MEV is a fundamental property. It emerges from the inherent information asymmetry and latency in a decentralized network of nodes. Just as physical systems trend toward entropy, blockchains trend toward value extraction from transaction ordering.
mev-the-hidden-tax-of-crypto
Blog
Why MEV Can't Be Eliminated, Only Redistributed
An analysis of MEV as an intrinsic economic force. We argue that elimination is a thermodynamic fantasy and explore the only viable paths: internalizing value via protocol fees or redistributing it via mechanisms like MEV-Share and PBS.
introduction
THE ENTROPY
The Thermodynamics of Blockchain
MEV is a fundamental thermodynamic property of decentralized systems, making elimination impossible and redistribution the only viable strategy.
Redistribution is the only equilibrium. Protocols like Flashbots' SUAVE and CowSwap's batch auctions don't eliminate MEV; they change who captures it. This shifts value from validators to users or back to the protocol treasury.
Private orderflow is a market failure. The rise of private mempools (e.g., Flashbots Protect) and intent-based architectures (e.g., UniswapX) are market responses to public mempool exploitation, creating a new layer of rent-seeking.
Evidence: Over $1.2B in MEV was extracted from Ethereum in 2023. The proliferation of PBS (Proposer-Builder Separation) proves the market's structural shift toward professionalizing and formalizing this value flow.
key-trends
ECONOMIC REALITIES
The Inevitability of MEV: Three Economic Truths
Maximal Extractable Value is not a bug; it's a thermodynamic law of decentralized systems where block producers have final ordering rights.
01
The Problem: The Dark Forest of On-Chain Liquidity
Public mempools broadcast user intent, creating a predictable profit landscape for searchers. This leads to front-running and sandwich attacks that extract value from every swap.\n- Front-running exploits visible pending transactions.\n- Sandwich attacks on AMMs cost users ~$1B+ annually.\n- Creates a toxic environment for high-value DeFi operations.
$1B+
Annual Extract
100ms
Arb Window
02
The Solution: Encrypted Mempools & Private Order Flow
Protocols like Flashbots SUAVE and Shutter Network encrypt transactions until inclusion, blinding searchers to the content. This shifts power from generalized bots back to users and block builders.\n- SUAVE aims to be a decentralized block builder and encrypted mempool.\n- Shutter uses threshold encryption for Ethereum and EVM L2s.\n- Preserves composability while eliminating front-running.
0ms
Info Leak
100%
Encrypted
03
The Problem: Centralization of Block Building
The competitive search for MEV leads to specialized, centralized block builders (e.g., Flashbots, beaverbuild) who capture most value. This recreates the miner centralization problem Proof-of-Stake was meant to solve.\n- Top 3 builders control ~80%+ of Ethereum blocks.\n- Creates systemic risk and censorship vectors.\n- Stakers (proposers) outsource to maximize revenue.
80%+
Market Share
1
Oligopoly
04
The Solution: Proposer-Builder Separation (PBS)
PBS, a core Ethereum roadmap feature, formally separates the role of block proposer from block builder. It creates a competitive market for block space, redistributing MEV more fairly.\n- Builders compete in open auctions for block inclusion.\n- Proposers simply choose the highest-paying, valid header.\n- Enables in-protocol MEV smoothing and redistribution.
Open
Auction
Decoupled
Roles
05
The Problem: User Subsidization of Inefficiency
Inefficient order routing and execution is a primary MEV source. Users overpay because their intents are fragmented across venues like Uniswap, Curve, and Balancer, instead of being matched directly.\n- DEX arbitrage is a ~$500M+ annual MEV category.\n- Liquidity is siloed, creating guaranteed profit for integrators.\n- Users implicitly pay the "arbitrage tax" in every trade.
$500M+
DEX Arb
Fragmented
Liquidity
06
The Solution: Intent-Based Architectures & Solving
Networks like UniswapX, CowSwap, and Across shift the paradigm from transaction execution to intent fulfillment. Solvers compete to find the best execution path, capturing MEV and returning it to the user.\n- User specifies what (e.g., "swap X for Y"), not how.\n- Solvers perform off-chain optimization and bundling.\n- Converts toxic MEV into improved price execution.
Best
Execution
User
MEV Rebate
deep-dive
THE INEVITABLE SHIFT
From Extraction to Redistribution: The Design Frontier
MEV is a structural feature of blockchains, making its redistribution, not elimination, the only viable design goal.
MEV is structural, not incidental. It emerges from the fundamental properties of permissionless blockchains: public mempools, block production latency, and transaction ordering. Attempts to eliminate it, like encrypted mempools, create new attack vectors or simply shift extraction to a different layer.
