Maximal Extractable Value (MEV) refers to the maximum value that can be extracted from the block production process on a blockchain, beyond the standard block reward and gas fees
12. This value is generated by including, excluding, or changing the order of transactions within a block
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MEV is a natural consequence of blockchain activity and is a byproduct of the power dynamics between a network's security providers (miners or validators) and its users
35. While it can be minimized, controlled, and redistributed, it cannot be fully removed from blockchains
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Terminology Shift
The term MEV was originally known as
Miner Extractable Value because, in Proof-of-Work (PoW) systems, miners controlled the inclusion, exclusion, and ordering of transactions
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Following Ethereum's transition to Proof-of-Stake (PoS) via The Merge, validators took over these roles
1. To encompass all value extractable by privileged actors, including validators, the term was rebranded to
Maximal Extractable Value 14.
MEV extraction is possible because transactions are typically sent to a publicly accessible staging area called the Mempool before being included in a block
4. Security providers (miners, validators, or sequencers) become first-class citizens of the network, allowing them to generate additional profits by selectively manipulating user transaction requests
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Common examples of how MEV is extracted include:
- Arbitrage Opportunities Malicious actors can view a trade in the Mempool and pay higher gas fees to ensure their own trade is processed first, allowing them to realize arbitrage opportunities 2.
- Front-running and Sandwich Attacks These are examples of Mafia Extractable Value (Mafia EV), which arises when an actor gains asymmetric knowledge of a user's transaction intent and exploits the targeted user 3.
Impact of MEV
MEV creates both positive and negative externalities for blockchain networks
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MEV has become particularly prominent in the Ethereum staking ecosystem, where it enables more efficient and decentralized block creation by dividing responsibilities among specialized agents
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MEV Mitigation
To address the challenges of MEV, solutions have been developed:
- MEV Middleware This software enables Ethereum validators to source blocks from a builders' marketplace, creating a transparent and mutually beneficial MEV market 6. MEV-Boost, developed by Flashbots, is an open-source example of this middleware 6. Over 88% of blocks on Ethereum are proposed by validators running MEV-Boost 6.
- MEV Resistance Some blockchains, like Injective, aim to be MEV-resistant by utilizing mechanisms such as the first decentralized application of a Frequent Batch Auction (FBA) process for ordering transactions 2. This approach ensures that any MEV value is given back to users operating within the network 2.