minus 127.8327 WBNB in step 7.
The flash swap cost is 0.2278 WBNB, resulting from 91.1148 WBNB in step 10 minus 90.8870 WBNB in step 6.
The total profit of the back-run arbitrage comes down to 6.4908 WBNB, out of which the user received 1.7852 WBNB, and ApeSwap's treasury wallet received 2.9754 WBNB. Wallchain Master kept 1.1902 WBNB in this case.
MEV Redistribution Profit in total: 5.9508 WBNB. This table shows the MEV redistribution ratio for different parties.

Conclusion

MEV redistribution mechanisms like MEV Blocker, Wallchain, and MEV-Share are getting popular, which complicates the measurement of Order Flow’s value. If you don’t understand the worth of your order flows, you are risking suffering higher user churn rates and making business decisions blindfolded.

As an Order Flow originator or an Order Flow Auction provider, you need EigenPhi’s unique MEV Evaluation to quantify your order flows' value. It serves as a foundation for MEV-aware strategies among Order Flow Originators, enhancing execution quality for OFA providers. Visit bit.ly/mevbooklet to understand more about the benefits of MEV Evaluation, such as increasing fee revenue and deterring sandwich MEV and bundle thefts.

Wisdom of DeFi by EigenPhi

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