The Completion of Our OP Grant: Defining an Encrypted Mempool for the OP Stack

Today marks a significant chapter in the progress of our grant by the Optimism Collective. We are proud to announce the completion of all deliverables and milestones in our project to research and evaluate an encrypted mempool for the OP Stack. This achievement is not just a technical feat; it's a leap towards a more secure, fair, and resilient blockchain ecosystem.

This advancement aims to tackle front-running and enhance DeFi trading security. Key achievements include:

• Defining front-running mitigation requirements.
• Assessing economic and IT feasibility.
• Developing an architectural blueprint.
• Educating through a blog post and mock demonstration. (This blog post.)
• Creating a decision-making framework for future implementations. 

As a next step for this grant, we recommend that the OP Collective support the Shutter team in adding this module to the OP Stack. 

Our next step is implementing Shutter in an OP Stack rollup, with a devnet/testnet launch expected soon. This project enhances security and exemplifies the modular, flexible nature of the OP Stack.

If you're building an L2, we've partnered with most major RAAS (Conduit, Gelato, Gateway, AltLayer, Zeeve, Caldera) to make integrating Shutter easier for your rollup. See below for the next steps on how to proceed!

A Recap of Our Journey

Our journey began with the vision of creating an encrypted mempool for the OP Stack, using threshold encryption to combat front-running and malicious MEV (Maximal Extractable Value). This initiative aimed to enhance base layer neutrality and censorship resistance, fundamental principles of public blockchains like Ethereum and Optimism. 

We are committed to creating a more secure and equitable trading environment for all DeFi users.

The Milestones Achieved: A Step-by-Step Breakdown

1. Front-Running Mitigation Requirements Defined: We established precise requirements for OP Stack rollups to mitigate front-running. This step was crucial in setting a focused direction for secure and transparent transaction processing.
2. Economic Analysis and IT Viability Assessed: Our team undertook a comprehensive analysis to evaluate the economic and IT feasibility of integrating Shutter with the OP Stack. The objective was to balance the cost of front-running protection against the potential avoidance of loss for users.
3. Architectural Blueprint Developed: A detailed architecture diagram was created, providing a visual guide for integrating Shutter within the Optimism ecosystem. This blueprint was instrumental in guiding our development efforts and offering stakeholders a clear understanding of the system's structure.

4.1. Educational Blog Post and Mock Sequencer Showcase: We authored this in-depth blog post detailing our project's progress with a mock rollup sequencer demonstration.

4.2. Decision-Making Document for Future Implementation: The final deliverable was a decision-making document. It outlined potential trade-offs and provided strategic options for MEV mitigation in future stages of the project.

Encrypted Mempool for the OP Stack - A Demo Showcase

As an early technology demonstration, we've integrated Shutter with a mock rollup sequencer and a shutterized encrypted mempool showcasing a DeFi transaction on a standard AMM.

We have prepared a video demonstration of this here:

You can find out more on this at this GitHub repo.

Improving Transaction Security in Ethereum's DeFi with Shutterized Optimism

The proposed integration of "Shutterized Optimism" into the OP Stack marks a step towards enhancing security and efficiency in Ethereum's decentralized finance (DeFi) ecosystem. This initiative focuses on deploying a threshold encryption-based approach, effectively countering front-running and other malicious MEV vulnerabilities.

Strengthening DeFi Transactions

At its core, Shutterized Optimism targets one of DeFi's most pressing challenges: front-running risk. This mechanism provides a fortified layer of security, allowing users to execute transactions with heightened confidence and reduced risk.

The design is not just about safeguarding transactions; it also facilitates sequencer operators' demonstration of their commitment to ethical practices by avoiding front-running and transaction censorship. This feature is crucial in aligning with regulatory compliance while enabling operators to participate in legitimate back-running MEV activities.

Beyond security enhancements, this integration is meant to enrich the trading experience within the DeFi landscape. By curbing malicious MEV practices, "Shutterized Optimism" paves the way for a safer and potentially more lucrative trading environment. This development is vital for attracting new participants to the Ethereum ecosystem, contributing to its overall growth and resilience.

