MEV Revenue

The most common source of MEV, where searchers profit from price discrepancies of the same asset across different decentralized exchanges (DEXs) or liquidity pools. A classic example is buying an asset on one DEX where it's cheaper and instantly selling it on another where it's more expensive within the same block.

• Cross-DEX Arbitrage: Exploits price differences between Uniswap, SushiSwap, etc.
• Multi-Hop Arbitrage: Uses a path of multiple token swaps to capture value.
• Flash Loan Integration: Often uses uncollateralized flash loans to fund large arbitrage trades.

Revenue generated from closing undercollateralized positions in lending protocols like Aave or Compound. When a loan's collateral value falls below a required threshold, it becomes eligible for liquidation.

• Liquidation Bots: Searchers run bots to monitor and be the first to submit a liquidation transaction.
• Profit Source: The liquidator purchases the collateral at a discount (e.g., 5-10%) and repays the borrower's debt.
• System Health: This MEV is considered 'necessary' as it maintains protocol solvency.

A predatory form of MEV where a searcher exploits a visible pending DEX swap in the mempool. The searcher front-runs the victim's trade by buying the asset first, then back-runs it by selling after the victim's trade has pushed the price up.

• Victim Impact: The victim receives a worse price (slippage) due to the artificial price movement.
• Mempool Dependency: Relies on transparent transaction pools; mitigated by private transaction relays or Flashbots. This is often categorized as negative externality MEV.

Revenue extracted by intentionally manipulating the price feeds (oracles) that DeFi protocols rely on for valuations. A searcher can create a large, imbalanced trade on a DEX that serves as an oracle source, temporarily skewing the price.

• Target Protocols: Used to trigger false liquidations or to mint excessive synthetic assets in protocols like Synthetix or MakerDAO.
• Flash Loan Use: Typically requires massive capital, often sourced via flash loans, to move the market price.
• Systemic Risk: Considered a high-risk attack vector on protocol integrity.

Extracting value from the ordering and execution of non-fungible token transactions. This includes:

• NFT Arbitrage: Sniping underpriced NFTs listed on marketplaces (e.g., buying an NFT listed below its floor price).
• Bundle Reordering: In NFT marketplaces with batch auctions or complex trades, reordering transactions within a bundle can be profitable.
• Mint Snipping: Being the first to mint a desirable NFT from a new collection by optimizing gas fees and transaction timing.

MEV revenue is not captured solely by searchers; it is distributed across the blockchain ecosystem.

• Searcher Profit: The net profit after gas costs from a successful MEV bundle.
• Validator/Block Producer Fees: Earn priority fees (tips) and may also receive payments via MEV-Boost relays on Ethereum.
• Protocol Revenue: Some protocols, like CowSwap, use batch auctions or other mechanisms to internalize and redistribute MEV back to users.
• Burn Mechanism: On Ethereum, a portion of transaction fees, including MEV-driven fees, is burned via EIP-1559.

Searchers are the primary extractors, using bots to identify profitable opportunities like arbitrage or liquidations. Their revenue is the gross profit from their strategies, minus costs like gas fees and failed transaction attempts. This is the most direct and volatile form of MEV revenue.

• Examples: Profits from DEX arbitrage, NFT floor price manipulation, or liquidation cascades.
• Key Metric: Searcher revenue is often measured in gross extractable value (GEV) before expenses.

Validators (or block proposers) earn MEV revenue by accepting payments from searchers to include and order transactions favorably. This is typically captured via priority fees (tips) or through specialized auction mechanisms like MEV-Boost on Ethereum.

• Primary Source: Payments in the native token (e.g., ETH) for transaction ordering.
• Ecosystem Role: This revenue incentivizes honest participation and secures the network by making validator stakes more valuable.

In a proposer-builder separation (PBS) model, specialized actors capture portions of MEV revenue:

• Block Builders: Compete to construct the most profitable block from a mempool, keeping a portion of the extracted value.
• Relays: Act as trusted intermediaries between builders and proposers, often earning fees for their service and attestations.

This layer professionalizes MEV extraction, increasing efficiency and potentially reducing its negative externalities.

Some protocols and their users can capture or benefit from MEV revenue through designed mechanisms:

• MEV Redistribution: Protocols like CowSwap use batch auctions to capture MEV and redistribute it back to users as better prices.
• MEV Protection: Services like Flashbots Protect or private RPCs aim to return extracted value (e.g., from arbitrage) to the user submitting the transaction.
• Staking Pools: Validator staking pools distribute MEV revenue earned from block proposals to their token stakers.

