Why MEV Taxonomy Is a Governance Problem

Protocols like Uniswap and Curve claim their designs are neutral, but their very architecture creates predictable, extractable value flows. Defining this as 'good' or 'bad' MEV is a governance decision that picks winners.

• Arbitrage is 'good' for LPs but extracts from swappers.
• Liquidations are 'good' for protocol solvency but predatory for users.
• The taxonomy determines which actors get protocol-sanctioned rent extraction rights.

Networks like Anoma and applications like UniswapX and CowSwap reframe the problem. They don't classify MEV; they dissolve it by letting users express desired outcomes, not transactions.

• Searchers compete on fulfillment, not transaction ordering.
• Value capture shifts from block builders to solvers fulfilling user intents.
• Taxonomy becomes irrelevant; governance focuses on solver set permissioning and cost discovery.

PBS (Proposer-Builder Separation) and builders like Flashbots centralize taxonomy power. They decide transaction ordering, effectively defining what MEV is in practice.

• Protocols lose sovereignty over their own state transition logic.
• Governance becomes a negotiation between chain-level builders and application-layer developers.
• The conflict is unavoidable: who defines value extraction also controls the economic spine of the chain.

Automated Market Makers like Uniswap V3 expose liquidity providers to predictable loss via sandwich attacks and just-in-time liquidity. The protocol's design, which optimizes for capital efficiency, inadvertently creates a $1B+ annual MEV opportunity that directly taxes its core users.\n- LPs subsidize arbitrage and front-running profits\n- Oracle manipulation threatens DeFi composability\n- Solution space includes TWAMMs, private mempools, and CFMM innovations

Protocols like Aave and Compound rely on a permissionless liquidation mechanism, creating a zero-sum game between keepers and borrowers. The race for profitable liquidation bundles leads to network congestion and gas price spikes, socializing costs. This is a governance failure to design a fair, non-extractive safety mechanism.\n- Priority gas auctions (PGAs) waste ~$100M+ annually in gas\n- Keeper ecosystems (e.g., Keep3r, Maker's DSS) centralize risk\n- Solutions: Dutch auctions, soft liquidations, MEV-sharing

Bridges like LayerZero and Wormhole are vulnerable to ordering MEV, where sequencers or relayers can censor, front-run, or reorder cross-chain messages. The governance problem is outsourcing security and sequencing to opaque, potentially extractive third parties. Intent-based architectures (e.g., Across, UniswapX) shift the paradigm but introduce new trust assumptions.\n- Centralized sequencers become single points of failure & extraction\n- Solution: Decentralized verification and shared sequencing layers\n- Risk: $10B+ TVL exposed to bridge/sequencer risk

DeFi protocols dependent on Chainlink or other oracles are vulnerable to flash loan-enabled price manipulation. This is a governance failure to implement circuit breakers, time-weighted prices, or sufficient price feed latency. The $100M+ exploits against Mango Markets and Cream Finance are canonical examples of MEV as a protocol-level attack vector.\n- Manipulation creates risk-free profit for attackers\n- Protocols bear the loss, not the oracle\n- Solution: Multi-source oracles, delay periods, on-chain validation

Validators and searchers execute transactions in the order that maximizes their profit, not your protocol's intended logic. This reordering can break game theory, enabling front-running and destabilizing mechanisms.

• Undermines Fairness: Priority gas auctions (PGAs) turn user interactions into a bidding war.
• Distorts Incentives: The most profitable state transition may not be the one you designed.

Protocols must explicitly define and enforce transaction ordering constraints at the application layer. This moves governance from abstract social consensus to cryptoeconomic enforcement.

• Application-Specific PBS: Use proposer-builder separation (PBS) designs like SUAVE or MEV-Share to create a market for compliant blocks.
• Commit-Reveal Schemes: Adopt patterns from CowSwap and UniswapX to batch and settle intents off-chain, neutralizing front-running.

MEV infrastructure firms like Jito Labs and Flashbots effectively govern the flow of value on the blocks they influence. If your protocol doesn't design for this, their economic incentives will govern it for you.

• Sovereignty Leakage: Outsourcing block building cedes control over transaction inclusion.
• Vertical Integration: Builders like Titan and beaverbuild optimize for extractable value, not protocol health.

Treat MEV resistance as a first-class requirement, not a bolt-on feature. This requires architectural choices that minimize value leakage and align searcher profit with protocol goals.

• Threshold Encryption: Use schemes like Shutter Network to hide transaction content until execution.
• Fair Ordering: Implement consensus-level fairness, as explored by Aequitas and Themis, to prevent reordering attacks.

You cannot govern what you cannot measure. Implement real-time MEV dashboards using data from EigenPhi and Flashbots Protect to monitor value leakage and searcher behavior.

• TVL at Risk: Calculate the portion of your Total Value Locked vulnerable to liquidation cascades or sandwich attacks.
• Searcher Concentration: Track if a handful of entities control the flow of critical transactions.

The endgame is shifting from transaction-based to intent-based systems. Protocols like UniswapX and CowSwap delegate routing and execution to a competitive solver network, internalizing MEV competition.

• User Sovereignty: Users specify the 'what' (outcome), not the 'how' (transaction path).
• Efficiency Gain: Solvers like Across and 1inch compete to provide the best execution, converting wasted MEV into better prices.