MEV: Transaction Ordering, User Costs, and Blockchain Security
Summary
The document explains miner extractable value (MEV) as profit available to block producers through transaction inclusion, exclusion, or ordering. Using decentralized exchange arbitrage, it shows how searchers compete for profitable transactions through fee auctions, while block producers may capture opportunities directly. It also describes transaction copying and sandwich attacks, which can worsen execution for users, alongside arbitrage that restores market prices and may be benign.
The analysis connects MEV incentives to broader network risks. When extractable profits exceed block rewards, miners may have reason to reorganize recent blocks, creating time-bandit attacks and weakening consensus stability. The article argues that flexible smart contract systems create a larger potential MEV surface, while acknowledging that total MEV cannot be measured because only realized opportunities and a partial lower bound are observable. It discusses possible responses such as separating transaction ordering from execution and auctioning block space, but presents these as evolving ideas. Its claims about future risks are forecasts from the period described, not guaranteed outcomes.
Key ideas
- MEV arises from a block producer's ability to include, exclude, or reorder transactions.
- Priority fee competition can allocate arbitrage opportunities while reducing the searcher's remaining profit.
- Copying and sandwiching transactions can impose hidden costs on users, while some arbitrage can improve price alignment.
- Large MEV opportunities may make block reorganization economically attractive and threaten consensus stability.
- Observed MEV is only a lower bound because the full set of possible contract interactions is not tractable to enumerate.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.