Can a Validator Also Act as a Market Maker in a DeFi Protocol?
Yes, a validator can technically act as a market maker. They can run a searcher bot that identifies arbitrage opportunities within a DeFi protocol (acting as a market maker by providing liquidity for a profitable trade) and then use their validator power to ensure their arbitrage transaction is included and sequenced optimally within the block.
This combines the MM function with MEV extraction power.
Glossar
Arbitrage Opportunities
Opportunity ⎊ Within cryptocurrency, options trading, and financial derivatives, arbitrage opportunities represent discrepancies in pricing across different markets or exchanges for identical or highly correlated assets.
Market Maker
Genesis ⎊ The concept of a market maker within cryptocurrency derivatives, options trading, and broader financial derivatives fundamentally addresses liquidity provision and price discovery.
Validator
Role ⎊ A validator is a critical network participant in a Proof-of-Stake blockchain responsible for proposing, verifying, and attesting to new blocks of transactions to maintain consensus and secure the distributed ledger.
Validator Power
Power ⎊ Validator Power is the authority granted to a network participant, typically through staked capital in a Proof-of-Stake system, to propose and finalize new blocks of transactions on the distributed ledger.