MEV Extraction (Miner Extractable Value)

The most common form of MEV, where searchers profit from price differences of the same asset across different Decentralized Exchanges (DEXs) or liquidity pools. A searcher spots a mispricing, executes a buy-low, sell-high transaction bundle, and pays a priority fee to a block producer to include it first.

• Example: Buying ETH on Uniswap where it's cheaper and instantly selling it on SushiSwap where it's more expensive, all within a single atomic transaction.

Profit extracted from undercollateralized loans in lending protocols like Aave or Compound. When a loan's collateral value falls below a required threshold, it becomes eligible for liquidation. Searchers run bots to be the first to supply the transaction that repays the borrower's debt and seizes the collateral, receiving a liquidation bonus as a reward.

This activity is considered "good" MEV as it maintains the protocol's solvency.

A predatory form of MEV that targets large, visible DEX trades in the mempool. A searcher front-runs the victim's trade by buying the same asset first, causing its price to rise. The victim's trade executes at this worse price, and the searcher then back-runs the victim by selling the asset, profiting from the artificial price movement.

• Impact: Results in slippage and worse execution for the end-user.

A sophisticated and disruptive form of MEV where block producers are incentivized to reorganize the blockchain itself. If a previously mined block contains extremely valuable MEV, a miner might choose to discard it and mine an alternative chain that includes a different transaction ordering to capture that value for themselves.

This undermines blockchain finality and is a significant security concern, particularly for chains with slower block times.

The exclusion of specific transactions from a block for profit or compliance. A block producer (e.g., a validator) can ignore transactions from certain addresses or containing specific smart contract calls.

• Profit Motive: Ignoring transactions that compete with the producer's own arbitrage opportunities.
• Regulatory Motive: Complying with government sanctions lists.

This challenges the neutrality and permissionless nature of the network.

Front-running is the practice of placing a transaction immediately before a known pending transaction to profit from its anticipated market impact. A searcher detects a large pending DEX trade and submits their own buy order with a higher gas fee, ensuring it executes first. When the victim's large trade executes and moves the price, the searcher sells the asset at a profit. This is a form of priority gas auction (PGA) where bots compete to be first in line.

Back-running involves placing a transaction immediately after a known pending transaction to capitalize on its state changes. Common after a large DEX trade that creates a predictable arbitrage opportunity between pools, or after a liquidation event on a lending protocol where collateral becomes available at a discount. Unlike front-running, it does not harm the initial trader but profits from the new market conditions they created.

A sandwich attack is a combined front-run and back-run against a single victim transaction. The attacker:

• Front-runs the victim's large trade, buying the asset and driving the price up.
• The victim's trade executes at the worsened price.
• The attacker back-runs the victim, selling the asset at the inflated price for a risk-free profit. This extracts value directly from the victim's trade via slippage and is prevalent on automated market maker (AMM) DEXes.

Arbitrage is the simultaneous buying and selling of an asset across different markets to profit from price discrepancies. In MEV, this often involves DEX-to-DEX arbitrage, where a price difference exists between Uniswap and Sushiswap for the same token pair. Searchers run bots to discover these opportunities and submit bundles that execute the buy and sell in a single atomic transaction, capturing the spread. This is generally considered benign MEV as it improves market efficiency.

Liquidation MEV involves being the first to trigger the liquidation of an undercollateralized position in a lending protocol (like Aave or Compound). The first liquidator repays part of the debt and receives the borrower's collateral at a discount as a reward. Searchers compete in gas auctions to submit the liquidation transaction first. This is essential for protocol health but can lead to liquidation cascades during market volatility.

A time-bandit attack (or reorg attack) is a validator-level attack where a miner or validator intentionally reorganizes the blockchain to extract MEV from past blocks. The validator withholds a newly mined block, observes valuable transactions in the canonical chain, and then mines a competing chain that includes those transactions but in an order beneficial to themselves. This undermines blockchain finality and is considered a severe, malicious form of MEV extraction.

A malicious actor observes a pending transaction (e.g., a large DEX trade) in the mempool and submits their own transaction with a higher gas fee to execute first, profiting from the anticipated price impact. This is the most common form of MEV.

• Example: A bot sees a large buy order for a token and buys it first, then sells it to the original trader at a higher price.
• Targets: DEX traders, arbitrage opportunities.

A specialized, damaging form of front-running where an attacker places one transaction before and one after a victim's trade. The first transaction buys the asset, the victim's trade pushes the price up, and the attacker's second transaction sells for a risk-free profit at the victim's expense.

• Directly extracts value from ordinary users.
• Increases slippage and transaction costs for everyone.

An extreme risk where a miner or validator considers reorganizing the blockchain (a reorg) to capture MEV from a past block. This undermines blockchain finality and consensus security.

• Rational for a miner if the MEV in a past block exceeds the block reward and penalties.
• A credible threat to Proof-of-Work and some Proof-of-Stake chains without strong penalties.

The ability for block producers to exclude certain transactions from blocks entirely. This can be used for profit (e.g., ignoring arbitrage transactions to capture the opportunity themselves) or for regulatory/political reasons.

• Threatens network neutrality and permissionless access.
• Can be used in Maximum Extractable Value (MEV) strategies to eliminate competition.

A cryptographic technique where users submit a commitment (a hash of their transaction and a secret) instead of the full transaction. After a delay, they reveal the full details. This prevents searchers from seeing and front-running the intent until it's too late. While effective, it adds latency and complexity for users. It is commonly used in decentralized exchange auctions and some privacy-preserving applications.

Searchers are independent agents who run complex algorithms to detect and extract MEV opportunities. They submit transaction bundles to builders or validators via private channels (like the Flashbots Relay), which specify that all transactions in the bundle must be included in a block together or not at all. This allows for complex, atomic arbitrage and liquidation strategies while reducing failed transactions and network congestion from public mempool bidding wars.

Protocol designs that inherently reduce the profitability or feasibility of certain MEV attacks. Examples include:

• CowSwap's batch auctions with uniform clearing prices, which eliminate sandwich attack profitability.
• Uniswap V3's concentrated liquidity, which can reduce the impact of large swaps and associated arbitrage.
• Time-based finality (e.g., Ethereum's single-slot finality roadmap) to deter time-bandit attacks that attempt to reorg chains for profit.