DEX MEV

A frontrunning attack where a searcher places one transaction before and one after a target victim's DEX swap. The first transaction buys the asset, artificially inflating its price for the victim, and the second sells it at the higher price for a risk-free profit.

• Key Targets: Large, visible swaps in the mempool.
• Result: The victim receives worse execution (slippage) while the attacker profits from the price difference.

The practice of capitalizing on price discrepancies for the same asset across different DEX pools or between a DEX and a Centralized Exchange (CEX). Searchers execute a series of swaps to buy low on one venue and sell high on another, profiting from the spread.

• Liquidity Source: A core, non-malicious form of MEV that helps align prices across markets.
• Example: Buying ETH on Uniswap where it's $1,900 and simultaneously selling it on SushiSwap where it's $1,905.

In lending protocols (often integrated with DEXs for collateral swaps), searchers compete to be the first to trigger the liquidation of an undercollateralized position. The searcher repays the debt and receives the liquidated collateral at a discount as a bounty.

• Mechanism: Requires frontrunning other liquidators.
• Tools: Uses flash loans to bundle the repayment and collateral sale into a single atomic transaction.

Just-In-Time (JIT) Liquidity is a strategy where a liquidity provider (LP) adds a large amount of liquidity to a pool immediately before a large swap executes, and removes it immediately after. This provides deep liquidity for the swap, capturing most of the fee, while minimizing impermanent loss risk.

• Nature: Can be seen as a competitive form of MEV, not strictly malicious.
• Effect: Improves swap execution for the trader but centralizes fee capture.

A historical attack vector where a miner or validator could reorganize (reorg) the blockchain to revert a finalized block and replace it with a new one that includes their own profitable transactions. This exploits the probabilistic finality of Proof-of-Work.

• Current State: Largely mitigated by Proof-of-Stake and faster finality mechanisms.
• Risk: Represents a consensus-level MEV threat, undermining chain security.

Searchers optimize trade routing for users of DEX aggregators (like 1inch or Matcha). They simulate complex routes across multiple pools to find the best price, often splitting a single trade. The searcher may capture a portion of the savings as profit.

• Relation to MEV: A form of beneficial or "good" MEV that improves user outcomes.
• Complexity: Involves solving a pathfinding problem across fragmented liquidity.

The most prevalent DEX MEV strategy where a searcher (bot) identifies a pending large DEX trade and places its own transactions before and after it. The bot front-runs the victim's trade to buy the asset first, driving up its price, then back-runs it to sell at the inflated price, pocketing the difference. This directly harms the victim trader via slippage and increased gas fees.

DEX MEV creates a specialized ecosystem:

• Searchers: Bots that scan the mempool for profitable opportunities and construct transaction bundles.
• Builders: Specialized nodes that construct the most profitable blocks by ordering transactions, often in private channels (dark pools).
• Validators/Proposers: The entities that ultimately choose which block builder's proposal to add to the chain, often selecting the one with the highest bid (the MEV-Boost auction model).

MEV has a dual impact on DEX users:

• Negative: Retail traders suffer from worse execution prices (slippage) and compete with bots for block space, raising gas costs.
• Complex: Liquidity Providers (LPs) can benefit from the increased volume and fees generated by MEV activity, but also face risks from arbitrage that correct pool imbalances, which is a net positive for pricing efficiency.

New DEX designs directly combat MEV:

• CowSwap uses batch auctions and Coincidence of Wants (CoWs) to settle trades peer-to-peer without exposing them to the public mempool.
• UniswapX employs a similar off-chain reactor model with fillers competing for order flow.
• Private Transaction Pools: Services like Taichi Network allow users to submit transactions directly to validators, bypassing the public mempool.

A critical ecosystem dynamic where arbitrage bots (a form of MEV) perform a vital function: they correct price discrepancies between DEXs and CEXs or across DEX pools. This activity:

• Generates significant fee revenue for Liquidity Providers.
• Ensures price accuracy across the DeFi ecosystem.
• Creates a symbiotic, if contentious, relationship where LPs rely on arbitrageurs for a portion of their yield.

