The Cost of Ignoring MEV in Your Protocol Design

Naive AMMs broadcast every swap, creating a predictable profit opportunity for bots. This results in:\n- ~50-200 bps of extracted value per trade\n- Degraded execution for end-users\n- Network congestion from failed frontrun attempts

Protocols like CowSwap and UniswapX solve this by aggregating orders and settling them off-chain or in a private mempool. This:\n- Eliminates frontrunning via batch auctions\n- Captures MEV for users as improved pricing\n- Reduces on-chain footprint via intent-based architecture

Bridging assets via naive mint/burn creates asynchronous price risk. Arbitrageurs exploit the lag, forcing protocols to over-collateralize and users to accept worse rates.\n- Creates systemic risk like the Nomad hack\n- Increases capital costs for bridge operators\n- Slows finality for users

Bridges like Across and LayerZero use optimistic verification and on-chain executors to internalize the arbitrage. This allows:\n- Near-instant guarantees for users\n- Economic security from bonded relayers\n- Native integration with intents via Socket

Open, permissionless liquidation systems create gas wars, where the network burns fees to reward the fastest bot. This is economically inefficient.\n- Cascading liquidations during volatility\n- Net negative sum for the ecosystem\n- Poor experience for the liquidated user

Protocols like MakerDAO with its Keeper Network and Aave with GHO design internalize liquidation logic. They create:\n- Ordered, efficient auctions via whitelisted keepers\n- Protocol-owned revenue stream from MEV\n- Stable system incentives that reduce tail risk

Without MEV protection, every swap is a target. Bots extract value by frontrunning and sandwiching, directly degrading user experience and eroding trust.

• Arbitrage Bots capture price discrepancies you intended for LPs.
• Sandwich Attacks can cost users 5-20%+ on large trades.
• Result: Your advertised fees are a lie; real cost is fee + MEV tax.

Decouple transaction broadcast from execution to neutralize frontrunning. This is a foundational design pattern, not an add-on.

• Commit-Reveal Schemes (e.g., Shutter Network) hide intent until execution.
• Private RPCs (e.g., Flashbots Protect, BloXroute) bypass the public mempool.
• Result: Users submit orders, not targets. Fair sequencing is enforced.

Just-in-Time Liquidity bots provide and withdraw liquidity in the same block, skimming fees without taking on inventory risk. This parasitizes your protocol's liquidity incentives.

• Drains fee revenue from honest, passive LPs.
• Creates phantom liquidity that vanishes during volatility.
• Result: Your TVL metrics are inflated and your core supporters are penalized.

Shift from transaction-based to outcome-based systems. Let users express what they want, not how to do it. Solvers compete to fulfill the intent optimally.

• UniswapX, CowSwap aggregate liquidity and solve off-chain.
• Flashbots' SUAVE aims to be a decentralized solver network and mempool.
• Result: MEV is captured and redistributed back to users as better execution.

If you don't design for decentralization, PBS (Proposer-Builder Separation) concentrates power. A few builders (e.g., Relayoor, Bloxroute) control block ordering, creating a single point of failure and censorship.

• Top 3 builders control >70% of Ethereum blocks.
• Censorship risk: Transactions can be excluded from blocks.
• Result: Your protocol's liveness depends on a non-sovereign entity.

Push for protocol-level solutions that enforce decentralization. This requires collaboration at the chain consensus layer, not just application logic.

• Enshrined PBS (e.g., Ethereum's roadmap) bakes separation into the protocol.
• Threshold Encryption (research by Espresso Systems) hides transactions from builders until inclusion.
• Result: Censorship resistance and credible neutrality are restored.