MEV (Maximal Extractable Value)

The practice of placing a transaction with higher gas fees to execute before a known pending transaction, profiting from the price impact of the original trade. This is a classic form of arbitrage and often targets large DEX swaps.

• Example: A bot sees a large buy order for an asset on a DEX and submits its own buy order with a higher gas price to purchase the asset first, then sells it to the original trader at a higher price.

Submitting a transaction to execute immediately after a known transaction, capitalizing on the state change it creates. This is common with liquidation events or large DEX trades that create predictable arbitrage opportunities.

• Example: After a large trade creates a price discrepancy between two DEXs, a bot executes an arbitrage trade to profit from the imbalance before the market corrects.

A specific, two-transaction attack that frontruns a victim's DEX trade and backruns it, trapping the victim's transaction in the middle. The attacker profits from the artificial slippage they create.

• Process: 1. Frontrun: Buy the asset the victim wants. 2. Victim's trade executes at a worse price due to the attacker's buy. 3. Backrun: Sell the asset back to the market at the inflated price.

A class of attacks where validators or miners attempt to reorganize the blockchain (reorg) to extract value from past blocks. This undermines blockchain finality and is considered highly disruptive.

• Mechanism: A validator withholds a newly mined block, observes the content of the canonical chain, and then attempts to mine an alternative chain that includes more profitable transactions, causing a reorg if successful.

This is a consensus-level risk where validators are incentivized to re-mine or reorg past blocks to capture MEV that was missed. A validator might discard a canonical chain to create a new fork where they include profitable transactions for themselves.

• Impact: Undermines finality, creates network instability, and can lead to double-spending if exploited maliciously. It represents a fundamental tension between profit maximization and chain security.

Validators or block builders can censor transactions by excluding them from blocks entirely. This can be for profit (to prevent competing arbitrage) or for regulatory/political reasons.

• Impact: Violates permissionlessness and neutrality, a core tenet of decentralized networks. Users or applications can be denied access to the ledger. Proposer-Builder Separation (PBS) architectures aim to mitigate this by separating the roles of block building and proposing.

The high-stakes competition for MEV creates economies of scale, favoring sophisticated, well-capitalized players. This leads to:

• Relay & Builder Centralization: A few dominant entities control the flow of blocks to validators.
• Validator Centralization: Entities with advanced MEV extraction capabilities earn more, allowing them to stake more ETH and increase their influence.
• Impact: Concentrates power, reducing network resilience and increasing systemic risk from collusion or coordinated failure.

MEV extraction is often a zero-sum or negative-sum game for the broader ecosystem. Value extracted by searchers and validators is frequently wealth transferred from regular users.

• Gas Auction Waste: Searchers engage in Priority Gas Auctions (PGAs), bidding up base fee costs, which are burned or paid to validators, providing no direct utility.
• Network Congestion: MEV-related transactions can flood the mempool, increasing latency and costs for all users.

A specific MEV strategy where a searcher observes a pending transaction in the mempool and submits their own transaction with a higher gas fee to execute first. This is often used to exploit predictable outcomes, such as arbitrage opportunities or large DEX trades.

• Example: Seeing a large buy order for a token on a DEX and buying it first to sell back to the original trader at a higher price.
• This is a primary method for extracting arbitrage and liquidations.

A protocol-level design, central to Ethereum's roadmap, that separates the roles of block building and block proposing. Builders construct full blocks (including MEV transactions), while validators (proposers) simply choose the most profitable block from a public marketplace.

• Aims to democratize MEV access and reduce the centralizing pressure of sophisticated, high-stake validators running their own extraction software.
• Implemented via mev-boost on Ethereum post-Merge.

A predatory MEV strategy that targets a single victim transaction. The attacker frontruns the victim's large DEX trade (e.g., a buy) to drive the price up, lets the victim's trade execute at the inflated price, and then backruns the trade by selling the asset, profiting from the artificial price movement.

• This results in slippage and worse execution for the end user.
• Mitigated by using DEX aggregators with private RPCs or protocols with fair sequencing.

A theoretical attack on blockchain consensus where a miner or validator is incentivized to reorganize the chain (reorg) to capture MEV from a past block. By mining an alternative chain history that includes profitable MEV transactions, they can orphan existing blocks.

• Highlights the security risks when MEV rewards exceed the block reward and attestation penalties.
• A key motivation for implementing Proposer-Builder Separation (PBS) and single-slot finality.

A mechanism that destroys a portion of the value extracted by MEV, rather than letting it accrue entirely to validators or builders. On Ethereum, this is implemented by burning the priority fee (tip) portion of transaction fees via EIP-1559.

• Redirects economic value from MEV back to the protocol, potentially acting as a deflationary force on ETH supply.
• Aims to reduce the incentive for extreme validator centralization driven by MEV capture.

Frontrunning is the practice of placing a transaction ahead of a known pending transaction to profit from its anticipated price impact. A sandwich attack is a specific, common form where an attacker places one transaction before and one after a target victim's large trade, profiting from the artificial price movement they create.

• Example: Seeing a large DEX swap for ETH, a searcher submits their own buy order with a higher gas fee to execute first, then sells into the victim's trade.

These are often considered "good" or "non-harmful" MEV, as they correct market inefficiencies or enforce protocol rules.

• Arbitrage: Exploiting price differences for the same asset (e.g., ETH) across different decentralized exchanges (DEXs) like Uniswap and SushiSwap.
• Liquidations: Triggering the forced closure of undercollateralized loans in protocols like Aave or MakerDAO to collect a liquidation bonus, keeping the system solvent.

The MEV supply chain consists of specialized actors:

• Searchers: Bots that scan the mempool and simulate transactions to identify profitable MEV opportunities. They create bundles of transactions.
• Builders: Specialized block builders that compete to construct the most profitable block by optimizing transaction order and including searcher bundles. They submit complete block proposals to validators.

A critical design pattern (central to Ethereum's roadmap) that separates the roles of block builder and block proposer (validator).

• Goal: Prevent validators from exploiting their positional monopoly and centralize MEV extraction complexity to professional builders.
• Mechanism: Builders bid in an auction for the right to have their block proposal signed by the winning validator. This creates a competitive market for block space.

Protocols and techniques designed to reduce harmful MEV:

• Commit-Reveal Schemes: Users submit encrypted transactions first, revealing them only after they are committed, preventing frontrunning.
• Fair Sequencing Services (FSS): Attempts to define a canonical, fair order for transactions (e.g., based on receipt time) rather than gas price.
• Threshold Encryption: Used by protocols like CowSwap to batch orders and settle them in a single batch, eliminating frontrunning opportunities within the batch.