Paradigm leads $7.5 million seed round for Sorella Labs that aims to solve Ethereum's MEV problem

Sorella Labs, a crypto startup building tools aimed at solving Ethereum's maximal extractable value (MEV) issue, has raised $7.5 million in a seed funding round.

Paradigm led the round, with Uniswap Ventures, Bankless Ventures, Robot Ventures and Nascent participating, Sorella Labs said Tuesday. The firm closed the seed round last September but is announcing it today as it emerges from stealth with one of its MEV tools now live, co-founder and CEO Ludwig Thouvenin told The Block. He declined to comment on the structure of the seed round, valuation or whether any of the investors have taken a board seat at Sorella, either advisory or directorial.

Thouvenin co-founded Sorella Labs in 2022 with Karthik Srinivasan, both university dropouts. The duo met that year at the University of Chicago, where their interest in blockchain technology quickly deepened. Seeing the potential for innovation in the crypto space, they decided to leave the university and start Sorella, Thouvenin said.

What is Sorella Labs?

Sorella Labs is developing tools to tackle Ethereum's maximum extractable value issue. MEV refers to the profit validators or bots that can extract by reordering, inserting or censoring transactions within a block. Common MEV strategies include front-running (executing trades before others), sandwich attacks (trading before and after large transactions) and arbitrage (profiting from price differences across platforms). These practices can result in higher costs for DeFi users and give an unfair advantage to those with more resources.

"We knew that MEV was extremely pervasive on Ethereum, but it was crazy to see to what extent," Thouvenin said. "It is quite rare to find a block with no MEV on it."

Thouvenin said over $855 million has been lost to MEV actors to date since Ethereum's Merge upgrade in September 2022, according to Sorella's internal analysis. This figure is a lower-bound estimate, he added.

To help prevent such MEV losses, Sorella Labs is working on two tools — Brontes and Angstrom — with the former going live today.

Brontes is an open-source blockchain analytics tool that processes Ethereum blocks, classifies transaction actions and identifies MEV through pattern matching and analysis, Thouvenin said. He described it as "an open-source Etherscan with custom block analysis capabilities."

Angstrom, on the other hand, will launch as a Uniswap V4 hook, Srinivasan told The Block. It will use Sorella's off-chain network to run two auctions per block. The first auction determines who transacts first, and the second is a batch auction where all orders are executed at the same price, preventing common forms of arbitrage in decentralized exchanges, Srinivasan said.

Angstrom is expected to launch once Uniswap V4 is live on mainnet later this year. Sorella will first deploy V1 of Angstrom on mainnet, then plans for V2 to expand to many Layer 2s deployed on Ethereum, Srinivasan said.

Sorella vs. Flashbots

Flashbots, another Paradigm-backed crypto firm, is also focused on addressing Ethereum's MEV problem. Flashbots raised $60 million in a Series B round last year and reached a valuation of at least $1 billion.

When asked how Sorella differs from Flashbots, Thouvenin said Flashbots targets MEV infrastructure at the Ethereum protocol level, and Sorella focuses on mitigating MEV at the application layer.

"The most blatant MEV extraction currently lies in decentralized exchanges, where liquidity providers are losing money due to sophisticated arbitrage and users face suboptimal execution quality due to sandwich attacks," Thouvenin said. "This not only undermines trust in decentralized systems but also hampers the growth and efficiency of the Ethereum ecosystem."

Thouvenin said Sorella works "very closely" with Flashbots, as their approaches to MEV mitigation complement each other.

Currently, around 15 people are working for Manhattan-based Sorella Labs. Thouvenin plans to expand the team by hiring MEV researchers, Rust developers and systems engineers.

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