MEV (Maximal Extractable Value) is one of the most misunderstood concepts in web3. While seemingly simple, it involves complex layers of operation, actors, and classification. Though not new, MEV garners significant scrutiny due to its visibility in blockchain networks. Flashbots estimates MEV earnings on Ethereum—where most MEV occurs—at nearly $1 billion and growing.
This guide explores MEV fundamentals, common types, and its evolving economic impact.
MEV Exists in Every Ordered System
MEV (Maximal Extracted Value) refers to value derived from controlling transaction inclusion and ordering. It arises because blockchains require transactions to be ordered and included in blocks before on-chain commitment. While MEV represents a theoretical maximum, Realized Economic Value (REV) denotes the actual extracted amount.
Originally termed "Miner Extracted Value", Ethereum’s transition to Proof-of-Stake (via The Merge) rebranded it to "Maximal"—replacing miners with validators and builders.
MEV isn’t unique to blockchains. All ordered systems exhibit extracted value:
- Airplane seating: Premium fees for priority seats.
- Search engines: SEO boosts page rankings and traffic.
- Concert ticketing: Scalpers resell tickets at higher prices.
- Equities markets: Arbitrage exploits price gaps across markets.
- Blockchains: MEV via arbitrage, front-running, or liquidations.
👉 Learn how MEV impacts Ethereum’s economy
MEV in Web3: How Value is Extracted
Most web3 users unknowingly contribute to MEV—especially when experiencing slippage in DeFi swaps. Key insights:
- Mempool transparency allows real-time transaction monitoring.
- MEV actors exploit value-extraction opportunities.
- Nearly every token swap holds MEV potential.
While benign MEV aids market equilibrium, malicious MEV can delay transactions, raise gas fees, or censor users.
How Transaction Ordering Enables MEV
MEV hinges on transaction ordering. Originally, miners controlled this via block processing. Today:
- Naive Ordering: Transactions ranked by gas fees.
- MEV Ordering: Searchers reorder transactions for profit.
Example: An arbitrage searcher spots a price discrepancy between DEXs. By placing their transaction after the target trade, they profit from the price difference.
Types of MEV
1. Arbitrage
- Neutral: Exploits natural price gaps (e.g., ETH at $2000 on Uniswap vs. $1990 on Sushiswap).
- Toxic: Artificially created via front-running.
- Cross-Chain: Exploits price differences across L2s or wrapped assets.
2. Liquidations
- Neutral: Automatic when collateral falls below loan value.
- Toxic: Censoring re-collateralization attempts to force liquidation.
3. Front-Running
Inserting transactions ahead of a target to profit from its price impact.
4. Sandwich Attacks
- Front-run a large trade to inflate price.
- Let target trade execute.
- Back-run to sell at the higher price.
5. NFT Sniping
Outbidding NFT buyers via front-running or censorship.
Ethereum’s MEV Roadmap
Post-Merge, Ethereum prioritizes MEV solutions under "The Scourge" roadmap:
- Proposer/Builder Separation (PBS): Aims to decentralize block building.
- Proto-PBS: Currently enabled via MEV-Boost.
👉 Explore MEV’s future with Ethereum upgrades
FAQ
Q: Is MEV illegal?
A: No. While some forms (e.g., front-running) are unethical, others (arbitrage) are market-neutral.
Q: How does MEV affect gas fees?
A: MEV competition can congest networks, raising fees for regular users.
Q: Can MEV be prevented?
A: Solutions like encrypted mempools or PBS aim to reduce exploitative MEV.
Final Thoughts
MEV is a double-edged sword: vital for market efficiency yet prone to extraction. As Ethereum evolves, PBS and MEV-Boost will shape its future.
For MEV tools and insights, explore Blocknative’s resources.