MEV(Maximal Extractable Value)
MEV (Maximal Extractable Value) is value that can be extracted by strategically including, excluding, or ordering transactions around normal blockchain activity.
✦ Key Insight
MEV affects trade execution, network congestion, validator economics, and protocol design. Users may experience higher slippage or failed transactions, while some MEV activities help align prices or execute necessary liquidations.
✕ Common Misconceptions
MEV is broader than attacks. Arbitrage and liquidations can support market efficiency, while sandwiching can directly harm users. Avoid using "MEV" as a synonym for hacking or theft.
Detailed Explanation
Aliases and acronyms: Maximal extractable value; miner extractable value; maximum extractable value
Plain-English explanation: MEV originally referred to miner extractable value and is now commonly expanded as maximal extractable value. Searchers, builders, validators, and protocols can participate in transaction-ordering markets. MEV includes useful activities such as arbitrage and harmful experiences such as sandwiching.
Analogy: Imagine an auctioneer who can choose the order in which bids are processed and can sometimes profit from knowing all the bids before finalizing the sequence.
How it works: Actors identify profitable state changes and construct transactions or bundles whose value depends on execution order. Block-building infrastructure then determines which transactions enter a block and in what sequence. The extracted value is separate from ordinary block rewards and standard transaction fees.
Related terms: Front-running; Sandwich attack; Mempool; DEX; Liquidation
FAQs
Q: Who captures MEV?
A: Depending on the system, searchers, block builders, validators, relays, applications, or users can receive portions of the value.
Q: Is all MEV harmful?
A: No. Arbitrage can keep prices aligned and liquidations can protect lending protocols, although other forms can worsen user execution.
Q: Why is MEV possible?
A: Blockchain transactions change shared state, and the order of those state changes can create different economic outcomes.
Sources
In Practice
Dig Deeper
Sandwich Attack
A sandwich attack places one trade before and another after a user's DEX trade to profit from the price movement caused by that user's transaction.
Mempool
A mempool is a node's temporary pool of valid, unconfirmed transactions waiting to be included in a block.
Front-running
Front-running occurs when someone observes a pending action and gets a strategically related transaction executed before it to capture an advantage.