The design goal is redistribution. Protocols now architect systems to capture and redistribute value. Flashbots' SUAVE aims to democratize block building, while protocols like CowSwap and UniswapX use batch auctions and solver networks to internalize MEV for user benefit.
Redistribution creates new primitives. MEV is becoming a programmable resource. MEV-Boost turned extraction into a commodity market. EigenLayer enables restakers to earn MEV rewards, transforming it into a yield source secured by cryptoeconomic slashing.
Evidence: In 2023, over $1.3B in MEV was extracted on Ethereum alone. Protocols like Across and LayerZero now integrate MEV-aware designs, where relayers compete on inclusion speed, proving that competitive redistribution improves user outcomes.
ARCHITECTURAL APPROACHES
MEV Redistribution Strategy Matrix
Comparison of core strategies for capturing and redistributing MEV, detailing their trade-offs in decentralization, complexity, and economic impact.
| Key Dimension | Proposer-Builder Separation (PBS) | Encrypted Mempools | MEV Auctions (MEVA) | Application-Layer Order Flow Auctions (OFAs) |
|---|---|---|---|---|
Primary Redistribution Target | Validators/Stakers | Users (via backrunning) | Protocol Treasury | Users & Searchers |
MEV Capture Point | Block Construction | Transaction Ordering | Block Space Rights | Pre-Block Order Flow |
Requires Consensus Change | ||||
Example Implementation | Ethereum PBS (ePBS) | SUAVE, Shutter Network | Flashbots SUAVE, Osmosis | CowSwap, UniswapX, 1inch Fusion |
User TX Cost Premium | 0-5% (via tip) | 5-15% (privacy fee) |
| Negative (via kickbacks) |
Time to Finality Impact | Adds 1-2 slots | Adds 2-5 seconds | No impact | No impact |
Searcher Competition Model | Builder Market | Priority Gas Auction (PGA) | Sealed-bid Auction | Batch Auction |
Critical Weakness | Builder Centralization Risk | Trusted Execution Env. (TEE) Reliance | Revenue Extraction from Users | Requires Liquidity Fragmentation |
protocol-spotlight
THE REDISTRIBUTION FRONTIER
Protocols Redefining the MEV Landscape
MEV is a thermodynamic law of blockchains; these protocols are building the plumbing to redirect its value.
01
The Problem: Searchers Extract, Users Pay
Front-running and sandwich attacks are a $1B+ annual tax on users, captured by a specialized few. This creates a negative-sum game where network security depends on value extraction from its own participants.
- Value Leakage: User slippage and failed transactions fund searcher profits.
- Centralizing Force: MEV rewards accrue to those with the fastest bots and closest block builder relationships.
$1B+
Annual Extract
>90%
Searcher Win Rate
02
Flashbots SUAVE: The Neutral Mempool
Decouples transaction ordering from block production to create a credibly neutral, cross-chain marketplace. It aims to be the universal mempool where intent competition replaces gas auctions.
- Intent-Centric: Users express outcomes (e.g., "swap X for Y"), not rigid transactions.
- Cross-Chain Native: Enforces atomic execution across domains like Ethereum and Avalanche, reducing fragmentation arbitrage.
0 Gas
Auctions
Multi-Chain
Execution
03
CowSwap & UniswapX: Solving AMM MEV with Intents
Move trading logic off-chain into a batch auction settlement layer. Coincidences of Wants (CoWs) enable peer-to-peer trades, while residual flow is routed to on-chain solvers in a competitive auction.
- MEV Resistance: Batch settlements prevent front-running within the batch.
- Surplus Capture: The solver competition returns ~$100M+ in surplus to users instead of searchers.
$100M+
User Surplus
0 Slippage
On CoWs
04
The Solution: PBS & Proposer-Builder Separation
Ethereum's PBS (via MEV-Boost) formalizes the market between block builders and proposers. This doesn't eliminate MEV but makes its extraction transparent and auction-based, redistributing profits to validators/stakers.
- Transparent Markets: Open bidding for block space replaces backroom deals.
- Staker Revenue: MEV becomes a predictable yield component for ETH stakers, boosting protocol security.
>90%
PBS Adoption
+5% APR
Staker Yield
05
MEV-Sharing & Threshold Encryption
Protocols like Shutter Network and EigenLayer's MEV Smoothing use distributed key generation to encrypt transactions until they are included in a block. This blinds searchers, forcing them to bid for the right to decrypt and order.
- Privacy-Preserving: Breaks the searcher's information advantage.
- Fair Distribution: Auction proceeds can be shared with users or a public good fund.
100%
Tx Encryption
Fair
Revenue Split
06
The Inevitability Thesis: MEV as a Protocol Resource
MEV is intrinsic to any system with transparent, ordered transactions. The endgame is not eradication but sovereign capture and redistribution—treating it as a native protocol resource like block rewards or transaction fees.
