MEV Redistribution to Users excels at aligning protocol incentives with user value capture. Systems like Ethereum's PBS (Proposer-Builder Separation) and protocols such as CowSwap and Flashbots Protect aim to democratize MEV by returning extracted value, like arbitrage profits or liquidation fees, back to the end-users or the broader community through mechanisms like MEV burn or MEV smoothing. For example, after EIP-1559, a portion of transaction priority fees can be burned, indirectly redistributing value by reducing token supply.
LABS
Comparisons
MEV Redistribution to Users vs. MEV Captured by Sequencers
A technical comparison of two dominant MEV economic models: protocols that return value to users via rebates versus those where sequencers capture MEV as core revenue. Analyzes trade-offs for protocol architects and CTOs.
Chainscore © 2026
introduction
THE ANALYSIS
Introduction: The MEV Economic Fork in the Road
A foundational comparison of two dominant economic models for managing Miner Extractable Value (MEV) in modern blockchain architectures.
MEV Captured by Sequencers takes a different approach by centralizing extraction within the chain's operational layer. Optimism's initial design and many app-specific rollups allow their sequencers to capture MEV (now often called Sequencer Extractable Value) as a primary revenue stream, subsidizing low transaction fees for users. This results in a trade-off: user transactions are often cheaper and more predictable, but the sequencer retains the economic surplus, creating potential centralization risks and misaligned incentives if not governed transparently.
The key trade-off: If your priority is long-term decentralization, user alignment, and a credibly neutral base layer, prioritize redistribution models. If you prioritize immediate user affordability, predictable economics, and a simplified stack to bootstrap network effects, a sequencer-capture model may be preferable. The choice fundamentally shapes your protocol's economic philosophy and resilience.
tldr-summary
MEV Redistribution to Users vs. MEV Captured by Sequencers
TL;DR: Core Differentiators at a Glance
Key strengths and trade-offs at a glance.
01
User Value & Loyalty
Direct user rewards: Protocols like EigenLayer, CowSwap, and Flashbots SUAVE aim to return MEV profits to users via airdrops, fee rebates, or enhanced yields. This directly improves user retention and protocol loyalty by aligning incentives.
02
Decentralization & Trust
Reduces centralization pressure: By redistributing value, the economic power of centralized sequencers (like those on Optimism or Arbitrum) is checked. This supports a credibly neutral base layer, crucial for long-term protocol security and censorship resistance.
03
Sequencer Profitability & Investment
Direct revenue capture: Sequencers on Arbitrum, Base, and zkSync capture MEV as a primary revenue stream. This funds R&D, security, and growth, creating a sustainable business model for the core infrastructure provider.
04
Execution Simplicity & Speed
Simplified operational model: Capturing MEV internally avoids the complexity of building fair distribution mechanisms. This can lead to faster transaction ordering and finality, as seen in high-throughput chains like Solana, where sequencer (validator) profit is a key incentive.
ECONOMIC MODEL COMPARISON
Feature Comparison: MEV Redistribution vs. Sequencer Capture
Direct comparison of MEV distribution models for protocol architects and CTOs.
| Metric | MEV Redistribution (e.g., CowSwap, Uniswap) | Sequencer Capture (e.g., Arbitrum, Optimism) |
|---|---|---|
Primary MEV Beneficiary | End Users / LPs | Protocol Treasury / Sequencer |
User Experience (Cost) | Lower effective swap cost via rebates | Standard gas + potential MEV extraction |
Implementation Complexity | High (requires auction logic, solvers) | Low (built into sequencer design) |
MEV Resistance (Front-running) | High (batch auctions, CoW) | Low (first-come, first-served mempool) |
Protocol Revenue Source | Fees from failed arbitrage | Sequencer profits + L1 data fees |
Key Example | CowSwap, UniswapX | Arbitrum, Optimism, Base |
pros-cons-a
A Technical Breakdown
Pros and Cons: MEV Redistribution to Users
A data-driven comparison of two dominant MEV models: value returned to users versus value captured by sequencers. The choice impacts protocol economics, user alignment, and long-term sustainability.
01
MEV Redistribution to Users (e.g., CowSwap, UniswapX)
User-Aligned Economics: Directly returns extracted value (e.g., surplus from batch auctions) to the end-user who created the transaction. This improves effective execution price and builds user loyalty.
Transparency & Fairness: Mechanisms like CoW Protocol's batch auctions or Flashbots Protect make MEV extraction a public good, reducing hidden costs and predatory front-running.
Trade-off: Often requires more complex infrastructure (solvers, intents) and can have higher gas overhead for the protocol, potentially impacting scalability.
02
MEV Captured by Sequencers (e.g., Arbitrum, Optimism, Base)
Protocol Revenue & Sustainability: Sequencer profits from MEV (e.g., arbitrage, liquidations) become a core revenue stream, funding protocol development, security, and token buybacks (see Optimism's RetroPGF).
Simplicity & Efficiency: Centralized sequencing allows for fast, predictable block building and fee abstraction, improving user experience. This model is standard for most rollups today.
Trade-off: Creates a principal-agent problem. Users may pay hidden costs via worse execution, and value accrues to the protocol/sequencer operator rather than the individual user.
03
Pro: Enhanced User Trust & Growth
Redistribution wins for user acquisition. Protocols like CowSwap demonstrate that returning MEV (as surplus) is a powerful growth lever. Users self-select for better execution, creating a sticky, loyal base. This is critical for consumer DeFi apps and intent-based protocols where user experience is paramount.
$4B+
Total surplus returned by CowSwap
04
Pro: Sustainable Protocol Funding
Sequencer capture wins for treasury funding. MEV revenue provides a native, crypto-economic income stream independent of token inflation. This funds critical public goods (e.g., Ethereum client development via Optimism's RPGF) and secures the chain's long-term future. Essential for Layer 2 foundations and sovereign rollups.
