MEV Rewards

The most common MEV strategy, exploiting price differences for the same asset across different decentralized exchanges (DEXs) or liquidity pools. A searcher's bot detects the discrepancy and executes a series of transactions to buy low on one venue and sell high on another in the same block.

• Example: Buying ETH on Uniswap where it's priced at $3,000 and simultaneously selling it on SushiSwap where it's priced at $3,010.
• Tools: Searchers use sophisticated algorithms to monitor mempools and on-chain liquidity across hundreds of pools.

Profiting from the forced closure of 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 compete to be the first to supply the transaction that repays the borrowed assets, earning a liquidation bonus as a reward.

• Process: A bot detects the undercollateralized position, submits a transaction to repay part of the debt, and receives the collateral at a discount.
• Impact: While profitable for searchers, this activity is critical for maintaining the solvency of DeFi lending markets.

A predatory strategy that targets large, visible 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. The searcher then back-runs the trade by selling the asset, profiting from the price impact.

• Effect: This creates a 'sandwich' around the victim's transaction, extracting value directly from them.
• Mitigation: Traders use private transaction services (RPCs) or on-chain privacy solutions to avoid exposure.

A sophisticated and contentious form of MEV where validators or miners reorganize the blockchain itself. After a block is added, they may attempt to reorg the chain to exclude certain transactions and insert their own, more profitable ones in their place.

• Mechanism: This requires significant hashing or staking power to rewrite recent blocks.
• Context: More feasible in Proof-of-Work systems; in Proof-of-Stake, it's mitigated by slashing penalties but remains a theoretical concern through long-range reorgs.

Extracting value from non-fungible token markets. Strategies include:

• Minting: Front-running the public mint of a popular NFT collection to acquire assets at the mint price before they sell out.
• Floor Sweeping: Using arbitrage bots to instantly buy NFTs listed significantly below the current floor price on a marketplace.
• Bidding Sniping: Placing winning bids on NFT auctions at the last possible moment, often via a bundle that cancels if the snipe fails.

Exploiting inefficiencies in complex, multi-step trades routed through DEX aggregators (like 1inch or Matcha). Searchers find more optimal routes than those proposed by the aggregator's algorithm.

• Example: A user submits a large swap from Token A to Token D via an aggregator. A searcher finds a path A→B→C→D that yields more Token D than the aggregator's suggested A→X→D path. The searcher executes this better route and keeps the difference.
• Complexity: This requires simulating thousands of potential paths across the entire DeFi liquidity landscape.

A consensus-level attack where a validator intentionally creates a blockchain fork to reorder past blocks and capture MEV that was missed. This undermines the finality of the blockchain by making previously confirmed transactions reversible, forcing the network to choose the chain with the highest validator rewards rather than the first valid chain.

Sophisticated MEV extraction requires advanced infrastructure and capital, creating a significant advantage for large, professional validator operations. This leads to:

• Economic centralization: Smaller validators cannot compete, reducing network diversity.
• Geographic centralization: MEV strategies favor validators in low-latency, data-center environments.
• Consensus risk: A concentrated validator set is more vulnerable to collusion or external coercion.

Validators can censor transactions by excluding them from blocks to manipulate market prices or protect their own arbitrage positions. This violates the credible neutrality of the base layer. For example, a validator might censor a large decentralized exchange trade to execute their own arbitrage first, degrading the user experience and trust in transaction inclusion guarantees.

The pursuit of MEV can destabilize core protocol assumptions:

• Unpredictable block times: Validators may delay block propagation to search for more MEV, increasing latency.
• Gas price volatility: MEV auctions (e.g., flashbots bundles) can cause extreme spikes in base fee.
• Reorg risk: The economic incentive for reorgs increases, threatening the longest-chain rule if profitable enough.

A protocol-level mitigation design that separates the role of block building (selecting and ordering transactions for MEV) from block proposal (consensus duties). This aims to:

• Democratize access to MEV by creating a competitive builder market.
• Reduce centralization pressure on validators.
• Enforce credibly neutral inclusion lists to prevent censorship. PBS is a core feature of Ethereum's post-merge roadmap.

A protocol-level design that separates block building from block proposal to democratize MEV rewards. Builders compete to create the most profitable block, while proposers (validators) simply select the highest-bidding header.

• Purpose: Reduces centralization pressure on validators and creates a competitive market for block space.
• Implementation: Implemented via mev-boost on Ethereum, allowing validators to outsource block building.
• Reward Flow: Builders capture complex MEV, pay a bid to the proposer, and keep the surplus, distributing rewards more broadly.

The primary implementation of PBS, where specialized builders submit block bids to a network of relays. Validators run mev-boost software to connect to these relays and select the most profitable block.

• Process: Builders construct blocks containing MEV transactions and submit a sealed bid to a relay. The validator chooses the header with the highest attached payment.
• Outcome: Over 90% of Ethereum blocks are built via this system, creating a transparent market price for block space.
• Reward: The validator's reward is the bid; the builder's profit is the MEV extracted minus the bid and gas costs.

Protocols that capture MEV rewards and redistribute them evenly across all stakers or a broader set of participants, rather than just the block proposer.

• Goal: Mitigate the "proposer lottery" where only a few validators win large MEV bundles, reducing stake centralization.
• Mechanism: A smart contract or protocol rule captures a portion of transaction fees/MEV and distributes it pro-rata.
• Example: Ethereum's Proposer-Builder Separation (PBS) with MEV-Burn is a proposed future upgrade where excess MEV is burned, indirectly benefiting all ETH holders through deflation.

A class of solutions that enforce a fair, canonical ordering of transactions to prevent frontrunning and sandwich attacks at the mempool layer.

• Principle: Uses cryptographic techniques (e.g., threshold encryption, commit-reveal schemes) to create a fair ordering before execution.
• Impact: Neutralizes time-based MEV strategies, reallocating rewards from searchers back to users via better trade execution.
• Examples: Projects like Shutter Network (using threshold encryption) and Axiom aim to provide FSS for rollups and applications.

SUAVE (Single Unified Auction for Value Expression) is a proposed standalone blockchain that aims to decentralize the MEV supply chain by becoming a neutral, competitive marketplace for block building.

• Function: Acts as a preferred mempool and decentralized block builder for multiple chains.
• Process: Users send preferences (e.g., "don't frontrun me"), searchers compete with complex bundles, and builders auction full blocks to chains.
• Goal: Breaks the oligopoly of centralized builders, returning MEV competition and rewards to a permissionless network.

DApps and protocols designing their systems to internalize and redistribute MEV that would otherwise be extracted by third-party searchers.

• Strategy: Use mechanisms like CowSwap's batch auctions or UniswapX's fillers to create a competitive environment where MEV is competed away as better prices for users.
• Reward Destination: Captured value is often returned to the protocol's users or treasury.
• Example: CoW Protocol uses batch auctions with uniform clearing prices, eliminating sandwichability and turning potential MEV into improved trade execution (surplus).