Illuminating the Dark Forest: Unveiling the Mysteries of MEV

MEV(, or Maximum Extractable Value, has long been regarded as one of the most controversial and mysterious aspects of the Ethereum ecosystem. With the increase in on-chain activity and the development of infrastructure, MEV has significantly impacted users' on-chain transactions. This article aims to delve into the block generation mechanism of Ethereum 2.0 and the proposer-builder separation ) PBS( architecture, discussing the centralization and trust issues it brings, and exploring potential solutions.

![Illuminating the Dark Forest: Unveiling the Mystery of MEV])https://img-cdn.gateio.im/webp-social/moments-9fdabada43d473102592cdd3b0b8b69e.webp(

The existence of MEV is a double-edged sword, with positive effects such as reducing price differences on DEX and assisting in transaction liquidation, as well as negative impacts like harming users' sandwich trades. Therefore, solutions related to MEV primarily focus on mitigating its negative effects rather than completely eradicating it. The main improvement directions currently include auction mechanism optimization, consensus layer improvements, and application layer optimizations. Each of these solutions has its own advantages and disadvantages, which need to be considered comprehensively.

In addition, with the introduction of new technologies such as Layer 2 architecture and EIP-4337 account abstraction, the complexity of MEV will further increase. This article also explores the MEV challenges and opportunities that these new technologies may bring.

In general, MEV is an inevitable product of the increasing complexity of the blockchain ecosystem and information asymmetry. It is neither possible nor reasonable to completely eliminate MEV. Our goal should be to fully leverage the positive effects of MEV while protecting user interests and creating value for the entire ecosystem. I hope this article can provide readers with a comprehensive and in-depth understanding of MEV, offering useful references for future research and practice.

Ethereum 2.0

Ethereum adopted the POS consensus mechanism after The Merge, and the block generation method has also changed. The entire network is divided into an execution layer and a consensus layer. Each Epoch serves as a POS cycle, containing 32 Slots, with each Slot being a block time unit of 12 seconds.

![Illuminating the Dark Forest: Unveiling the Mystery of MEV])https://img-cdn.gateio.im/webp-social/moments-23f5d94da6c893d7cea2079e4d7e85df.webp(

The validator committee is randomly selected in each Epoch and is responsible for proposing and validating blocks. Block proposers need to bundle transactions, execute them in order, and generate blocks, while other validators are responsible for supervision and voting. This mechanism improves network efficiency but also brings new challenges.

![Illuminating the Dark Forest: Unveiling the Mysteries of MEV])https://img-cdn.gateio.im/webp-social/moments-21a9d73cdbce31e29c5ad2285552cc14.webp(

PBS Architecture

In practice, validators often lack the incentive to execute complex Payload) transaction ordering and execution(. To address this issue, the concept of proposer-builder separation), or PBS(, has been proposed. PBS separates block proposing and building, creating an open market for block builders to bid with proposers.

![Illuminating the Dark Forest: Unveiling the Mystery of MEV])https://img-cdn.gateio.im/webp-social/moments-2178fc37efedccedda8b4ed45ba571a7.webp(

The main participants of PBS include:

• Builder: Responsible for constructing block content and collaborating with Searcher to obtain MEV profits.
• Relayer: As an intermediary between Builder and Proposer, aggregates bids and submits them to the Proposer.
• Proposer: Select the block header with the highest bid
• Searcher: Look for MEV opportunities and collaborate with Builders
• User: In a disadvantaged position, transactions can easily be exploited by MEV bots.

![Illuminate the Dark Forest: Unveiling the Mysteries of MEV])https://img-cdn.gateio.im/webp-social/moments-355138223027bf07ef01db141cec6d58.webp(

This architecture improves efficiency while also bringing about issues of centralization and trust. For example, the close collaboration between Builders and Searchers leads to vertical integration, and Relayers, as third parties without economic incentives, garner excessive trust.

![Illuminating the Dark Forest: Unveiling the Mysteries of MEV])https://img-cdn.gateio.im/webp-social/moments-b41ea7fd71286916535ec0974e6261ec.webp(

Current Status of MEV

Currently, on-chain MEV is mainly concentrated in arbitrage, sandwich attacks, and liquidations. In the past 30 days, MEV bots have earned approximately $2.6 million in profit on Ethereum, with arbitrage yields being the highest. The average profit from a single sandwich attack is about $0.8, but considerable gains can be accumulated through a large number of transactions.

![Illuminating the Dark Forest: Unveiling the Mysteries of MEV])https://img-cdn.gateio.im/webp-social/moments-cde45fcc68b2217faa2920d7559fb1ce.webp(

The existence of MEV has both positive effects ), such as reducing price differences between DEXs (, and negative impacts ), such as harming user interests (. With Ethereum's migration to Layer 2, cross-chain MEV has also become a new research hotspot.

![Illuminating the Dark Forest: Unveiling the Mysteries of MEV])https://img-cdn.gateio.im/webp-social/moments-70929ee9898af7de34911de7d0753ebd.webp(

Potential Solutions

To mitigate the negative impact of MEV, various solutions have been proposed in the industry:

1. SUAVE: Decentralized transparent MEV infrastructure proposed by Flashbots

![Illuminate the Dark Forest: Unveiling the Mysteries of MEV])https://img-cdn.gateio.im/webp-social/moments-bad498b1d2d0445fa4e63ae9213eca1e.webp(

2. OFA) order flow auction (: Reduce user losses through market competition.

![Illuminating the Dark Forest: Unveiling the Mysteries of MEV])https://img-cdn.gateio.im/webp-social/moments-15b26d947264b92c91e3c33ae2ca5b87.webp(

3. Private Trading Pool Encryption: Protecting user privacy using technologies such as MPC, TSS, VDF, or ZKP.

![Illuminating the Dark Forest: Unveiling the Mystery of MEV])https://img-cdn.gateio.im/webp-social/moments-49f333d616ceaa8941126dee0c7831f8.webp(

4. Execution Tickets: Consensus layer improvement proposal by Justin Drake

![Illuminate the Dark Forest: Unveiling the Mystery of MEV])https://img-cdn.gateio.im/webp-social/moments-27e2290788caab2f2fdd08e04873e9f3.webp(

5. e-PBS: Integrating PBS into the Ethereum protocol layer, replacing third-party Relayers.

![Illuminating the Dark Forest: Unveiling the Mystery of MEV])https://img-cdn.gateio.im/webp-social/moments-82ef567200192c09a35be7a319de9441.webp(

6. PEPC: The in-protocol trust mechanism proposed by EigenLayer

![Illuminating the Dark Forest: Unveiling the Mystery of MEV])https://img-cdn.gateio.im/webp-social/moments-f81dd10164c5acff6debc1cf328ff2bf.webp(

These solutions each have their advantages and disadvantages, requiring further research and practical validation. In the future, with the development of new technologies such as Layer 2 and account abstraction, the MEV field will face more challenges and opportunities.

In summary, MEV is an inevitable part of the blockchain ecosystem. Our goal should be to fully leverage the positive effects of MEV while protecting user interests, creating value for the entire ecosystem. I hope this article can provide readers with a comprehensive and in-depth understanding of MEV, offering valuable references for future research and practice.