These are the two most significant sources of MEV revenue, representing the bulk of value extracted:

• DEX Arbitrage: Exploiting price differences for the same asset across different decentralized exchanges (e.g., Uniswap vs. SushiSwap).
• Liquidations: Profiting from undercollateralized loans in lending protocols (e.g., Aave, Compound) by being the first to repay the debt and seize the collateral at a discount.

These are opportunistic revenues that exist due to market inefficiencies and protocol design.

A malicious form of MEV where a searcher extracts revenue at the direct expense of a regular user. The attacker:

1. Front-runs a user's large DEX trade, buying the asset first.
2. Lets the user's trade execute, pushing the price.
3. Sells the asset immediately after (back-runs) to profit from the user-induced price movement.

This revenue is considered parasitic, as it creates a direct loss for the target user through worsened slippage.

MEV revenue provides a significant, variable subsidy to validators and block proposers, supplementing standard block rewards and transaction fees. This revenue can enhance network security by increasing the cost of attack, as the opportunity cost of losing future MEV earnings makes attacks less profitable. However, it also centralizes economic power among sophisticated actors who can capture the most value.

The extraction of MEV often comes at the direct expense of regular users. Common harmful forms include:

• Front-running: A searcher sees a pending transaction (e.g., a large DEX trade) and submits their own transaction with a higher gas fee to execute first.
• Sandwich attacks: A user's trade is sandwiched between two adversarial trades to manipulate the price.
• Time-bandit attacks: Reorganizing past blocks to steal arbitrage opportunities. These practices degrade user experience and trust in the network's fairness.

The technical complexity and capital requirements for MEV extraction create high barriers to entry, leading to centralization. Specialized searchers and block builders with advanced algorithms and infrastructure dominate MEV capture. This can lead to a feedback loop where the most profitable validators are those aligned with or controlled by these entities, potentially threatening the censorship-resistance and decentralization of the network.

MEV revenue is a measurable on-chain phenomenon. Key metrics include:

• Extracted Value: The profit successfully captured by searchers and validators, often tracked in USD or ETH.
• Gas Spent on MEV: The portion of total network gas consumed by MEV-related transactions (e.g., arbitrage, liquidations).
• Redistribution: Value returned to users via mechanisms like MEV burn (EIP-1559) or MEV smoothing protocols. In 2023, over $1B in MEV was extracted on Ethereum alone, primarily from DEX arbitrage and liquidations.

The long-term impact of MEV on blockchain economics is an open research question. A key consideration is whether MEV acts as a positive externality that sustainably funds security, or a negative externality that erodes the system's foundational properties. The design goal for many next-generation protocols is to minimize harmful MEV while redistributing unavoidable value in a way that benefits the broader ecosystem and strengthens, rather than undermines, decentralization.

The maximum value that can be extracted from block production in excess of the standard block reward and gas fees by including, excluding, or reordering transactions within a block. It is the theoretical profit opportunity, while MEV revenue is the realized profit captured by searchers and validators.

• Origin: Arises from the ability to reorder transactions before finalization.
• Sources: Includes arbitrage, liquidations, and front-running opportunities.

An entity (often a bot) that identifies profitable MEV opportunities by scanning the mempool and constructing transaction bundles. Searchers pay fees to validators or builders to have their bundles included in a block.

• Role: Discovers and executes MEV strategies.
• Revenue Flow: Captures MEV profit, pays a portion as a priority fee or bid to the block producer.

A specialized node that constructs full block contents by receiving transaction bundles from searchers and ordinary users. Builders compete in an auction (PBS - Proposer-Builder Separation) to have their block accepted by the block proposer (validator).

• Function: Optimizes block composition for maximum value.
• Key Concept: Centralizes MEV extraction complexity, allowing validators to outsource block building.

A protocol design that separates the role of block proposer (validator) from block builder to mitigate centralization risks from MEV. The proposer simply selects the most profitable block from a builder auction.

• Purpose: Reduces validator advantage and promotes a competitive builder market.
• Implementation: Ethereum implements PBS via mev-boost for consensus-layer validators.

A direct payment from a transaction sender (or searcher) to a block proposer to incentivize the inclusion and ordering of their transaction. This is a primary mechanism for distributing MEV revenue to validators.

• Mechanism: Part of the EIP-1559 fee market.
• Alternative: In PBS, the builder pays the validator a bid for the entire block, which includes aggregated priority fees.