Understanding Maximal Extractable Value (MEV)
Maximal Extractable Value (MEV), previously known as Miner Extractable Value, refers to the profit that miners, validators, sequencers, or similar entities can obtain by selectively including, excluding, or reordering transactions within the blocks they produce.
From Early Exploits to Miner Manipulation
One of the earliest forms of MEV users encountered was front-running, where bots replicated users’ transactions with a higher gas price, ensuring miners prioritized their more expensive transactions over others.
While front running has evolved and taken different forms, miners exploit such attacks.
Front running occurs when miners profit by placing their own transactions just before users’ transactions, causing the latter to fail while the miners’ transactions succeed and yield profit.
This exploit stems from miners’ ability to manipulate transaction orders, utilizing their privileged information to execute trades first and capitalize on the trading opportunities signaled by users’ transactions.
Beyond Front-Running
In addition to front running, common MEV attacks include back running.
In this scenario, miners profit by leveraging the impact users’ transactions will have on market conditions and strategically placing their own transactions right after the users’ transactions.
A sandwich attack combines front and back running to maximize profit and take advantage of users’ submitted transactions.
All these forms of MEV can only be executed by miners, as they possess the authority to organize transactions within a block.
This type of value extraction is possible due to the design of the Ethereum mempool, where miners are primarily motivated to include transactions based on the rewards they will receive.