Why MEV Mitigation is a Governance Problem, Not a Technical One

Maximizing revenue from MEV (e.g., via auction to builders) directly conflicts with minimizing costs for users. Governance decides who pays and who profits.\n- Example: Ethereum's PBS (Proposer-Builder Separation) routes ~$1B+ annually to validators/builders, not users.\n- Trade-off: A protocol capturing MEV revenue improves its security budget but institutionalizes user extraction.

Attempts to 'solve' ordering at the protocol layer, like Aptos or Fuel, simply redefine the governance battleground. The trilemma re-emerges as: Who controls the sequencer? Who defines 'fair'?\n- Centralization Risk: A single, 'fair' sequencer becomes a political and technical single point of failure.\n- Relocation: MEV doesn't vanish; it shifts to governance attacks, bribery, and off-chain deal-making.

These systems acknowledge the trilemma by moving governance out of the protocol and into a competitive solver market. Users express what they want, not how to do it.\n- Governance Shift: Protocol governs solver admission/ slashing, not transaction ordering.\n- Outcome: Competition among solvers like Across, 1inch pushes efficiency gains back to users, creating a ~20-80% better price execution vs. AMMs.

A governance middle-ground: a decentralized sequencer set provides fair ordering as a neutral layer-2 service, but MEV redistribution is still unresolved.\n- Benefit: Prevents individual rollups from becoming extractive monopolies.\n- Open Question: Governance must still decide how to allocate sequencer profits (burn, redistribute, stake) across a multi-rollup ecosystem.

The ultimate governance choice: treat extracted MEV as a protocol-level resource to be destroyed, akin to EIP-1559's base fee burn. This explicitly prioritizes currency soundness over validator revenue.\n- Impact: Reduces miner/validator extractable value, potentially lowering security budget.\n- Governance Act: A direct vote on whether the chain's token is a security asset for validators or a neutral currency for users.

When protocol governance fails, coordination emerges off-chain. MEV-Boost relays, CowDAO, and MEV-Share are experiments in creating new social contracts around MEV distribution.\n- Function: These entities govern transparency, privacy, and revenue sharing rules (proposer/ searcher/ user splits).\n- Risk: They become de facto standards bodies, wielding power outside canonical governance, creating a two-layer governance problem.

Uniswap governance must decide who owns transaction ordering and its value. Enshrining a solution like MEV-Share or UniswapX in the protocol centralizes power, while a free market of searchers and builders maximizes extractable value. The choice is between capturing value for the DAO treasury or maximizing liquidity provider returns.

• Governance Risk: Centralized sequencing creates a new attack surface.
• Economic Trade-off: Protocol revenue vs. user execution quality.

Lido, controlling ~30% of Ethereum stake, faces inherent conflict as a dominant block builder. Its governance is piloting encrypted mempools (e.g., with Shutter Network) to neutralize its own advantage. This is a costly, self-imposed constraint to preserve network legitimacy and avoid regulatory scrutiny as a central point of failure.

• Anti-Trust Move: Pre-empts accusations of validator cartelization.
• Technical Cost: Adds ~500ms latency and complexity to block production.

Aave governance rejected a proposal to integrate MEV-aware oracle updates via Chainlink's CCIP. The debate wasn't technical; it was philosophical. Delegates argued that accepting any MEV, even 'good' arbitrage, legitimizes extraction and could expose the DAO to legal liability as a facilitator. This sets a precedent for risk-averse, value-destructive governance.

• Philosophical Stand: Zero-tolerance policy on MEV extraction.
• Consequence: Users pay more for liquidation protection and worse rates.

App-specific chains like dYdX and Osmosis bypass the governance gridlock of shared L1s. They can enforce native MEV mitigation (e.g., threshold encryption, Skip Protocol integration) at the consensus layer by fiat. This demonstrates that MEV is a market structure problem; the ultimate solution is sovereign control over your own block space and sequencer.

• Architectural Fix: Governance is baked into the chain's social layer.
• Outcome: Can implement proposer-builder separation (PBS) by decree.

Protocols like Compound and Balancer face a prisoner's dilemma: adopting a shared neutral infrastructure like SUAVE reduces their individual MEV burden but cedes critical economic logic to a third party. Governance must decide if SUAVE becomes a decentralized public good or a new extractive monopoly. The choice is between collective action and individual optimization.

• Trust Assumption: Relies on SUAVE's cryptoeconomic design being neutral.
• Network Effect: Value scales with adoption across Ethereum, Arbitrum, Optimism.

CowSwap (and UniswapX) uses batch auctions and Coincidence of Wants to eliminate on-chain arbitrage opportunities by design. Its governance is simple: maintain the core mechanism. This proves the most effective MEV mitigation is to architect it away, making governance a maintenance role rather than a constant political battle. It shifts competition from latency to solving the batch optimization problem.

• Architectural Solution: MEV is impossible by market design.
• Governance Simplicity: Focus on solver set curation and fee parameters.

MEV is a primary revenue stream for validators, creating a fundamental misalignment with L1/L2 governance seeking to capture value for the protocol treasury. Technical suppression without a governance-led redistribution model is unsustainable and leads to off-chain, opaque markets.

• Governance must decide what constitutes acceptable vs. extractive MEV.
• Fee switches and burn mechanisms (e.g., EIP-1559) are governance tools, not consensus rules.
• Example: Ethereum's PBS (Proposer-Builder Separation) is a technical framework whose success depends on governance defining builder commitments and enshrining revenue splits.

Move MEV competition from the dark forest to a transparent, protocol-level auction. This is a governance decision to formalize and tax the extraction process, turning a leak into a feature.

• Seeks to replicate the economic benefits of Flashbots SUAVE or CowSwap's solver competition at the chain level.
• Governance sets auction rules, revenue destination (treasury, stakers, burn), and permissible transaction orderings.
• Mitigates centralization by making block building permissionless and verifiable, a direct response to the validator cartel risk posed by private order flow.

Intent-based architectures (UniswapX, Across, Anoma) and smart accounts (ERC-4337) shift trust from users to off-chain actors (solvers, bundlers). Governance must define liability and slashing conditions for these new intermediaries.

• Without governance standards, solver networks become unaccountable MEV cartels.
• Key question: Who is liable for a failed cross-chain intent settlement facilitated by LayerZero or Axelar?
• Governance frameworks must evolve to audit and accredit third-party infrastructure, moving beyond pure client diversity.

Governance must encode social consensus into slashing conditions. This makes ethical staking (no censorship, no sandwiching) economically rational, transforming moral arguments into cryptoeconomic security.

• Define slashing for transaction censorship (OFAC compliance) and demonstrable, harmful sandwich attacks on users.
• Enables credible neutrality by punishing validators who violate the chain's stated principles.
• Requires sophisticated fraud proofs and governance courts (e.g., inspired by Optimism's Security Council) to adjudicate slashing proposals, moving MEV from a technical exploit to a jurisprudential issue.