Maximum Extractable Value (MEV): how it works and why it matters

Let's understand the mechanism that allows blockchain participants to earn additional profits — this is about maximum extractable value. This process is closely related to how transactions are organized and ordered when creating new blocks.

How Validators and Miners Control the Order of Transactions

Block producers ( in PoW networks are miners, while in PoS they are validators) who hold a key position in the network. They are responsible for verifying and including transactions in the blockchain, which means they control which operations will enter the next block and in what order. This fundamental right underpins the entire ecosystem.

When users send transactions, they enter the pool (mempool). The block producer reviews this pool and independently decides which transactions to include. Typically, priority is given to operations with the highest gas fees — this ensures greater revenue for the block creator.

However, the order of transactions affects not only the size of the fees. When there are complex operations with smart contracts, the producer can use their position to extract additional profit that goes beyond the standard reward.

What is mEV and why did this phenomenon arise

The maximum extractable value is the amount of additional profit that can be obtained by changing the order, inclusion, or exclusion of transactions in a block. Previously, during the Proof of Work era, this phenomenon was referred to as “miner extractable value” since only miners could manipulate the order.

After Ethereum's transition to Proof of Stake in September 2022, known as the merge, the role of miners was taken over by validators. However, the ability to extract additional value did not disappear — it just became available to validators and other network participants. This is why the terminology has changed: now we talk about maximum extractable value, rather than just miner profits.

MEV is most actively developing in networks with a well-developed decentralized finance ecosystem. Ethereum, being the leader in DeFi, has become the main arena for MEV operations. The more transactions there are and the more complex they are, the more opportunities there are for additional earnings.

The Role of MEV Seekers and Competition for Profit

Interestingly, the actual work of searching for opportunities is often carried out not by block producers, but by special bots and participants called (searchers). These players constantly analyze the transaction pool, looking for profitable situations.

When a seeker notices a profitable opportunity, he is willing to pay huge gas fees to have his transaction processed first. As a result of the competitive struggle, it may turn out that the seeker gives the block producer up to 99.99% of his potential profit just in the form of gas payments. This means that the real income of the seeker may be minimal, but the risk for other network users remains significant.

Key Strategies for Extracting Additional Value

( Front-running and reordering )

One of the common methods is to identify large buy orders in the pool that have not yet been executed. A seeker or validator can place their own buy order ahead of this large order, obtaining a more favorable price. After the large order is executed, the price will rise, and the frontrunning initiator can sell the tokens for a profit.

A more cunning version of this strategy is sandwich trading. Here, the participant places a buy order before the target transaction and a sell order afterwards, thus exerting two-sided price pressure and profiting at the expense of other traders.

Arbitrage profit from price differences (

When one token is traded at different prices on different DEXs, an arbitrage opportunity arises. The seeker may notice such a situation and instantly carry out a series of exchanges, the profits of which are based on the price difference. To implement this strategy before competitors, the participant is willing to pay high fees; however, the additional profit from arbitrage is often completely absorbed by gas fees.

) Reward Capture for Liquidation

In DeFi protocols, borrowers can obtain loans secured by crypto assets. If the value of the collateral falls and drops below a critical threshold, the position is subject to liquidation. Smart contracts typically provide a reward for the party that initiates the liquidation.

Bots constantly monitor the risk parameters of lending protocols. As soon as they see that a position is close to liquidation, they quickly initiate the process and receive a reward. In conditions of high competition, a significant portion of this reward goes in the form of increased gas.

The Impact of Mav on the Ecosystem: Positive and Negative Aspects

Why may mev be useful

Some forms of mev-activity have a positive side effect. The competition among seekers trying to seize arbitrage opportunities first contributes to the rapid alignment of prices on DEXs. This improves the price efficiency of the market.

Liquidation also plays a protective role. It helps credit protocols manage risky positions and protects creditors from losses. Without mev incentives, liquidators simply would not have the motivation to carry out these critically important operations.

( Problems that the maximum extractable value creates

However, the costs are significant. Front-running and sandwich trading directly harm ordinary users. They pay higher fees, encounter price slippage )slippage### or even lose part of their capital due to order manipulation.

Intense competition among seekers for MEV opportunities leads to an increased load on the network. Numerous bots simultaneously send transactions with rising gas fees, creating congestion in the blockchain. During periods of high MEV activity, gas fees can spike dramatically, affecting all users of the network.

At a fundamental level, there is a consensus risk. If a validator sees that a blockchain reorganization will yield more MEV profit than honest work, their incentives might skew in a dangerous direction. This creates an existential risk to the integrity of the network.

Current state of research and solutions

Developers and researchers are actively seeking ways to mitigate the negative consequences of mæv. This includes the development of new ###sequencing### architectures for transactions, privacy mechanisms, and protocols that would limit the ability of block producers to manipulate the order.

Understanding the mechanics of MEV remains critically important for both market participants and those who create blockchain infrastructure. As the ecosystem evolves, the task of balancing the interests of different participants becomes increasingly complex, yet also more relevant.