A sandwich attack is the most common DEX MEV strategy where a searcher's bot places one transaction before and one after a victim's large DEX trade. The first transaction buys the asset, artificially inflating its price via the victim's trade, and the second sells it for a profit, leaving the victim with slippage and worse execution. This directly extracts value from ordinary users.

While often seen as "good" MEV, these activities carry systemic risks:

• Liquidation MEV: Bots compete to liquidate undercollateralized loans, which is necessary for protocol health but can lead to gas price wars and network congestion.
• Arbitrage MEV: Corrects price differences across DEXs, but the intense competition can result in reverted transactions (failed trades that still cost gas) for slower bots and users, wasting network resources.

This is a severe consensus-level risk where validators or miners are incentivized to reorganize the blockchain (reorg) to capture MEV from past blocks. By rewriting history, they can steal profits from other searchers. This undermines blockchain finality, reduces trust in transaction settlement, and can destabilize the network if profitable enough.

MEV searchers rely on analyzing the public mempool (pending transaction pool). To avoid being front-run, users are pushed to use private transaction relays or Flashbots Protect. This creates a two-tier system where those who can pay for privacy get better execution, potentially censoring ordinary users' transactions from blocks if they are not profitable to include.

The high profitability of MEV extraction favors sophisticated, well-capitalized players. This leads to:

• Validator centralization: Entities running many validators have more opportunities to capture MEV.
• Specialized infrastructure: Requires access to low-latency nodes, proprietary algorithms, and large capital, creating barriers to entry and centralizing profit and influence.

The ecosystem is developing countermeasures to mitigate MEV risks:

• Fair Sequencing Services / SUAVE: Aims to decentralize block building and transaction ordering.
• MEV-Share / MEV-Boost: Protocols that allow users to capture a portion of MEV themselves or route transactions to competitive, ethical block builders.
• Private RPCs: Services like Flashbots Protect submit transactions directly to builders, hiding them from the public mempool.
• DEX Design: Protocols like CowSwap use batch auctions and Coincidence of Wants to reduce MEV surface area.

A specific, malicious form of MEV where a searcher or bot exploits knowledge of a pending transaction to place their own order first. This is achieved by paying a higher gas fee to ensure the attacker's transaction is mined before the victim's. Common on DEXs when a large trade is detected in the mempool.

• Example: Seeing a large buy order for a token, a bot frontruns it, buying the token first to sell it back to the victim at a higher price.

A type of MEV extraction that occurs after a target transaction. Searchers place transactions in the same block to profit from the state change caused by the initial transaction.

• Common Use: Liquidation bots on lending protocols that repay underwater loans immediately after a price update.
• DEX Example: After a large swap creates a significant price impact, a backrunner arbitrages the temporary imbalance across other pools.

A predatory trading strategy that combines frontrunning and backrunning around a victim's DEX swap. The attacker:

1. Frontruns the victim's buy order, driving the price up.
2. Lets the victim's order execute at the inflated price.
3. Backruns by selling the asset back, profiting from the price reversion. This attack directly harms the victim by worsening their execution price and is a primary concern for DEX traders.

The most common and economically beneficial form of MEV. Arbitrage bots exploit price differences for the same asset across different DEXs or liquidity pools. By buying low on one venue and selling high on another, they profit while helping to align prices across the market.

• This is considered good MEV as it improves market efficiency and does not inherently harm other users.

The two key actors in the MEV supply chain:

• Searcher: An entity (often a bot) that runs algorithms to detect profitable MEV opportunities and constructs transaction bundles.
• Validator/Block Producer: The entity with the right to propose a block. They choose which transactions (or bundles) to include and in what order, often selecting those with the highest total fees (base + priority fee). Validators can act as searchers themselves or outsource bundle discovery via auctions.