Miner Extractable Value (MEV)

November 21, 2023 - Around 2 mins mins to read

Understanding Miner Extractable Value (MEV)

Miner Extractable Value (MEV) is a term used to describe the potential profit that can be earned by miners, validators, sequencers, and similar entities through the manipulation of transaction inclusion, exclusion, and order within the blocks they create.

One example of MEV is known as front running. This involves the use of bots to replicate users’ transactions but with a higher gas price. By doing so, these bots ensure that miners prioritize their more expensive transactions over others. Front running has evolved and taken various forms, but miners continue to exploit these attacks. They profit by placing their own transactions just before users’, causing the users’ transactions to fail while their own transactions succeed and generate profit. Miners have the ability to reorganize transactions at their discretion, leveraging their privileged information to execute trades before users and capitalize on the trading opportunities signaled by users’ transactions.

Another common form of MEV attack is back running. In this case, miners profit by strategically placing their transactions immediately after users’ transactions to take advantage of how the execution of these transactions will impact market conditions. By doing so, they maximize their gains.

A sandwich attack combines both front running and back running to profit from users’ submitted transactions.

Miners are the only entities with the authority to organize transactions within a block, making them the sole executors of these forms of MEV. The design of the Ethereum mempool enables this type of value extraction, as miners are incentivized to include transactions in a block based on the rewards they will receive.

Author:

Stefan George, an entrepreneur in the blockchain space for over seven years, is the CTO and co-founder of Gnosis. Gnosis is dedicated to building new market mechanisms for decentralized finance and has contributed significant infrastructure to the industry. This includes Gnosis Safe Multisig, a wallet solution that allows users to manage over $29 billion in digital assets, and Gnosis Protocol, a decentralized trading protocol that prioritizes user experience on Ethereum by protecting traders from arbitrage.