Execution-Level MEV

The most common form of execution-level MEV, where a searcher exploits price differences for the same asset across different Decentralized Exchanges (DEXs) or liquidity pools within a block.

• Example: Buying ETH on Uniswap where it's priced at $1,800 and instantly selling it on SushiSwap where it's priced at $1,805 in the same block.
• This activity is generally considered benign as it helps align prices across markets, but it extracts value from liquidity providers (LPs) via slippage.

A searcher repays a borrower's undercollateralized loan on a lending protocol (like Aave or Compound) to claim a liquidation bonus, often in a single atomic transaction.

• This is a necessary function for protocol health, ensuring bad debt is cleared.
• Searchers compete to be the first to submit the liquidation transaction, with profits coming from the liquidation penalty paid by the borrower.
• Advanced searchers use flash loans to fund the repayment without upfront capital.

A malicious form of MEV where a searcher front-runs a victim's large DEX trade and back-runs it, profiting from the price impact.

• Process: The searcher detects a pending large buy order for a token. They buy the token first (front-run), causing the price to rise. The victim's trade executes at the higher price. The searcher then sells (back-run) at the inflated price.
• This results in negative externalities for the victim, including worse execution (slippage) and a net loss.

A theoretical but critical risk where a validator (or a coalition) reorganizes the blockchain to steal MEV that was already extracted in a prior block.

• This attacks the finality of transactions after they appear confirmed.
• It is a form of consensus-level MEV that directly targets execution-level profits, creating systemic risk.
• Mitigated by mechanisms like Proposer-Builder Separation (PBS) and enshrined proposer commitments.

The core vulnerability enabling MEV, where the outcome of a transaction changes based on its position relative to others in the block.

• Example: A DEX trade's slippage depends on the state of the pool, which is altered by all preceding trades.
• This creates a combinatorial auction problem for block builders, who must find the most profitable sequence of transactions.
• Searchers bundle transactions to guarantee their desired order via Flashbots bundles or similar systems.

The specialized ecosystem that has evolved to capture execution-level MEV, consisting of searchers, builders, and relays.

• Searchers: Run algorithms to discover profitable opportunities and submit transaction bundles.
• Builders: Compete to construct the most valuable block by selecting and ordering bundles from searchers.
• Relays: Act as trusted intermediaries, receiving blocks from builders and forwarding them to validators, often providing censorship resistance lists.

Searchers are entities that run algorithms to detect profitable MEV opportunities, such as arbitrage or liquidations, within the public mempool or private order flows. They construct and submit transaction bundles to validators or builders, often paying a premium (a priority fee or bid) to have their bundles included. Their strategies include:

• Arbitrage bots exploiting price differences across DEXs.
• Liquidation bots closing undercollateralized loans.
• Sandwich traders inserting transactions around a target user swap.

A block builder is a specialized node that constructs full block contents by aggregating transactions and bundles from searchers and users. Post-EIP-1559 and with the rise of PBS (Proposer-Builder Separation), builders compete to create the most valuable block possible to sell to a validator. They optimize for:

• Maximizing total block value (fees + MEV).
• Ensuring state validity (all transactions must execute successfully).
• Censorship resistance and compliance with inclusion lists.

The block proposer (a validator in Proof-of-Stake) is the entity with the right to propose a block for a given slot. In a PBS model, the proposer's role is to select the most profitable block header from a competitive builder market. The proposer's key decisions involve:

• Choosing the builder's block offering the highest bid.
• Potentially enforcing censorship resistance rules via inclusion lists.
• Ultimately signing and propagating the selected block to the network.

A relay is a trusted intermediary in the PBS pipeline that facilitates communication between builders and proposers. It receives encrypted block bids from builders and reveals them to the proposer after selection, preventing theft of bundle strategies. Key relay responsibilities include:

• Bid aggregation from multiple builders.
• Data availability guarantee for block bodies.
• Fairness enforcement through neutral, verifiable auction rules.
• Censorship resistance monitoring.

End-users submitting standard transactions are foundational to the MEV supply chain. Their transactions create the opportunities (e.g., large DEX swaps) that searchers exploit. Users can employ strategies to protect themselves:

• Using private transaction relays (e.g., Flashbots Protect, Taichi Network) to avoid frontrunning.
• Setting tighter slippage tolerances.
• Utilizing MEV-aware protocols like CowSwap that offer batch auctions.

