{"id":37789,"date":"2022-09-20T17:27:54","date_gmt":"2022-09-20T14:27:54","guid":{"rendered":"https:\/\/forklog.com\/en\/?p=37789"},"modified":"2025-08-29T21:34:15","modified_gmt":"2025-08-29T18:34:15","slug":"what-is-mev-in-ethereum","status":"publish","type":"post","link":"https:\/\/forklog.com\/en\/what-is-mev-in-ethereum\/","title":{"rendered":"What is MEV in Ethereum"},"content":{"rendered":"<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">Key points<\/h2>\n<ul class=\"wp-block-list\">\n<li>Maximal Extractable Value (MEV) is the extra profit miners or validators can earn by reordering transactions before a new block is confirmed.<\/li>\n<li>MEV raises network fees by imposing additional costs on users, often around transactions in decentralised applications. Miners or validators try to take an arbitrage position so that a user pays an extra, unanticipated fee. MEV is widely viewed as an unfair practice.<\/li>\n<li>MEV first emerged on Ethereum and other EVM-compatible networks. One effective mitigation has been Flashbots.<\/li>\n<li>Experts say the shift to Proof-of-Stake (PoS) will not rid Ethereum of MEV, but will segment validators into professional categories, produce different block types and foster long-term strategies based on MEV.<\/li>\n<\/ul>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">How MEV works<\/h2>\n<p>Blocks recorded on a blockchain are immutable and cannot be rewritten. However, miners or validators can include, exclude and reorder transactions in a future block at their discretion before it is confirmed.<\/p>\n<p>Every unconfirmed transaction first lands in the public mempool. Miners then choose which transactions to add to a block. In doing so they assemble the most profitable combination of user transactions.<\/p>\n<p>This invites abuse. Miners (and, after <a href=\"https:\/\/forklog.com\/en\/news\/ethereums-move-to-proof-of-stake-pos-what-you-need-to-know\">Ethereum\u2019s transition to PoS<\/a>, validators) favour the largest transactions, prioritising from higher to lower, and add them to the next block that will be recorded on the blockchain.<\/p>\n<p>This feature gave rise to a mechanism for extracting profit by inserting transactions in a desired order. The practice is known as Maximal Extractable Value, or MEV.<\/p>\n<p>The MEV strategy involves searching for speculative operations based on pending transactions and pushing up the effective fees paid for their execution.<\/p>\n<p>Consider a user who decides to swap 10,000 USDC for ETH at $2,000 per coin on a DEX, in a USDC\/ETH liquidity pool. Here is what may happen after the order is submitted:<\/p>\n<ol class=\"wp-block-list\">\n<li>Specialised bots in the mempool track pending transactions and collect data from DeFi applications, including prices and liquidity volumes.<\/li>\n<li>Seeing the intent to buy ETH, the bots trigger an action that lifts the price just before the user\u2019s transaction executes. For example, a bot may add more USDC to the USDC\/ETH pool to push up the price of ETH.<\/li>\n<li>The expected $2,000 price becomes, say, $2,500. The trade goes through: instead of 5 ETH, the user receives only 4 ETH. The initiator\u2019s profit is 1 ETH minus fees.<\/li>\n<\/ol>\n<p>Because MEV increases user costs, it is often called an \u201cinvisible tax\u201d, and it is not unique to Ethereum.<\/p>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">When MEV\u2019s \u201cinvisible tax\u201d emerged<\/h2>\n<p>The problem of \u201csubstituting\u201d user transactions\u2014now called MEV\u2014was first raised <a href=\"https:\/\/www.reddit.com\/r\/ethereum\/comments\/2d84yv\/miners_frontrunning\/\" target=\"_blank\" rel=\"noreferrer noopener\">on Reddit<\/a> by the algorithmic trader and analyst Pmcgoohan in 2014, before Ethereum\u2019s mainnet launch. He suggested that miners, without breaking any consensus rules, could manipulate user transactions for their own ends.<\/p>\n<p>The term MEV appeared only in 2019 in the paper <a href=\"https:\/\/arxiv.org\/pdf\/1904.05234.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">\u201cFlash Boys 2.0\u201d<\/a>, the first public study to examine the severity of the problem Pmcgoohan described.