MEV, short for Miner Extractable Value, refers to the profits miners can extract from ordering transactions in certain ways on the Ethereum blockchain. Although most people don’t see it, MEV is essentially an invisible “tax” that users pay on their transactions without even realizing it. Its mysterious and concerning nature is exactly why it’s important to understand what MEV is and how it works.
This article will do precisely that by providing breakdowns of everything you need to know about MEV. These breakdowns are from ZENMEV, a research group working on mitigating the risks involved with MEV.
Predators on the Blockchain
In the world of Ethereum, MEV bots are the predators lurking in the shadows looking for opportunities to profit. They monitor the pending transaction pool, identify arbitrage opportunities or ways to front run trades, and then order transactions to maximize their profits. Successful MEV bots can extract millions of dollars over time.
For individual and institutional investors transacting in large sizes, MEV can lead to substantial slippage and money left on the table. Unlike explicit fees you can see, MEV is stealthy and obscured from view. But make no mistake—it’s draining value out of trades behind the scenes.
Where Does MEV Come From?
Simply put, MEV exists because miners have the ability to order transactions in different ways. They can sequence transactions to favor certain outcomes over others. And with a lot of money flowing through Ethereum, there are strong incentives for miners to maximize profits.
Some common sources of MEV include: front running decentralized exchange orders, arbitraging price differences across protocols, exploiting rebate payments on lending platforms, and more. Specialized bots monitor the pending transaction pool for these money-making opportunities.
And as Ethereum competition has increased, MEV has become a key revenue stream for miners. So we can expect these transaction ordering strategies to become more complex and aggressive as larger sums are at stake.
Estimating the Cost of MEV
In 2022, over $675 million in MEV profits were realized on the Ethereum network alone. When taking into account other blockchains such as Solana and Binance Smart Chain, the total MEV market value exceeds $1 billion in profits.
For individual traders, the costs are hardly noticeable on small transactions. But for major institutional players like market makers and lending providers, MEV can rack up tremendous expenses over time. These “invisible taxes” end up acting like a regressive tax, diffused evenly across all users instead of proportionally impacting those with the deepest pockets. So even if the raw dollar costs seem concentrated, the effects touch everyone in the ecosystem.
How to Protect Yourself from MEV
While MEV is an inevitable aspect of DeFi trading currently, there are some ways to limit its impact:
- Use privacy-centric DEXs like Aztec or DeFi platforms with MEV protections.
- Break up large transactions into smaller chunks.
- Use services that optimize order execution to minimize slippage.
- Support efforts to build MEV-resistant protocols and incentives.
The Future of MEV Protection
As MEV extraction becomes more widespread, the Ethereum community is exploring ways to curb harmful practices and limit unnecessary value leakage from the network. There are several promising areas that could provide better MEV protection in the future:
- Zero-knowledge proofs: These cryptographic systems can enable privacy-preserving transactions that mask trading activity from MEV bots. Projects like Aztec and ZkSync aim to bring zero-knowledge technology to Ethereum for shielding transactions.
- Improved transaction ordering: Mechanisms like fair ordering services and decentralized block building could remove the ability for miners to arbitrarily reorder transactions for profit. This cuts off some MEV opportunities at the source.
- Incentive realignment: Adjusting block rewards or implementing miner donation schemes could better align miner incentives with network security and efficiency rather than short-term profit seeking.
While the arms race is accelerating, developments on the protocol level combined with shifts in community norms offer paths to controlling MEV. Ongoing research and pressure from users will be key to enacting these next-generation solutions. ZENMEV group is constantly working to ensure that everyone can profit from MEV through mev trading.
User Education and Activism
One of the greatest tools regular users have against the predation of MEV is knowledge. By understanding how these practices work, the scale of value extracted, and what needs to be improved, users can make their voices heard and shape the evolution of Ethereum itself.
Getting informed on the latest MEV research, discussing issues in community forums, and providing input to wallet services and Dapps puts direct pressure on elevating user protections. Even if not actively developing protocols or analyzing blockchain data, users still play a critical role in driving adoption of privacy-centric options and progressive roadmap priorities in Ethereum.
Exercising choice of services that aim to mitigate MEV sends market signals. And vocal support of substantive solutions rather than superficial measures keeps projects focused on meaningful innovation. The collective voice and values of users can cut through the noise to advocate for practical solutions.
ZENMEV also provides mev arbitrage opportunities to individual users.
Wrapping Up
MEV won’t be going away anytime soon. But understanding where it comes from and how participants are affected can lead to better protections and mitigation of its effects. Traders need to stay vigilant in Ethereum’s dark forest if they want to avoid getting taxed by the MEV bots.
The key here is education. By better understanding the invisible forces and risks in DeFi, users can make informed decisions and advocate for improvements to benefit the entire ecosystem. Shedding light on MEV is the first step toward tackling its downsides.
The information in this article has been provided to you by ZENMEV a research and development group that is leading the cause of mitigating the risks involved with MEV.
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