As DeFi continues to thrive in the blockchain ecosystem, MEV, also known as miner-extractable value, is becoming a point of discussion among Ethereum developers and traders.

Synonymous with a miner's ability to decide where and when transactions are placed on a block, miners typically use miner-extractable value (MEV) by reordering transactions in each block in a way that benefits them. generate additional income.

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Let's see how Miner Extractable Value (MEV) works:

On a blockchain, a block is added to its chain only after validators agree and reach consensus on a given order of transactions. However, the block is created by a single user (miner).

Users (miners) can control where they want transactions placed in a certain block. MEV allows miners to put transactions in a block in the order they choose, where they can profit from transactions, while also requiring higher gas.

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How MEV works (source:SmartContractReserachForum）

andfront runningandentrainedExamples of making money.

Front-Running: Front-Running simply refers to an event where miners put their own transaction ahead of another transaction in a block, which helps them make a profit.

In cases where huge transactions are involved on DEXs, miners can sometimes predict the impact and future price fluctuations. This helps them take advantage of opportunities by bringing their own deals up front and "front-running" them.

This also applies to traditional finance, where the term originated. Let's look at an interesting version of Front-Running in traditional finance. Suppose a businessman asks his broker to buy 200,000 shares of his company. Now the broker knows that such volume is bound to drive up the price of the stock, so the broker instead buys a certain number of shares for himself before acquiring the stock for his client. Now, whenever the price of a stock rises, the broker sells the stock for a profit.

Recent research has found that front-runners are making millions in profits through MEV, even competing with each other to make the most of their opportunity. Front-running is often an expected strategy used by miners, as many believe that unless you are front-running, you will end up losing money mining cryptocurrencies.

Sandwiching: Sandwiching is another technique that uses transaction ordering to benefit miners. It differs from front-running in that miners place transactions in the middle of other transactions rather than at the front.

Let’s consider a decentralized exchange (DEX) on top of Ethereum, where a huge transaction causes the price to slide, presenting an opportunity to make thousands of dollars in profit.

Miners who identify transactions before they are executed can "sandwich" transactions between their own buy and sell transactions. This increases the gas cost of the transaction, allowing miners to make an immediate profit at no additional cost.

Blockchains that rely heavily on smart contracts like Ethereum are inherently plagued by miner-extractable value (MEV); however, those that don't support complex smart contracts don't understand MEV either. For example, Bitcoin is also "technically" vulnerable to MEV, but not as easily as Ethereum.

This is also because the MEV accumulated on a blockchain over time is proportional to the complexity of a given chain. Experts also believe that proof-of-work-based blockchain protocols can break consensus and threaten the integrity of the protocol.

Protocols such as Ethereum rely heavily on smart contracts, and the complexity of smart contracts in blockchain protocols based on proof-of-work is quite high. Furthermore, with DeFi flourishing across various blockchain ecosystems, the complexity of smart contracts is unlikely to decline anytime soon.

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against MEVs

MEV is an inherent property of blockchain protocols that cannot be eradicated without creating off-chain markets. For example, if all transaction fees are equal, miners will negotiate with traders to pay transaction priority outside the agreement. Most other situations lead to similar dilemmas.

One way to eliminate ordering of MEV transactions is to enhance application design to minimize the incentives around such price manipulation. While this is a viable proposal, current research around MEV focuses on removing the ability to break consensus by increasing the cost and difficulty of consensus.

Blockchains employing a proof-of-stake consensus model can radically reduce the incentive for validators to attempt reordering; however, MEV's profits will always outweigh the reduced rewards.