100M+ OP
RetroPGF funding rounds on Optimism
05
Con: Implementation Complexity
Redistribution adds significant R&D overhead. Building a robust, fair redistribution system requires advanced solver networks, verification games (e.g., Espresso), and intent infrastructure. This increases time-to-market and attack surface versus a standard sequencer. A major consideration for new chains or smaller teams.
06
Con: Centralization & Opaque Costs
Sequencer capture risks centralization and hidden taxes. Without redistribution, MEV profits incentivize sequencer centralization (single operator control). Users bear opaque costs via worse slippage and latency disadvantages. This is a critical audit point for institutional traders and high-frequency DeFi applications.
pros-cons-b
Comparing Two Economic Models
Pros and Cons: MEV Captured by Sequencers
A breakdown of the trade-offs between sequencers capturing MEV for protocol sustainability versus redistributing it directly to users.
01
Pro: Protocol Sustainability
Direct revenue stream: MEV captured by sequencers (e.g., on Arbitrum, Optimism) funds protocol development, security, and grants. This creates a sustainable economic model without relying solely on token inflation or high base fees. This matters for long-term protocol viability and funding public goods.
02
Pro: Simpler User Experience
No active management required: Users are not forced to run complex MEV-capturing software or choose between competing redistribution mechanisms. This matters for mainstream adoption, where simplicity and predictability of transaction costs are paramount.
03
Con: Centralization Pressure
High-value incentive: The ability to capture MEV creates a powerful financial motive to control the sequencer role, potentially leading to validator centralization or cartel formation. This matters for decentralization purists and protocols where censorship resistance is the top priority.
04
Con: User Value Extraction
Value leaves the user base: MEV generated by user transactions (e.g., DEX arbitrage, liquidations) is extracted by the protocol/sequencer instead of being returned. This matters for DeFi power users and protocols (like Uniswap on a rollup) who seek to maximize returns for their community.
05
Pro: Predictable Sequencer Incentives
Aligned security model: Guaranteed MEV revenue makes running a sequencer economically viable, ensuring liveness and robust network security. This matters for new L2s and app-chains needing to bootstrap a reliable validator set from day one.
06
Con: Missed Innovation
Stifles ecosystem tools: By internalizing MEV, the protocol may disincentivize third-party development of sophisticated redistribution mechanisms (like CowSwap's solver competition or Flashbots' SUAVE). This matters for developers and researchers building the next generation of fair transaction ordering.
CHOOSE YOUR PRIORITY
Decision Framework: When to Choose Which Model
MEV Redistribution to Users for DeFi
Verdict: Choose for user-centric, high-value protocols. This model aligns incentives with your end-users, making your protocol more attractive for high-volume traders and liquidity providers. It's critical for applications where trust and fairness are primary marketing tools. Key Protocols: EigenLayer, Flashbots SUAVE, CowSwap (via batch auctions). Strengths:
- User Acquisition: Direct value transfer (e.g., via MEV burn or redistribution) acts as a yield subsidy.
- Composability Safety: Reduces toxic MEV extraction that can destabilize lending positions (e.g., liquidations) or AMM arbitrage.
- Regulatory Posture: Demonstrates a fairer system, potentially mitigating regulatory scrutiny. Trade-offs: Often requires more complex protocol design (e.g., integrating a sealed-bid system) and may depend on nascent infrastructure.
MEV Captured by Sequencers for DeFi
Verdict: Choose for raw performance and protocol revenue. This model is standard for most rollups today. It provides a clear, sustainable revenue stream for the sequencer (often the core dev team or DAO) to fund development and security. Key Protocols: Arbitrum, Optimism, Base, zkSync Era. Strengths:
- Infrastructure Funding: Sequencer profits directly subsidize R&D and network security.
- Simplicity & Speed: Centralized sequencing enables maximal throughput and low latency.
- Proven Model: Battle-tested; all major L2s currently operate this way. Trade-offs: Value accrues to the protocol/sequencer, not the user. Can lead to centralization risks and potential long-term user alienation if fees become extractive.
verdict
THE ANALYSIS
Verdict and Strategic Recommendation
Choosing between MEV redistribution and sequencer capture is a fundamental decision between user-centric value alignment and infrastructure-level efficiency.
MEV Redistribution to Users excels at aligning protocol incentives with end-user value because it directly returns extracted value to the transacting parties. For example, protocols like CowSwap and Uniswap with MEV-protected transactions have demonstrated the ability to return millions in captured MEV back to users, enhancing loyalty and trust. This model is particularly powerful for consumer-facing dApps where user retention and fair execution are paramount.
MEV Captured by Sequencers takes a different approach by centralizing extraction at the infrastructure layer, as seen with Ethereum's PBS (Proposer-Builder-Separation) and L2s like Arbitrum and Optimism. This results in a trade-off: sequencer revenue can fund protocol development and subsidize transaction fees, but it creates a potential misalignment where the infrastructure provider profits from user transactions. The efficiency gains, however, can be significant for network stability and throughput.
The key trade-off: If your priority is maximizing user value, trust, and fairness for a retail-focused application, choose a system with MEV redistribution. If you prioritize network scalability, predictable infrastructure funding, and the technical simplicity of outsourcing MEV management, choose a system where sequencers capture MEV. The decision ultimately hinges on whether you view MEV as a user problem to be solved or a resource to be harnessed for protocol growth.
ENQUIRY
Get In Touch
today.
Our experts will offer a free quote and a 30min call to discuss your project.
NDA Protected
Confidentiality24h Response
Time to ValueDirectly to Engineering Team
No Sales Fluff10+
Protocols Shipped
$20M+
TVL Overall