What is Maximum Extractable Value (MEV)

The maximum miner extractable value (MEV) is a measure of the benefits that a miner (or validator, sequencer, etc.) can obtain through its ability to arbitrarily include, exclude, or reorder transactions within the blocks it produces. Let's see what MEV is in depth and how it works.

What is the Maximum Extractable Value

Maximum Extractable Value, also known as MEV, is a term that refers to the maximum amount of value that a blockchain miner can extract from a transaction at a given time. In other words, it is a measure of the economic value that miners can obtain by manipulating the order of transactions within a block. The MEV is a concept that has gained importance in the world of cryptocurrencies and blockchain in recent years, as it has become a key factor in understanding the way in which blockchain miners operate and how this can affect the network security and stability.

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MEV operation on Chainlink. Source: ChainLink.

How the Maximum Extractable Value works

The Maximum Extractable Value is generated from the difference between the value of the transactions that are included in a block and the value of the transactions that could have been included if their order had been different. Miners can take advantage of this difference for economic gain, reordering transactions within a block to obtain the maximum MEV possible. The way miners reorder transactions within a block to maximize MEV is based on the idea of ​​latency arbitrage. This means that miners seek to take advantage of time differences in the transmission of information between different nodes in the network, to manipulate the order of transactions and obtain maximum profit. For example, suppose a miner has two transactions A and B that can be included in a block. Transaction A is worth 1 ETH and transaction B is worth 2 ETH. If the miner includes transaction A first, the maximum value they can extract from that transaction is 1 ETH. However, if the miner reorders the transactions and puts transaction B first, the maximum value he can extract from both transactions is 3 ETH (2 ETH from transaction B plus 1 ETH from transaction A).

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Capture of an MEV. Source: DeFi Latam.

Examples of Maximum Extractable Value

One of the most well-known examples of MEV on the Ethereum blockchain is the so-called “sandwich attack.” This attack occurs when a miner takes advantage of the latency differences between the execution of two transactions to include their own transaction between them, obtaining an economic benefit in the process. Another example of MEV is so-called “miner extractable value auctions,” which are used for miners to compete for the right to include a transaction in the next block. Auction participants bid an amount of ETH for their transaction to be included in the next block, and the miner who wins the auction gets the maximum extractable value from those transactions.

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Examples of sandwich attacks. Source: Medium.

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