MEV: What Is It, And Why It Matters?

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Nearly 100,000 ETH has been obtained through MEV Boost since The Merge event. As part of your crypto journey, it's crucial to grasp the ideas of MEV for a comprehensive comprehension of Ethereum or any other L1 Blockchain. We explain like you are 5🧵

1/ MEV stands for Maximal Extractable Value. Block Producers (previously miners in PoW, now validators in PoS) can arrange transactions in a block. Rearranging transactions can lead to profit through actions such as front running, arbitrage, JIT Liquidity, and sandwich attacks.

2/ Sandwich attacks can be explained with an example: Blue is buying $100k worth of ETH ($1600) on Uniswap using USDC with a 1% slippage tolerance ($1616 max per ETH).

3/ Jay (an automated program) buys $25,000 in ETH at the current $1600 price before Bob, causing the price to rise to Bob's max. Then, Alice sells it back to the liquidity pool at the new price for a profit 💰💰💰

4/ In a sandwich attack, the nefarious actor takes advantage of a buyer's slippage tolerance. As seen in our example, Jay buys ETH before Blue's large order, driving up the price, then sells it back to the liquidity pool for a profit.

5/ The catch is that the block's validator must include Jay's two transactions (before and after Blue's $100k buy) for the profit to be guaranteed. Jay's bot must pay the validator for this favorable arrangement, which is one type of MEV (Maximal Extractable Value)

6/ How does this apply to @BluejayFinance? MEV Bots are deployed on almost all LP pairings in DEXes like Uniswap, not barring DAI/bluSGD. If you were to swap your DAI to bluSGD directly, you will be sandwich attacked by an MEV bot, thus losing value on your swaps.

7/ How can you prevent such attacks then? We introduced our Peg Stability Module (PSM) hosted on app.bluejay.finance, allowing you to swap 1:1 from #xSGD to #bluSGD without suffering any slippage.

8/ Why PSM? PSMs were first introduced back in Nov 2020 on MakerDAO and have been very successful in maintaining the peg of DAI, warranting its usage for bluSGD as well. Our PSM would also allow for easier arbitrage between SGD & USD stablecoins in the future!

9/ How to use the PSM? We created a walkthrough video last week detailing how you can take part in our sure-win lucky draw on lucky.bluejay.finance simply by HODL-ing $bluSGD. See below: twitter.com/BluejayFinance/status/1621107382171598849

CONCLUSION: MEV Bot and sandwich attacks will continue to exist as long as there are profits to be made. What you can do to protect yourself is to continuously educate yourself through educational threads like this!