5 posts tagged with "research"

Thanks to Phil Daian, Alex Obadia, and Mahimna Kelkar for plenty of discussions on the topic.

Since its introduction in the Flashboys 2.0 paper of 2019 by Daian et al., a lot has been said about Miner (now Maximal) Extractable Value, or MEV. In particular, the launch of the Flashbots Auction propelled what is today a billion dollar economy across various blockchains and centralized exchanges. From thrilling Twitter threads to academic research papers, the MEV phenomenon has captured a central spot in the cryptocurrency discourse. Oddly, however, there is no agreed upon formal definition of MEV.

The multi-chain future is upon us. Modular architectures are coming to maturity across the ecosystem to scale bandwidth and throughput of cryptocurrency. One example of such is the Ethereum modular architecture, with its beacon chain, its execution chain, its Layer 2s, and soon its shards. These can all be thought as separate blockchains, heavily inter-connected with one another, and together forming an ecosystem.

The incorporation of EIP-1559 in the London hardfork brings a major restructuring of the Ethereum fee mechanism, aiming to allow for easier fee estimation by users and consolidate ETH as the base currency of the network by burning part of the transaction fees. This post analyzes some of the consequences of this EIP under the light of the MEV (Maximal Extractable Value) phenomenon, that is, the permissionless extraction of value by the reordering, addition, or censoring of transactions.

Ethereum will soon transition from a Proof of Work (PoW) to a Proof of Stake (PoS) consensus protocol. This transition has been worked on for years and is happening in multiple steps. The first step in December 2020 consisted in launching the beacon chain. It is now live, and, at the time of writing, has more than 160k validators or an equivalent of ~5m ETH staked on it.

Maximal (formerly Miner) Extractable Value ($\textrm{MEV}$) is the value that can be extracted from a blockchain by any agent without special permissions. Considering this permissionless nature, any agent with transaction ordering rights will be in a privileged position to perform the extraction. In Proof of Work blockchains, it is miners who determine transaction ordering within a block, hence the former "miner" term. In practice, bot operators seek to extract $\textrm{MEV}$ by either paying high fees to increase the likelihood that their transactions are mined, or by fine-tuning their gas price choices in order to "time" their transactions right, as is the case when backrunning an oracle update to perform a liquidation.