Protorev Module and Comsos Tax CLI Support Requirements

Protorev

• Module Release: Osmosis v15 - source
• Module functionality: To capture MEV opportunities in-protocol, execute cyclic arbitrage opportunities and distribute the revenue back to the protocol based on governance

Deeper Dive

A company named Skip analyzed the MEV opportunities in Osmosis using tooling developed by community members and came up with a way to do MEV on-chain. This will allow the protocol to take advantage of MEV internally and distribute the profits back to the community.

The way they do this is by:

• Analysing all swap transactions for post-swap multi-hop arbitrage opportunities
• Execute these arbitrage swaps on-chain to make a profit
• Distribute the profit to the community (as well as a share of the profits to the developers of protorev)

Taxable Implications

The taxable implications of this module are all rewards based.

Developer Rewards

The developers of the protorev module are paid in weekly rewards, the amount decreasing yearly.

This means we will need to check for the following:

1. Protorev rewards are distributed at Epoch on a weekly basis - source
2. They are sent from the Protorev Module account to the developer account - source
3. They are sent using the Cosmos SDK bank module SendCoinsFromModuleToAccount - source
4. This function calls the bank send keeper function SendCoins - source
5. This function emits transfer events which will contain the protorev module address as the sender

Using this information, we will be able to check for protorev developer reward distributions.

Community Rewards

I cannot find any information on if/how rewards are distributed to the community. It is my belief that this code has not been implemented yet.

I have looked through all documentation on protorev, and the only reward distribution discussed is that for the developers of the protorev module.

I have also looked a bit through the protorev codebase, and I have only seen reward distribution at Epoch to the developer account.

I could be wrong here, we may want to keep digging or reach out to the Osmosis team to see if this is still in the works.