MEV Capture Rate

High network demand increases competition for block space, directly impacting capture strategies. Priority gas auctions (PGAs) drive up transaction costs, forcing searchers to optimize bid strategies. In congested mempools, the ability to pay higher fees becomes a primary determinant of whose transaction is included and in what order, affecting both the opportunity for and the cost of MEV extraction.

The technical capability of the extracting entity is paramount. Factors include:

• Algorithm efficiency for identifying and bidding on opportunities.
• Use of private transaction relays or Flashbots Protect to avoid frontrunning.
• Deployment of high-frequency bots capable of reacting to new blocks in milliseconds.
• Access to low-latency infrastructure and proprietary data feeds.

The architecture of decentralized applications creates or mitigates MEV. Key aspects are:

• Atomic composability of functions within a single transaction.
• Use of time-weighted average price (TWAP) oracles vs. spot prices.
• Implementation of commit-reveal schemes or fair ordering mechanisms.
• Liquidity pool parameters like fee tiers and minimum tick spacing on AMMs.

Post-EIP-1559 and the Merge, the relationship between searchers, builders, and proposers defines capture. A highly competitive block builder market can lead to higher capture rates for searchers as builders bid for their bundles. Conversely, vertical integration or dominance by a few builders can centralize capture. The adoption of MEV-Boost and the prevalence of proposer-builder separation (PBS) are critical structural factors.

The raw material for MEV is often market inefficiency. Deep liquidity pools on DEXs present larger arbitrage opportunities but may be more efficiently priced. High volatility events, such as major news or large stablecoin depegs, create significant price disparities across venues, increasing potential extractable value. However, capturing it requires navigating increased congestion and risk.

While not a technical factor, operational environment affects participation. Entities may limit certain extractive strategies (e.g., sandwich attacks on retail traders) due to potential regulatory scrutiny or reputational damage. This can reduce competition for specific MEV types, indirectly influencing the capture rate for actors willing to assume those risks.

The MEV Capture Rate is a key performance indicator measuring the efficiency of a blockchain's economic design. It is calculated as the value captured by designated parties (e.g., validators, searchers, or the protocol itself) divided by the total Maximum Extractable Value (MEV) present in the network over a given period. A high rate indicates effective MEV redistribution mechanisms, while a low rate suggests value is being lost to adversarial actors.

Protocols employ specific designs to influence their capture rate. Key mechanisms include:

• Proposer-Builder Separation (PBS): Separates block building from proposing, allowing specialized builders to compete and capture MEV, with proceeds often shared with validators.
• Enshrined Auctions: Protocols like Ethereum's PBS and Cosmos's Skip Protocol use in-protocol auctions (e.g., mev-boost, MEV-Tendermint) to formalize and redistribute captured value.
• Order Flow Auctions (OFAs): Applications can auction user transaction bundles to builders, capturing MEV at the source and returning value to users.

Captured MEV is distributed among different network participants, impacting security and user experience.

• Validators/Proposers: Earn extra revenue through tips or direct inclusion of profitable bundles, increasing staking yields and network security.
• Users & dApps: Can receive rebates or improved execution via MEV refunds or order flow payments.
• Protocol Treasuries: Some designs, like Cosmos's x/MEV module, can direct a portion of captured value to a community-controlled pool.

A well-managed MEV Capture Rate is critical for Proof-of-Stake (PoS) security. When validators can reliably capture MEV, it:

• Increases staking rewards, making the network more attractive to honest validators.
• Reduces the incentive for validator centralization, as smaller validators can access MEV revenue via relays and builders.
• Mitigates long-range attacks by making honest validation more profitable than attempting to reorganize the chain for historical MEV.

Maximizing capture rate involves navigating significant trade-offs:

• Censorship Resistance: Highly efficient MEV capture (e.g., exclusive order flow) can lead to transaction censorship.
• Complexity vs. Decentralization: Sophisticated systems like PBS add protocol complexity and can create new centralization points at the builder layer.
• Fairness: Defining what constitutes 'fair' capture is contentious—should value go to validators, users, or applications? Protocols must balance these competing interests.

The MEV Capture Rate is the percentage of the total Maximum Extractable Value (MEV) available in a system that is successfully extracted by a specific entity, such as a validator, searcher, or protocol. It is a critical Key Performance Indicator (KPI) for measuring economic efficiency and security design.

• Formula: (Value Captured by Entity / Total Available MEV) * 100
• High Capture Rate: Indicates strong competitive advantage or privileged position (e.g., dominant block builder).
• Low/Redistributed Rate: Suggests successful MEV mitigation (e.g., via proposer-builder separation or MEV smoothing).

Protocols can architect their rules to capture and redistribute MEV, turning a security threat into a sustainable revenue stream. This directly funds security budgets and user rewards.

• Examples: Cosmos's Skip Protocol auctions block space, Ethereum's proposer-builder separation (PBS) via mev-boost creates a builder market.
• Mechanism: Protocols can enforce MEV auction models or MEV smoothing where extracted value is distributed to validators/stakers over time.
• Goal: Increase the protocol's capture rate to subsidize staking yields and disincentivize validator misbehavior.

Validators (block proposers) have the ultimate authority to include transactions, granting them a privileged position to capture MEV, either directly or by selling block space.

• Direct Extraction: Running sophisticated searcher bots to front-run or arbitrage.
• Auction Model: Selling block space to the highest-bidding block builder via systems like mev-boost. This outsources complexity but captures value via bids.
• Economic Security: A validator's potential MEV income contributes to its total economic reward, influencing the cost to attack the network (cost-of-corruption).

Searchers (bots finding opportunities) and Builders (constructing optimal blocks) compete fiercely on public mempools and private channels, driving innovation and efficiency in MEV extraction.

• Arms Race: Leads to advanced strategies like time-bandit attacks, sandwich attacks, and arbitrage across DEXs.
• Capture Dynamics: The most sophisticated actors with the lowest latency and best algorithms achieve the highest individual capture rates.
• Market Structure: This competition determines whether MEV is concentrated among a few players or distributed, affecting network decentralization.

High, concentrated MEV capture rates pose significant risks to blockchain consensus and fairness. Mitigating these risks is a core security challenge.

• Consensus Instability: Large, predictable MEV rewards can incentivize validator collusion (e.g., time-bandit attacks) and reorgs, threatening finality.
• Centralization Pressure: Entities that capture more MEV can afford higher staking costs, potentially leading to validator set centralization.
• User Harm: Unchecked extraction results in negative externalities like increased transaction costs (gas auctions) and failed trades for regular users.

The goal of MEV research is not elimination, but mitigation of harms and fair redistribution. A well-designed system lowers harmful capture rates and broadens benefit distribution.

• Proposer-Builder Separation (PBS): Separates block building from proposing to create a competitive builder market and reduce proposer power.
• Encrypted Mempools (e.g., SUAVE): Hide transaction intent to prevent frontrunning.
• MEV Smoothing / Burning: Protocols like EigenLayer propose distributing or burning captured MEV over time to reduce per-block volatility and fund public goods.