MEV Sharing

MEV Sharing (Maximal Extractable Value Sharing) is a protocol-level mechanism that systematically redirects a portion of the value extracted from transaction ordering—MEV—away from searchers and validators and back to the users whose transactions created that value. This is a deliberate economic redesign to mitigate the negative externalities of MEV, such as increased transaction costs and network congestion, by creating a more equitable distribution of the profits generated from blockchain state changes. Instead of this value being captured entirely by sophisticated actors, a share is programmatically returned, often through mechanisms like direct rebates, protocol treasury funding, or staking rewards.

The implementation of MEV sharing typically occurs through specialized infrastructure like MEV-Boost in Ethereum's proof-of-stake system or via encrypted mempools and order-flow auctions. In these systems, searchers submit bids to validators for the right to include their transaction bundles. A portion of this bid, the "shared" MEV, is then distributed according to protocol rules. For example, it might be burned to benefit all token holders via deflation, sent to a treasury for protocol development, or refunded to the end-user whose transaction was part of the arbitrage or liquidation opportunity.

Key designs for MEV sharing include proposer-builder separation (PBS) and MEV smoothing. PBS formalizes the roles of block builders (who assemble profitable bundles) and proposers (who select the final block), creating a clear channel for sharing bids. MEV smoothing, a concept explored for proof-of-stake chains, aims to distribute MEV rewards evenly across all validators over time, rather than concentrating them on those who propose blocks during periods of high volatility. These structures aim to reduce the incentive for validators to run their own extractive strategies, promoting network health.

The primary benefits of MEV sharing are increased economic security and fairer user experience. By redirecting MEV back into the protocol or to users, it reduces the "tax" users pay to MEV extractors, effectively lowering net transaction costs. It also aligns validator incentives with long-term network stability, as a share of MEV becomes a predictable reward for honest participation rather than a prize for predatory behavior. This can discourage consensus-level attacks that might arise from competition over large, unshared MEV opportunities.

Real-world examples include Ethereum's post-Merge fee burn (which destroys a portion of transaction fees, a form of MEV) and specific implementations like CowSwap's use of batch auctions with uniform clearing prices to minimize extractable value and protect users. Other protocols, like Flashbots Protect, offer users a direct channel to submit transactions that ensure any MEV generated is shared back with them, demonstrating a practical application of the sharing principle for end-users.

MEV Sharing is a protocol-level mechanism that systematically redistributes a portion of the Maximal Extractable Value (MEV)—profits from transaction ordering—from block producers to other network participants, such as users, validators, or decentralized application treasuries. This is achieved through automated rules embedded in the blockchain's consensus or execution layer, moving beyond ad-hoc, off-chain deals to create a more transparent and equitable distribution of this extracted value. The core goal is to mitigate the negative externalities of MEV, like network congestion and high fees, by aligning economic incentives across the ecosystem.

The primary technical implementation is through proposer-builder separation (PBS) and in-protocol payment channels. In a PBS design, specialized block builders compete to construct the most profitable block by including and ordering transactions. They then submit their block along with a bid to the block proposer (validator). A share of this bid, representing the MEV, is automatically distributed according to the protocol's rules. For example, a portion may be burned to benefit all token holders, sent to a community treasury, or directly refunded to users via mechanisms like transaction inclusion lists or credits.

A key concept enabling user-focused sharing is the auction for transaction ordering rights. Users or their wallets can submit transactions with conditional bids, signaling a willingness to pay a certain fee for execution while also specifying a rebate they should receive if their transaction generates MEV for the builder. Sophisticated systems like MEV-Share or MEV-Boost relays facilitate this by allowing searchers to see partial transaction details and submit bundles that include a portion of their profit back to the user. This creates a more competitive and efficient market, reducing the MEV tax on regular users.

The impact of MEV sharing is multifaceted. For users, it can lead to better execution prices (e.g., reduced slippage on DEX swaps) and partial rebates on transaction costs. For the network, it can enhance security and decentralization by making validator roles more accessible and profitable, reducing the incentive for centralized, off-chain MEV cartels. Protocols like Ethereum are actively researching in-protocol PBS and fee burning mechanisms to formalize this sharing, aiming to sustainably capture and redistribute the value created by its own economic activity.