Technical Blueprint and User Accessibility

"Shutterized Optimism" is architecturally rooted in the existing frameworks of the OP Stack and Shutter, ensuring a robust and seamless integration. This system is designed to be user-friendly, facilitating encrypted transactions through an intuitive front-end library and minimizing the need for user-side adjustments.

The architecture is designed to preempt and mitigate potential system challenges. Features like emergency switches address issues like liveness failures, while pre-commitment protocols counteract sequencer side-channel attacks. These proactive measures are fundamental to preserving the system's integrity and reliability, safeguarding it against a spectrum of security threats.

Conclusion

Adopting "Shutterized Optimism" in the OP Stack represents more than a mere enhancement; it signifies an evolution in securing blockchain transactions. Focusing on efficiency, user-centricity, and robust security, it sets a new benchmark in the blockchain ecosystem, heralding a future of safer and more reliable DeFi transactions.

Economic Viability of Shutter Integration

The integration of Shutter into the OP Stack is motivated by the substantial financial losses incurred by users due to MEV on Ethereum. Data analysis reveals that a significant number of transactions could benefit from this integration. Specifically, around 20,000 weekly transactions on Optimism are estimated to gain from enhanced encryption, underscoring the pressing need for this solution. This integration aims to mitigate front-running and improve trading safety for DeFi users, making the platform more attractive and trustworthy.

How Does Shutter Work?

Shutter functions by providing additional layers of security to transactions. It leverages threshold encryption to create a shielded mempool, protecting transactions from potential front-running and other MEV-related exploits. This mechanism enhances trading safety and offers sequencers a credible claim against their ability to front-run or censor transactions, which is crucial for compliance and regulatory benefits.

Economic Analysis and Viability

Our economic analysis, rooted in Zeromev data, focuses on Ethereum transactions and their vulnerability to front-running. By evaluating the financial impact of these vulnerabilities, we establish that encrypted transactions might experience a fee increase of approximately 37.5%, with an additional cost of about 6 cents per transaction. Despite this fee hike, the advantages offered by Shutter – in terms of security and efficiency – justify this investment.

This analysis considers the fixed system costs for operating key generation infrastructure and the per-transaction costs associated with larger L1 calldata footprints. The decryption overhead, while an additional computational step, has a negligible impact on overall costs due to the relatively low computation costs on Optimism compared to L1 calldata costs.

A Worthwhile Investment

Integrating Shutter into the OP Stack is not only a technically feasible endeavor but also an economically viable one. The slight increase in transaction fees is a small price to pay for the substantial benefits of security and efficiency that Shutter offers. This integration is particularly relevant for transactions prone to significant MEV losses, marking a step forward in making DeFi platforms like Optimism more secure and user-friendly.

Keys to Our Success

This journey would not have been possible without the Optimism community's support and our team's dedication. We sincerely thank everyone who believed in our vision and contributed to these advancements through the grant.

Summary and outlook

The completion of our grant from the Optimism Collective marks a pivotal moment in our project, aimed at integrating an encrypted mempool into the OP Stack. We delivered the requirements, architecture, economic and IT viability study, demo, and decision-making template.

Our recommendation, informed by the decision-making template we established, is for the OP Collective to instruct (and possibly provide a follow-up grant to) the Shutter team to build and incorporate the encrypted mempool as a module for the OP Stack with a separate specification sanctioned by OP Collective.

We are already making strides in implementing Shutter into an OP Stack rollup, with an early devnet/testnet expected later this month.

Next steps if you're building an L2

We've partnered with most major RAAS, such as Conduit, to make integrating Shutter easier for your rollup.

We're looking for partners who will be the first L2s to integrate a threshold encryption-based mempool. Contact us if you're launching or have already launched an OP Stack rollup.

The first step would be launching a testnet together, which we hope to have ready by the end of November.

If an L2 would like to move on with the production integration, these are the steps and work required from you and your RAAS that we anticipate:

Join Us in Shaping the Future of the OP Stack

We invite you to stay engaged with our progress as we continue to innovate. Your support and feedback are invaluable as we strive to make advancements like DeFi more accessible, secure, and equitable for everyone.

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