- Protocol-Owned MEV: Networks can design mechanisms to internalize and redistribute value (e.g., to stakers, dApps, or a treasury).
- Sustainable Security: MEV revenue can subsidize L1 security in a post-block-reward future.
Native
Resource
Post-ETH
Security Model
counter-argument
THE REALITY
The Suppression Fallacy: Why 'Fair Ordering' Fails
Protocols promising 'fair ordering' to eliminate MEV are attempting the impossible, as MEV is a fundamental property of decentralized systems, not a bug.
MEV is thermodynamic, not algorithmic. It is latent value created by state differences across a distributed system. Attempts to suppress it, like enforcing a canonical transaction order, merely shift extraction to other layers like private mempools or off-chain auctions.
Fair ordering creates new MEV. Protocols like Aequitas or Themis that reorder transactions for 'fairness' must decide what 'fair' means. This decision-making process itself becomes a new, centralized source of extractable value and manipulation.
The market routes around suppression. Just as Flashbots' MEV-Boost formalized block space auctions, any on-chain ordering rule will be gamed off-chain. The result is MEV redistribution, not elimination, often to more opaque venues.
Evidence: In systems with enforced ordering, like some Cosmos app-chains, validators simply run private transaction pools. The MEV supply chain moves upstream, proving suppression is a zero-sum relocation of the problem.
FREQUENTLY ASKED QUESTIONS
MEV Redistribution FAQ
Common questions about why MEV can't be eliminated, only redistributed.
MEV is a fundamental byproduct of block production and transaction ordering, not a software bug. It exists because block builders have the power to reorder, include, or exclude transactions for profit. Protocols like Flashbots and CowSwap don't eliminate MEV; they create new markets to manage its extraction and redistribution.
takeaways
MEV IS A FEATURE
Architectural Imperatives for Builders
MEV is a fundamental property of permissionless blockchains, not a bug. The strategic goal is to manage its distribution and externalities.
01
The Problem: Opaque Extraction
Private order flow and generalized frontrunning create a negative-sum game for users. ~$1.5B was extracted in 2023, with costs passed on as worse execution and failed transactions.\n- User Cost: Invisible tax on every swap and bridge.\n- Network Cost: Congestion and wasted block space from spam.
~$1.5B
Extracted (2023)
>90%
Private Flow
02
The Solution: Credible Neutrality via PBS
Proposer-Builder Separation (PBS) formalizes the market, separating block building from proposing. This creates a competitive auction for block space.\n- Transparency: MEV revenue is publicly auctioned.\n- Censorship Resistance: Builders compete, preventing single-entity control.\n- Adoption: Core to Ethereum's roadmap, used by Flashbots SUAVE and Titan Builder.
>99%
Ethereum Blocks
~500ms
Auction Window
03
The Solution: Intents & Auction-Based Systems
Shift from transaction-based to outcome-based (intent) architectures. Users specify a desired end state, and solvers compete to fulfill it optimally.\n- Efficiency: Solvers internalize MEV, returning value to users.\n- Simplicity: Better UX; users don't need to manage gas.\n- Entities: UniswapX, CowSwap, and Across are leading implementations.
10-50 bps
Better Price
$10B+
Processed Volume
04
The Imperative: Encrypted Mempools
Prevent frontrunning by encrypting transaction content until inclusion. This forces MEV competition into the PBS auction, not the public mempool.\n- Privacy: Hides transaction intent from searchers.\n- Fairness: Levels the playing field for all builders.\n- Trade-off: Increases proposer-builder trust assumptions and implementation complexity.
0 ms
Frontrun Window
High
R&D Phase
05
The Redistribution: MEV-Burn & MEV-Share
Redirect extracted value from validators/protocols back to users or the protocol treasury. MEV-Burn destroys auction revenue, making ETH deflationary. MEV-Share returns a portion to the users who created the opportunity.\n- Protocol Value: MEV-Burn acts as a network subsidy.\n- User Alignment: MEV-Share creates a direct rebate mechanism.
~1M ETH
Burned (Est. Annual)
50/50
Split Models
06
The Reality: Cross-Chain MEV is the Next Frontier
Arbitrage and liquidation opportunities exist across chains, creating a new attack surface. Solutions require secure messaging and atomic execution.\n- Complexity: Introduces bridging risk and oracle dependencies.\n- Solutions: Chainlink CCIP, LayerZero, and Wormhole are building cross-chain MEV infrastructure.\n- Scale: A $100M+ annual opportunity for cross-chain arbitrageurs.
$100M+
Annual Opportunity
High Risk
Security Surface
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