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MEV

Maximal Extractable Value (MEV) refers to the maximum value that can be extracted from block production in excess of the standard block reward and gas fees, by including, excluding, or reordering transactions within a block. MEV is primarily performed by specialized participants known as ‘searchers’ who use complex bots to identify profitable opportunities such as arbitrage, liquidations, and front-running. While some MEV can contribute to market efficiency, it often results in negative user experiences.

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Definition

Maximal Extractable Value (MEV) refers to the maximum value that can be extracted from block production in excess of the standard block reward and gas fees, by including, excluding, or reordering transactions within a block. MEV is primarily performed by specialized participants known as ‘searchers’ who use complex bots to identify profitable opportunities such as arbitrage, liquidations, and front-running. While some MEV can contribute to market efficiency, it often results in negative user experiences.

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Simple explanation

Imagine the person organizing a line at a store allows people to pay extra to cut to the front, or rearrange the order of the line to their own benefit. MEV is the extra money made by these ‘line organizers’ who decide how transactions are ordered. They make money by finding ways to profit from the order in which people do their business.

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Why it matters

MEV is a core component of the modern blockchain economic model. It influences how networks are secured and dictates the ‘hidden’ costs users pay when interacting with decentralized protocols.

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How it works

Searchers run algorithms to detect profitable market anomalies in the mempool. They then submit ‘bundles’ of transactions to block builders or validators, often paying them a significant share of the expected profit as a bribe to ensure their bundle is included at the top of a specific block.

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Real-world example

Flashbots is the primary organization that has brought MEV into the light, creating tools to make the process transparent and mitigate the negative impacts on users.

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Advantages

  • Corrects price discrepancies through arbitrage
  • Ensures liquidation of under-collateralized loans
  • Incentivizes network security and decentralization

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Limitations

  • Increases cost for average network users
  • Can lead to network congestion and gas spikes
  • Creates an uneven playing field

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Common misconceptions

  • MEV is often mistakenly labeled as exclusively ‘theft,’ although much of it acts as a necessary market-clearing function.
  • Some believe MEV only exists on Ethereum, but it exists on any network that uses a transaction ordering mechanism.
Canonical knowledge ID: glossary:mev