Essentially, it refers to the amount of extra value an individual or miner can benefit from a trade by reordering transactions arbitrarily within a block. While it can massively benefit the miner, it is considered a harmful practice to the majority trading within the blockchain. That’s because any move using MEV can impact the profit potential of others on the same blockchain.
Techniques such as Front-Running, Back-Running, and Sandwich Attacks raise fundamental questions of fairness. The driving up of gas prices and any use of advance knowledge on pending transactions is controversial in this industry, given that it goes against fundamental principles of fairness the cryptocurrency was founded upon.
Why Is MEV Controversial?
The main reason for some of the animosity levied at MEV is because it introduces a tension between the incentives of blockchain participants (miners or validators) and the fairness, security, and efficiency of the network.
While MEV allows miners to extract profit by reordering, including, or excluding transactions in a block, this can create negative externalities for users, developers, and the broader ecosystem.
How Are These Negative Externalities Created?
There are several ways in which MEV can create negative conditions for participants.
They include:
Gas Wars: When miners prioritize transactions that maximize their own MEV (such as those with high gas fees or reordering transactions), it can drive up the cost of using the blockchain for regular users.
Price Slippage and Market Manipulation: Regular users, who are not engaging in MEV extraction, may find that the price they expect to pay for a token or asset is different from the actual price due to artificial price movement caused by front-running, back-running, and sandwich attacks.
Network Congestion: When miners or validators prioritize high-MEV transactions over others, it can create cumbersome conditions on the blockchain, degrading the overall experience.
MEV FAQs
1. What is Miner Extractable Value (MEV) and how does it work?
MEV is profit miners or validators can make by reordering, including, or excluding transactions to maximize their earnings, often by exploiting market movements.
2. How does MEV affect regular users?
MEV increases transaction costs, causes price slippage, and allows miners to profit from users’ trades, leading to worse execution prices for regular users.
3. What types of MEV attacks exist?
Common MEV attacks include front-running, back-running, and sandwich attacks, where miners reorder transactions to exploit price movements for profit.
4. Why is MEV controversial?
MEV is controversial because it creates unfair advantages for miners, increases costs, distorts markets, and can lead to network centralization, harming regular users.
5. How can MEV be mitigated?
MEV mitigation includes strategies like Flashbots, MEV-Boost, and transaction ordering protocols, aiming to reduce exploitation while maintaining blockchain decentralization and fairness.
