MEV Bots

The most common MEV strategy, where bots profit from price discrepancies of the same asset across different decentralized exchanges (DEXs) or liquidity pools. A bot detects the price difference, executes a buy transaction on the cheaper venue and a sell transaction on the more expensive one in the same block, capturing the spread as profit.

• Example: Buying ETH on Uniswap and immediately selling it for a higher price on SushiSwap.
• Key Mechanism: Requires atomic execution (both trades in one block) to eliminate price risk.

Bots compete to be the first to liquidate 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. Bots monitor the mempool for these conditions and submit transactions with higher gas fees to win the liquidation right, earning a liquidation bonus or fee.

• Incentive: The liquidator receives a percentage of the collateral as a reward.
• Consequence: This provides necessary market health but can be predatory.

A predatory strategy where a bot spots a large pending DEX trade (the 'victim' swap) in the mempool. The bot then front-runs this trade by buying the same asset first, which drives up the price. The victim's large trade executes at this inflated price. The bot then back-runs the victim by selling the asset immediately after, profiting from the artificial price movement it created.

• Impact: Extracts value directly from the victim trader, increasing their slippage.

An advanced, multi-block strategy where a miner or validator with the ability to reorder blocks (e.g., via a chain reorganization or 'reorg') rewrites history to steal MEV that was captured in a previous block. They effectively go back in time to insert their own profitable transactions before others.

• Requirement: Requires significant hashing power or stake to force a reorg.
• Threat: Undermines blockchain finality and is considered highly disruptive.

Bots exploit complex, multi-step arbitrage opportunities across three or more assets or pools, often involving stablecoin de-pegging events or oracle price delays. These paths are less obvious and may involve wrapping/unwrapping assets or crossing multiple AMM curves.

• Complexity: Requires solving for profitable routes across a network of pools.
• Tools: Often uses the Flash Loans to fund the entire arbitrage without upfront capital, repaying the loan atomically within the same transaction.

Bots target Non-Fungible Token markets, exploiting strategies like:

• Minting Sniping: Front-running others to mint a rare NFT from a new collection.
• Marketplace Arbitrage: Buying an undervalued NFT on one marketplace (e.g., Blur) and instantly listing it for a higher price on another (e.g., OpenSea).
• Bid Sniping: Placing a winning bid in the final moments of an auction.

These strategies capitalize on pricing inefficiencies and information asymmetry in NFT markets.

A predatory strategy where a bot front-runs a user's large trade by placing its own order first, then back-runs it with a closing order. This creates artificial slippage, allowing the bot to profit at the user's expense.

• Mechanism: The bot detects a pending DEX swap, buys the asset before the user (raising the price), lets the user's trade execute at the higher price, then sells immediately after.
• Impact: Users receive worse prices, paying an implicit 'tax' to the bot. This is a primary source of retail user loss to MEV.

Bots compete to be the first to execute profitable, permissionless actions triggered by on-chain state changes.

• Liquidations: When a loan becomes undercollateralized (e.g., on Aave or Compound), bots race to supply the missing collateral and claim a liquidation bonus.
• Arbitrage: Bots exploit price differences for the same asset across DEXs (like Uniswap and SushiSwap) or between spot and futures markets, profiting from the spread.
• Nature: These are often considered 'good' or 'neutral' MEV, as they provide liquidity and enforce market efficiency.

MEV competition directly impacts blockchain performance and costs. Bots engage in gas auctions, bidding up transaction fees to have their bundles included first by validators/block builders.

• Gas Spikes: This competition can cause extreme, unpredictable spikes in base fee, making the network expensive for all users.
• Wasted Computation: Failed front-running attempts and replaced transactions consume block space and computational resources without adding value, a phenomenon known as gas griefing.

MEV extraction creates powerful economic incentives that can threaten the decentralized nature of blockchains.

• Proposer-Builder Separation (PBS): A design (adopted by Ethereum) to separate the roles of block building (complex, MEV-heavy) and block proposing (simple validation), preventing validators from needing sophisticated MEV capabilities.
• Builder Centralization: Without PBS, validators with the best MEV strategies earn more, leading to wealth concentration. Specialized block builders can also become centralized points of control.
• Relay Trust: PBS relies on relays to communicate blocks, creating new trust assumptions in the network.

