If there is something that the FTX collapse has taught us, it is that people don’t trust centralized exchanges anymore, so one trend we expect to see more in 2023 is people turning to DeFi more and more.
As we’ve seen, the second biggest crypto exchange in the world had close to nonexistent financial hygiene, no security protocols, no collateral coverage of their printed tokens, and the most important thing is that it wasn’t regulated outside of the US. People lost their savings, hedge funds lost their investors’ money, projects collapsed, and the bear market deepened even more, but, on the positive side, people will become more diligent with their investments, and web3 teams will have to become more responsible and transparent.
But this comes with a new challenge — MEV (maximal extractable value).
When moving more and more funds to a DEX (decentralized exchange), miners are taking advantage of something called MEV (maximal extractable value). Next year, we expect to see developers trying to flip the table on the MEV by switching the profit from the miner to the protocol or blockchain through on-chain arbitrage and cross-chain arbitrage.
How this works is that, in most cases, transactions are simply organized by transaction fee, such that the highest fee/byte transactions are included first, whereas the lowest fee transactions above the threshold for inclusion are included last to ensure the blockchain block is filled.
But thanks to DeFi and decentralized exchanges (DEXs) in particular, it will be possible to order transactions in such a way as to guarantee an additional profit through what is known as a “sandwich attack”. This basically means that if a miner has to broadcast a buy transaction for a specific token onto the blockchain, he will be able to interpolate a sell transaction that generates an additional profit.
For example, on Humans.ai, where we run an AI directly on a chain, a researcher can come along and create a flashbot that analyzes the on-chain data knowing when to sandwich a transaction that benefits a pool created by the community, which allows said flashbot to do trades that benefit the stakers of that pool.
This way, we will switch the profit that would be generated by a miner by sandwiching transactions to the stakers, creating protocol revenue for its holders.
This would be a very important trend on the technical side.
On the macro level, we will see more advanced implementations between blockchain and other technologies, such as artificial intelligence, to help keep track with the rapid development of AI solutions that is happening right now. Using blockchain to store and distribute AI models will provide an advanced audit trail and enhance data security for AI development.