Explore the dark forest of Ethereum MEV, who is the first to trade?
Editor's Note: This article comes fromIOSG（ID： IOSGVC）, reprinted by Odaily with authorization.
Editor's Note: This article comes from
, reprinted by Odaily with authorization.
What is Miner Extractable Value (MEV)?
MEV (Miner Extractable Value) refers to "the value that miners can directly extract from smart contracts as profits." Includes regular profits from transaction fees and block rewards, as well as unconventional profits from miners through transaction reorganization, transaction insertion, and transaction censorship.
MEV on Ethereum is mainly obtained by DeFi traders through structural arbitrage trading strategies, while miners indirectly profit from the transaction fees of these traders. Miners are usually paid for their services in the blockchain ecosystem through a combination of transaction fees and block rewards. At the same time, miners can earn additional value from the blockchain network when creating new blocks by using their status in the network to give themselves the power to produce blocks and reorder transactions at will.
Why are MEVs important?
First, MEV reveals the difference in security model between Layer 1 blockchains that support simple payments and blockchains that support smart contracts.
Second, the analysis of MEV shows that the design of Layer 1 fundamentally affects the security/economics and fairness of the application layer.
Some examples of MEV?
A special MEV is defined as Ordering Optimization (OO), which is a method invented by miners to control the ordering of blocks.
Another example is "Front Running", where miners order transactions in a certain way so that they can prioritize certain transactions, send tokens to the ICO contract and participate in the ICO earlier than other users. Many ICO projects operate on a first-come, first-served basis, which creates a lot of profit opportunities for those who can send tokens before everyone else.
How big is the MEV market?
secondary title Layer 2 increases the size of the MEV because it reduces the composability of the system. As the system becomes less composable, there will be more arbitrage opportunities available. secondary titleIt is difficult to estimate the actual size of the MEV market because it is difficult to calculate what the profit-maximizing ordering of transactions per block is. To understand the size of the MEV market, one has to ask: "At each block, what can a miner do to extract the most value?"
How will Layer 2 affect MEV?
What is the solution?
MEV auction collusion, where miners and/or orderers collude to bid as low as possible to keep their profits. If the cost of becoming a sorter is high enough, there may only be a few sorters. In turn, it is also possible for these orderers to cooperate with miners to lower auction bids, thereby invalidating MEVA.
key points
The parasitic L2 issue suggests that MEVA reduces the security of the Layer 1 chain and potentially increases Layer 2 value capture by rerouting Layer 1 miner revenue to Layer 2 orderers. In the long run, this could cause Layer 1 security budget problems.
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key points
Although MEV exists in all blockchains, as the value locked in smart contracts increases, the MEV market size of POS smart contract chains will also increase. Therefore, MEV will become even more important as DeFi and Layer 2 solutions advance.
Some solutions currently exist: disclose the market size of MEV, increase the transparency of the transaction order, and transfer some MEV to Layer 2 to fund public goods. However, these solutions remain in the realm of theory and there are no practical solutions yet.
It will be interesting to watch how important players in the ecosystem such as miners and nodes are affected and react to the solutions proposed by the community.
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Who can follow?
Flashbots is a research and development organization dedicated to mitigating the negative externalities and existential risks of miner-extractable value (MEV) on smart contract blockchains.
