MEV (maximum extractable value) is one of the most active research areas of Ethereum. It is sometimes seen as an inevitable phenomenon, and it is, to a certain extent. However, there have been some advances in MEV management in the last few years.
As such, we dive into what MEV is and why it is relevant in the crypto space.
What is the Maximum Extractable Value?
Maximal extractable value (MEV) refers to the maximum value extracted from block production over the standard block reward and gas fees by including, excluding, and changing the order of transactions in a block.
You might think that validators are the only players who profit from MEV. But this is not the case.
When we send transactions through a wallet, our transactions are not immediately inserted into a block. However, they sit in a pending transaction pool called the “mempool.” These transactions are waiting to be validated and finalized (previously mined).
Inside the mempool, there are many opportunities to make money. “Searchers” are independent network users who actively use algorithms to scour the mempool for profitable MEV opportunities and then use bots to capitalize on them.
Some common techniques that searchers use to extract value from the everyday Ethereum user are Sandwich attacks, reorgs, and just-in-time (JIT) liquidity attacks.
Why is MEV Relevant?
Searchers compete against each other to extract as much MEV as possible. To win these fights, they need to incentivize validators to pick their transactions over their rivals by paying high gas fees.
The risk of centralization here arises from validators wanting to make more money. Since validators do not perform computationally intensive work like miners, they earn far less ETH in block rewards, making them more likely to seek MEV opportunities.
Another issue stems from Ethereum requiring a user to stake 32 ETH to become a validator. Consequently, it leads to numerous staking pools running multiple validators. Those pools have a large number of resources they can deploy to improve their MEV-extraction capability.
Besides, small stakers cannot compete against these large staking pools when it comes to capturing MEV; they are likely to join these pools to bolster their revenue, thereby reducing Ethereum’s decentralization.
Proposer-Builder Separation (PBS) is a potential solution for an MEV attack where block construction and block proposing are assigned to different roles in the network.
There are three main actors involved:
Searchers- Searchers create bundles of profitable transactions and send them at once to a network of builders.
Builders- The block builders gather transactions and bundles to build the most profitable blocks, the value of which comes from both MEV and transaction fees.
Relayer- Builders then send their blocks to a relayer. A relayer is responsible for checking blocks before passing them to validators.
Furthermore, a relayer protects the validators from spam by confirming the builder blocks for validity and estimating the MEV-related value of each block.
Final Thoughts
There are some concerns around transaction censorship, as MEV-Boost does not permit building blocks that include Tornado Cash transactions (more precisely, every transaction must be OFAC compliant).
An interesting alternative to MEV-Boost is the products OpenMEV and SecureRPC (a relayer) by Manifold Finance.
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