Order Flow Auctions are mechanisms that create a competitive market for user transaction flow. Instead of sending transactions to the public mempool, users or wallets sell their transaction order flow to the highest bidder among searchers/builders. This aims to:

• Democratize MEV capture, returning value to the user.
• Improve privacy and execution quality.
• Reduce negative externalities like sandwich attacks. Examples include CowSwap's solver competition and Rabbithole.

A predatory trading strategy where a searcher front-runs a victim's large DEX trade and back-runs it, profiting from the price slippage they create. This is the most common form of harmful MEV.

• Mechanism: The attacker places two orders around the victim's transaction.
• Impact: The victim receives a worse price, paying an implicit MEV tax.
• Example: A user's large ETH→USDC swap is sandwiched, increasing their effective price.

A severe security threat where a validator or proposer reorgs (reorganizes) the blockchain to steal already-included MEV, violating consensus finality.

• Mechanism: The validator discards a recent block to produce a new one with a more profitable transaction order.
• Impact: Undermines blockchain security, creates uncertainty for users and applications.
• Mitigation: Relies on proposer-builder separation (PBS) and strong consensus incentives.

Execution-level MEV directly degrades the end-user experience in two primary ways:

• Increased Slippage: Attacks like sandwiching force users to set higher slippage tolerances, which can be exploited.
• Transaction Failure: Frontrunning bots can cause user transactions to revert by changing the state (e.g., draining liquidity) before the user's transaction executes, resulting in lost gas fees.

The MEV supply chain separates roles to manage execution complexity and risk.

• Searchers: Run algorithms to detect profitable opportunities and bundle transactions.
• Builders: Compete to construct the most valuable block from searcher bundles and public mempool transactions.
• Proposer: The validator who simply selects the highest-paying block from builders. This separation (PBS) aims to democratize access and reduce validator-level centralization risks.

Emerging architectures designed to mitigate harmful MEV by obscuring transaction intent.

• SUAVE (Single Unified Auction for Value Expression): A dedicated chain for preference expression and block building, separating transaction privacy from execution.
• Encrypted Mempools: Use cryptographic techniques (e.g., threshold decryption) to hide transaction content until block inclusion, preventing frontrunning.
• Goal: Preserve fair ordering and reduce the information asymmetry bots exploit.

MEV extraction creates negative externalities for the broader network.

• Gas Price Auctions: Bots engage in priority gas auctions (PGAs), bidding up base fee prices to get their bundles included, increasing costs for all users.
• Network Congestion: The flood of competing MEV transactions can clog the mempool, delaying ordinary transactions.
• Centralization Pressure: The high rewards from MEV can incentivize stake centralization among validators with sophisticated extraction capabilities.

A market-based mechanism where the right to extract MEV from a block is auctioned to the highest bidder, with proceeds often shared with the network or users.

• First-Price Auctions: Builders bid for the right to have their block accepted by the proposer (as seen in MEV-Boost).
• Order Flow Auctions (OFAs): Users or searchers auction their transaction bundles to builders before they reach the public mempool, capturing value for the user.
• Goal: Transparently price MEV and redistribute profits.

A class of protocols that enforce a canonical, fair ordering of transactions (e.g., first-come-first-served) before they are included in a block, neutralizing many forms of harmful MEV.

• Core Principle: Decouple transaction ordering from execution, using a decentralized sequencer or consensus mechanism to establish order.
• Mitigates: Frontrunning, time-bandit attacks, and other forms of order-dependent exploitation.
• Implementation: Often used in rollups (e.g., Arbitrum's Timeboost) or as standalone networks like Astria.

Protocol-level strategies to capture extracted MEV and redistribute it to the broader network, rather than letting it accrue solely to searchers and validators.

• MEV Burn: A portion of MEV profits are permanently destroyed (burned), as with Ethereum's inclusion fee burn (EIP-1559), which burns the base fee, a component of MEV.
• MEV Socialization: Captured value is distributed to a common pool, such as the protocol treasury or directly to token holders/stakers.
• Goal: Align MEV extraction with long-term network health and user benefit.