The Cost of Ignoring MEV in Your Appchain's Economic Design

Every DEX swap or NFT mint creates a predictable profit opportunity. On a naive chain, searchers and block builders capture this value, creating a hidden tax on every user transaction. This directly reduces user returns and adoption.

• Real Cost: Up to 50-200 bps of swap value extracted via backrunning.
• Who Loses: Your users and your protocol's fee revenue.

Design the execution and block production layer to internalize and redistribute MEV. Implement a Sequencer with a proposer-builder separation (PBS) model or a fair ordering protocol like Aequitas or Themis. This turns a leak into a sustainable revenue stream.

• Key Benefit: Redirect MEV to protocol treasury and user rebates.
• Key Benefit: Mitigate time-bandit attacks and chain reorg risks.

Competitive MEV extraction leads to builder cartels and validator centralization, as seen on Ethereum post-merge. The most efficient block builder wins, creating a single point of failure and censorship. Your chain's security model becomes dependent on opaque off-chain markets.

• Real Risk: >80% of blocks built by 2-3 entities.
• Who Controls: Your chain's transaction ordering and censorship resistance.

Don't retrofit. Use dedicated infrastructure like Skip Protocol or Astria for shared sequencing, or Flashbots SUAVE for cross-domain block building. Bake in encrypted mempools (e.g., Shutter Network) and MEV redistribution mechanisms at the protocol level.

• Key Benefit: Predictable economics for developers and users.
• Key Benefit: Future-proofs against evolving extraction techniques.

Track the percentage of potential MEV that is captured by the protocol versus leaked to third parties. A well-designed system should capture over 90% of arbitrage and liquidations, recycling it back into the ecosystem via staking rewards or gas subsidies.

• Benchmark: >90% protocol capture rate target.
• Tooling: Requires MEV-Explore type dashboards for transparency.

Leading appchains are already baking MEV solutions into their core. dYdX v4 uses a centralized sequencer for fair ordering. Osmosis employs threshold encryption for its mempool. Sei v2 introduces parallelization that changes MEV dynamics. Ignoring their lessons is building with a known defect.

• Key Benefit: Proven models for different trade-offs (decentralization vs. efficiency).
• Key Benefit: Avoids the costly post-launch overhaul.

Arbitrum's initial design gave its single sequencer full control over transaction ordering with no in-protocol slashing. This created a centralized MEV extraction point and a single point of failure. The result was predictable rent-seeking and a ~$20M+ opportunity cost for users before decentralization efforts began.

• Centralized Censorship Risk: Single entity could front-run or block transactions.
• Value Leakage: MEV profits flowed to a private entity, not the protocol or its users.
• Governance Debt: Forced a complex, retroactive decentralization roadmap.

Osmosis, a Cosmos appchain, integrated threshold encryption to combat front-running in its DEX. Transactions are encrypted until the block is proposed, neutralizing arbitrage MEV and sandwich attacks. This protects retail traders and ensures fair price execution.

• Front-Running Eliminated: Encrypted mempool prevents searchers from seeing intent.
• Liquidity Quality: Attracts LPs who aren't constant MEV targets.
• User Trust: Establishes the chain as a safe trading venue, boosting adoption.

Before Jito's MEV-Boost equivalent, Solana's economic design ignored MEV, leaving it as pure waste. Validators captured value via out-of-band payments, creating opacity and instability. The lack of a structured market led to network congestion and unpredictable fee spikes during high-activity periods.

• Inefficient Markets: MEV was a chaotic, off-chain negotiation.
• Poor UX: Users faced failed transactions without clear price discovery.
• Validator Centralization: Only sophisticated operators could capture this value.

Fuel's parallel execution based on a strict UTXO model inherently limits MEV. Transactions touching non-overlapping state can be processed simultaneously, drastically reducing contention and the time window for predatory strategies. This design makes MEV extraction computationally harder and less profitable.

• Reduced Contention: Parallel execution shrinks the atomic arbitrage space.
• Predictable Fees: Less volatile fee markets due to higher throughput.
• Architectural Defense: MEV resistance is baked into the core VM, not bolted on.

dYdX's orderbook model on StarkEx relied on a centralized sequencer and matching engine. While providing a CEX-like experience, it fully centralized MEV capture. The protocol and its token holders saw zero value from the inherent reordering and liquidation MEV, which was a massive economic oversight for a leading derivatives platform.

• Value Extraction: Tens of millions in MEV captured off-chain by the operator.
• Token Utility Gap: DYDX token had no claim on this core revenue stream.
• Migration Catalyst: This flaw was a primary driver for moving to its own appchain, dYdX Chain.

Learn from others. Design MEV in from day one: use a shared sequencer network like Astria or Espresso, integrate a SUAVE-like block builder, or implement encrypted mempools. Redirect extracted value via proposer-builder separation (PBS) to fund protocol treasury or user rebates.

• Controlled Redirection: Turn MEV from a threat into a sustainable revenue source.
• Composability Ready: PBS and shared sequencers prepare your chain for interchain MEV and layerzero-style omnichain futures.
• Avoid Technical Debt: Baking it in is cheaper than the Arbitrum-style retrofit.

Every public mempool order is a free option for searchers. On a naive rollup, this leads to predictable losses for end-users and zero revenue for the chain.

• Value Leakage: Users lose ~30-60 bps per swap to MEV bots.
• Protocol Inefficiency: The appchain captures no value from the economic activity it enables.
• User Experience: Front-running creates a toxic, unpredictable trading environment.

Decouple block building from block proposing. Force builders to compete in an auction for the right to order transactions, capturing value for the chain.

• Value Capture: The auction premium (MEV) is redirected to the protocol treasury or stakers.
• User Protection: Sophisticated builders optimize for total value, reducing simple sandwich attacks.
• Modular Design: Implement via a native auction (like Ethereum) or outsource to a shared sequencer like Espresso or Astria.

Without a native bridge design that internalizes arbitrage, value extraction flows to third-party bridges like LayerZero or Across, not your chain.

• Economic Leakage: The arbitrage spread between your DEX and CEX is captured by external actors.
• Liquidity Fragmentation: Fast, MEV-aware bridges become the de facto liquidity layer, not your native AMM.
• Sovereignty Loss: Your chain's economic security is outsourced to external message verification.

Design your canonical bridge as a primary liquidity venue with integrated solver competition, inspired by intents architectures like UniswapX and CowSwap.

• Internalized Arbitrage: Solvers compete on-chain to fulfill cross-chain orders, with fees paid to the protocol.
• Liquidity Unification: The bridge becomes the primary price discovery layer, strengthening native DeFi.
• Intent-Based Flow: Users submit desired outcomes, not transactions, reducing leakage and improving UX.

A centralized sequencer operated by the core team is a single point of failure and a massive, unaccountable MEV extraction machine.

• Trust Assumption: Users must trust the sequencer not to censor or front-run.
• Value Obfuscation: It's impossible to audit how much value is being extracted and where it flows.
• Decentralization Theater: Contradicts the core value proposition of a sovereign blockchain.

Implement a decentralized sequencer set with enforceable rules, or leverage a shared sequencer network that provides verifiable fairness.

• Verifiable Fairness: Sequencing rules (e.g., FIFO, PGA) are enforced at the protocol level.
• Transparent Auction: MEV revenue is distributed according to clear, on-chain logic.
• Shared Security: Networks like Espresso provide neutrality without each appchain rebuilding the wheel.