You can see these shocking figures through MEV-Explore: since January 2020, at least $314 million worth of withdrawable MEVs on Ethereum has been captured, 88.5% of which were captured by DeFi traders and arbitrage robots, and the remaining 11.5 % Value is captured by miners in the form of transaction fees.
Written by: Leo Young
Last year, the MEV research organization Flashbots was established, dedicated to building an open and fair MEV extraction ecosystem without permission.
After its establishment, Flashbots launched the proof -of- concept MEV-Geth , with the purpose of building a permissionless decentralized MEV extractable mechanism that coordinates traders and miners.
Recently, Flashbots launched an important product: MEV browser MEV-Explore v0 .
What is MEV?
Before the product introduction, let’s review what MEV is.
MEV is the total value extracted by reordering transactions, interleaving or reviewing transactions in the process of generating blocks. At present, the extractable value of MEV on Ethereum is mainly carried out by DeFi traders and arbitrage robots through transaction sequencing related trading strategies. A small part of the value in MEV transactions is obtained by miners in the form of gas fees.
Before Ethereum is converted to a POS consensus mechanism, miners still have the greatest power to decide transaction selection and ordering. The concept of Miner Extractable Value was first proposed by Phil Daian and other authors in the paper ” High Frequency Trader 2.0: Decentralized Exchange Preemptive Trading, Transaction Reorganization, and Consensus Imbalance ” in 2019. With the launch of Ethereum 2.0 and the second-tier network, MEV exists in all smart contracts and is executed by validators or packagers. In order to broaden the scope of the concept, Flashbots recommends changing MEV to Maximal Extractable Value, which is the “Maximum Extractable Value”. This change proposal also avoids the misunderstanding that extractable value is mainly obtained by miners. As mentioned above, MEV is mainly executed and obtained by DeFi-related traders and arbitrage robots.
What is MEV-Geth?
MEV-Geth is designed to be efficient, pay attention to the privacy of traders, and cannot be tampered with. It introduces the three concepts of “transaction searcher”, “transaction bundling” and “block template”. Let miners entrust a third-party “transaction searcher” to discover and sort transactions. Searchers compete with each other to find the most profitable transaction sequence, and use the standard “transaction bundle” template to bid to include it in the next block. Miners use sealed auctions to evaluate bundled transactions and generate “block templates” with transaction sequence information for mining on the chain.
MEV-Explore is an Ethereum MEV transaction real-time information panel and browser, which displays MEV value, extracted value classification, network activities, latest MEV transactions, MEV Gas fee consumption and other related information.
The purpose of this product is to help the community understand the importance of MEV activities on the chain, and to retain maximum network transparency through data display and make it available to everyone. This is an important step to help the Ethereum network achieve fairness and openness.
The data on MEV-Explore will be recorded from January 2020, and the starting block is 9193266. Focus on quantifying the value of MEV extraction on the chain, rather than the MEV details in any block.
Due to the limited combination of monitored DeFi protocols, the parameter in the MEV-Explore panel is the lower limit of MEV.
Data sources include the following agreements:
About MEV, these numbers you should know
Flashbots found that since January 2020, there have been at least $314 million worth of MEV withdrawable and about 130 transactions. About 4.5 million US dollars equivalent gas fees were wasted, which is equivalent to a waste of 4,500 Ethereum blocks.
MEV can obtain rapid growth in value. In January 2021 alone, the total value of Ethereum MEV reached a record of 5700 million U.S. dollars (47,600 ETH). In January 2020, this figure was only 180,000 U.S. dollars, a year-on-year increase of 316 times.
Among the eight DEXs monitored by Flashbots, Uniswap has the highest MEV value, followed by Sushiswap and Balancer. It should be noted that it does not include multiple MEV arbitrage opportunities such as “sandwich trade”.
MEV transactions are divided into three types: arbitrage, clearing, and arbitrage + clearing. Arbitrage accounted for 94%. It should be noted that Flashbots currently does not cover all clearing agreements and does not include Maker DAO, the clearing mechanism for reverse auctions.
Of the USD 315 million MEV obtainable value monitored from January 2020, 88.5% of the value was captured by DeFi traders and arbitrage robots, and the remaining 11.5% of the value was captured by miners in the form of transaction fees (successful or failed transactions).
Since January 2020, MEV activities occupy at least 3% of Ethereum network space on average, and the wasted network resources of failed MEV transactions are approximately equal to 4,500 blocks of Ethereum.
The browsed MEV (MEV-Explore) is only a subset of the MEV that can actually be extracted on the chain. The extractable MEV is a subset of the theoretical MEV.
Reversing the MEV crisis
The MEV crisis is manifested on multiple levels: the misalignment of miners’ incentives causes consensus imbalance, the unilateral transactions between miners and traders cause information asymmetry, and the network overload causes the instability of Ethereum. This status quo is difficult to solve, because any attempt to prevent miners and traders from obtaining MEV revenue may result in a black box operation of the market outside the agreement. As the activities on the Ethereum chain become more and more complex, the scale of MEV continues unabated.
MEV value extraction is inevitable. The only way to avoid the MEV crisis is to make the value extraction process fair, efficient and trustless.
MEV-Geth and MEV-Explore V0 are useful explorations of Flashbots. Moreover, the road ahead is very long and it is worth looking forward to.
- Quantifying MEV: Introducing MEV-Explore v0
- Introducing explore.flashbots.net
- MEV-Explore v0
- Flashbots Research Roadmap
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