<\/p>\n<p>The scale and gravity of the issue drew wider attention only in 2020, in articles such as <a href=\"https:\/\/medium.com\/@danrobinson\/ethereum-is-a-dark-forest-ecc5f0505dff\" target=\"_blank\" rel=\"noreferrer noopener\">\u201cEthereum is a dark forest\u201d<\/a> and <a href=\"https:\/\/samczsun.com\/escaping-the-dark-forest\/\" target=\"_blank\" rel=\"noreferrer noopener\">\u201cEscaping the Dark Forest\u201d<\/a> by Dan Robinson, Georgios Konstantopoulos and the crypto investor Samczsun. These publications aimed to inform Ethereum users about the \u201cinvisible tax\u201d levied on them.<\/p>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">Types of MEV<\/h2>\n<p>The growth of <a href=\"https:\/\/forklog.com\/en\/news\/what-is-decentralised-finance-defi\">decentralised finance (DeFi)<\/a> and parts of the Ethereum ecosystem\u2014particularly <a href=\"https:\/\/forklog.com\/en\/news\/what-is-a-blockchain-oracle\">price oracles<\/a>, liquid tokens and cross-chain bridges\u2014has spawned a variety of MEV strategies.<\/p>\n<h3 class=\"wp-block-heading\">Front-running<\/h3>\n<p>The most common tactic, where an MEV transaction is placed before the original one. Special bots can spot potentially profitable operations by simply copying users\u2019 transactions and acting ahead of them.<\/p>\n<h3 class=\"wp-block-heading\">Back-running<\/h3>\n<p>Submitting a transaction in response to an event. For example, right after a new pool appears on Uniswap, an exploiter may buy up a large share of the tokens and take first place in the queue, draining the pool. They then allow other participants to sell and offload their own tokens at a better price.<\/p>\n<h3 class=\"wp-block-heading\">Sandwich attack<\/h3>\n<p>A combination of the two schemes. If a bot finds a large buy order in the mempool, it places its own order ahead to purchase tokens cheaper via front-running. The large order executes and moves the price up. Then, using back-running, the bot sells the coins for a profit before other users.<\/p>\n<h3 class=\"wp-block-heading\">Liquidation<\/h3>\n<p>A strategy aimed at earning profit by buying a collateral position in a lending protocol immediately after it is liquidated. A user sees that a position may be liquidated in the next block and sends a transaction to purchase the collateral.<\/p>\n<h3 class=\"wp-block-heading\">Uncle bandit attack<\/h3>\n<p>A complex MEV strategy based on a speculative chain of transactions discovered in a competing block. Sometimes miners find two blocks simultaneously. At that moment miners can use data from the \u201cneighbouring\u201d block for their own ends.<\/p>\n<h3 class=\"wp-block-heading\">Time bandit attack<\/h3>\n<p>This involves reorganising previous blocks, where miners deliberately propose competing blocks containing different transactions. It can cause transactions to disappear and be included in an entirely different block.<\/p>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">Defences against MEV and Flashbots<\/h2>\n<p>MEV is not unique to Ethereum. As DeFi applications have grown and competition has intensified, bots have moved to EVM-compatible blockchains such as Polygon and BNB Chain. Even so, Ethereum has become the most advanced network in tackling the problem.<\/p>\n<p>In 2021, Ethereum miners earned $730m in MEV extraction rewards\u20144.3% of annual revenue. This points to the rise of \u201cunfair markets\u201d and worsens user experience by increasing fees and reducing predictability of execution.<\/p>\n<p>As a remedy, a centralised system called <a href=\"https:\/\/docs.flashbots.net\/\" target=\"_blank\" rel=\"noreferrer noopener\">Flashbots<\/a> appeared in 2020, funded by the venture firm Paradigm. It does not seek to eliminate the problem, but to bring it under control by creating an open market through a public auction of ETH transactions.<\/p>\n<p>The solution gained traction quickly. According to <a href=\"https:\/\/blog.bitmex.com\/ru_ru-flashbots\/\" target=\"_blank\" rel=\"noreferrer noopener\">research<\/a> by BitMEX\u2019s research arm, by May 2022 more than 90% of Ethereum miners were connected to a Flashbots relay. The researchers noted that 63% of MEV rewards went to operators, with the remaining 37% to miners.<\/p>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">What changes after Ethereum moves to PoS<\/h2>\n<p>Experts believe the change of consensus algorithm in Ethereum will not alter the basic principles of block creation. As with mining, validators will still be able to compose blocks from transactions at their discretion.