Several protocols and strategies aim to reduce the negative externalities of MEV on end-users.

• Private Transaction Pools (e.g., Flashbots Protect, bloXroute): Allow users to submit transactions without exposing them to the public mempool, preventing front-running.
• Fair Sequencing Services: Attempt to order transactions based on arrival time rather than fee, though this is technically challenging.
• Application-Level Solutions: DEXs can use TWAP orders or CowSwap-style batch auctions to minimize MEV exposure.
• SUAVE: A proposed decentralized block builder and mempool designed to democratize access to MEV opportunities.

MEV represents a massive, often opaque, wealth transfer. The question of who captures this value is a core economic debate.

• Validator Revenue: On Proof-of-Stake chains like Ethereum, a portion of MEV profits ultimately goes to stakers (validators) via priority fees and block rewards, potentially subsidizing network security.
• MEV-Burn: Proposals exist to burn a percentage of MEV revenue, removing it from circulation instead of awarding it to specific actors, similar to EIP-1559's fee burn.
• MEV Sharing: Protocols like MEV-Share explore returning a portion of extracted value to the users whose transactions created the opportunity.

A protocol-level design that separates the roles of block building and block proposing. Specialized builders compete to create the most profitable blocks, while validators (proposers) simply choose the highest-paying header. This mitigates MEV centralization by allowing smaller validators to access sophisticated block building.

• Ethereum's Path: PBS is a planned upgrade for the consensus layer.
• Current Implementation: Enabled via MEV-Boost, an out-of-protocol implementation used by most Ethereum validators.

Protocols that capture a portion of extracted MEV and redistribute it back to users or stakeholders. This transforms MEV from a negative externality into a public good or a source of yield.

• MEV-Share: A framework by Flashbots that allows users to share transaction flow details with searchers in return for a guaranteed share of the resulting MEV.
• MEV-Smoothing: A method to distribute MEV rewards evenly across all validators in a proof-of-stake system, reducing the advantage of sophisticated nodes.

Infrastructure that routes user transactions directly to searchers or builders via private channels, bypassing the public mempool entirely. This allows users to capture value from their own order flow.

• Private RPCs: Services like Flashbots Protect RPC send transactions directly to the relay.
• Order Flow Auctions (OFAs): Platforms where wallets or dApps auction their users' transaction bundles to competing searchers, with proceeds returned to the user or application.

Miner Extractable Value (MEV) is the maximum profit that can be extracted from block production by including, excluding, or reordering transactions within a block. It is the foundational economic concept that MEV bots seek to capture. MEV arises from inefficiencies in decentralized systems, such as price differences across DEXs (arbitrage) or pending liquidations. While originally 'Miner' Extractable, the term now broadly applies to validators and sequencers in Proof-of-Stake and L2 networks.

Frontrunning is a specific MEV strategy where a bot detects a pending, profitable transaction in the mempool and submits its own transaction with a higher gas price to ensure it is executed first. This is a form of time-bandit attack. Common targets include large DEX swaps that will move prices, where the frontrunner buys the asset first and sells it into the victim's trade. Backrunning is the related practice of executing a transaction immediately after a target transaction to capture resulting value.

Arbitrage is the most common benign MEV strategy, where a bot exploits price differences for the same asset across different decentralized exchanges (DEXs) or liquidity pools. The bot executes a series of atomic transactions to buy low on one venue and sell high on another, profiting from the discrepancy. This activity is generally considered welfare-positive as it helps align prices across the ecosystem. Bots compete fiercely on latency and gas optimization to be the first to capture these opportunities.

A sandwich attack is a malicious MEV strategy that targets a single, large DEX trade. The attacker frontruns the victim's buy order, driving the price up, and then backruns the same transaction, selling the now more expensive asset back to the pool. The victim's trade executes at a worse price, and the attacker profits from the artificial price movement. This requires precise calculation of slippage tolerance and is a direct form of value extraction from end-users.

A block builder is a specialized node that constructs full block contents, often by aggregating MEV transaction bundles from searchers. Proposer-Builder Separation (PBS) is a design paradigm, central to Ethereum's roadmap, that formally separates the role of the block proposer (validator) from the block builder. This allows validators to outsource complex block construction to competitive builders via an auction, reducing their computational burden and centralizing MEV expertise, while aiming to keep the validator set decentralized.