<\/p>\n<p>At the same time, according to <a href=\"https:\/\/www.blocknative.com\/blog\/mev-proof-of-stake\" target=\"_blank\" rel=\"noreferrer noopener\">Blocknative<\/a>, Ethereum will see many non-professional node operators. This may lead to a separate category of validators called \u201cblock builders\u201d, who will offer services for assembling the most profitable blocks, maximising returns and optimising the network.<\/p>\n<p>As a result, Ethereum could see different types of blocks depending on validators\u2019 needs:<\/p>\n<ul class=\"wp-block-list\">\n<li>Blocks with the maximum number of MEV transactions;<\/li>\n<li>Blocks with MEV only for charitable purposes;<\/li>\n<li>Blocks with specific gas prices;<\/li>\n<li>Time-ordered blocks;<\/li>\n<li>Auctioned blocks;<\/li>\n<li>Censored blocks;<\/li>\n<li>Uncensored blocks.<\/li>\n<\/ul>\n<p>It is also expected that, because of the specifics of epochs (the process of selecting validators and creating a new block), MEV operators will know in advance which validators will propose the next block. This may give rise to entirely new, long-term MEV strategies.<\/p>\n<p>The developer Elias Simos, having examined the first 24,500 blocks after the Merge, concluded that 18% were produced using a modified mechanism called <a href=\"https:\/\/boost.flashbots.net\/\" target=\"_blank\" rel=\"noreferrer noopener\">MEV-Boost<\/a>. As a result, PoS validators were able to earn 122% more profit, and their blocks contained 41.4% more transactions.<\/p>\n<p>Despite validators\u2019 results from using MEV, it remains difficult to assess the economic and other potential consequences of MEV strategies for ordinary users.<\/p>\n<\/div>\n<div class=\"wp-block-text-wrappers-cards single_card\">\n<h2 class=\"card_label\">Further reading<\/h2>\n<p>What is the Tornado Cash mixer and why was it blocked?<\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/news\/what-are-soulbound-tokens-and-how-do-they-differ-from-nfts\">What are soulbound tokens and how do they differ from NFTs?<\/a><\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/news\/what-is-ethereum-classic-and-the-etc-cryptocurrency\">What is Ethereum Classic and the ETC cryptocurrency?<\/a><\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/news\/what-is-a-layer%e2%80%912-solution-in-blockchain\">What is a layer-2 (Layer 2) blockchain solution?<\/a><\/p>\n<p><a href=\"https:\/\/forklog.com\/en\/news\/what-is-staking-and-how-to-make-money-from-it\">What is staking and how can you earn from it?<\/a><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>How did miners profit from Ethereum users via MEV? What defences have emerged? What will change with Ethereum\u2019s move to Proof-of-Stake? Explained in cards.<\/p>\n","protected":false},"author":1,"featured_media":37790,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"select":"1","news_style_id":"1","cryptorium_level":"3","_short_excerpt_text":"","creation_source":"","_metatest_mainpost_news_update":false,"footnotes":""},"categories":[2113],"tags":[2115,1289,46,2126,1231,77],"class_list":["post-37789","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-cryptorium","tag-101-technical-foundations","tag-cryptocurrency-staking","tag-ethereum","tag-kriptorium-ethereum","tag-mev","tag-proof-of-stake"],"aioseo_notices":[],"amp_enabled":true,"views":"170","promo_type":"1","layout_type":"1","short_excerpt":"","is_update":"","_links":{"self":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts\/37789","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/comments?post=37789"}],"version-history":[{"count":1,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts\/37789\/revisions"}],"predecessor-version":[{"id":37791,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/posts\/37789\/revisions\/37791"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/media\/37790"}],"wp:attachment":[{"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/media?parent=37789"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/categories?post=37789"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forklog.com\/en\/wp-json\/wp\/v2\/tags?post=37789"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}