Maximal Extractable Value (MEV)

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#GM! 1/ What is Maximal Extractable Value (#MEV)? How does it become an integral part of the #blockchain network? How does MEV work? All of your questions will be answered in our latest #visualguide. #Ethereum #cryptocurrency #TheMerge $ETH #DeFi

2/ In the blockchain transaction ordering process, the block producers are responsible to aggregate, selecting, and reordering transactions in the #blockchain network based on the given economic incentives thus creating opportunities for #MEV

3/ #MEV refers to the maximum value that can be extracted from a block more than the standard block reward and gas fees by including, excluding, and changing the order of transactions in a block

4/ In practice, a large portion of #MEV is extracted by independent participants (The Searchers) that deploy sophisticated value extraction strategies and compete with each other to have their transactions included in a given block

5/ There are several examples of value extractions strategies for #MEV: - Gas golfing - Generalized front-running - Back running - Time-Bandit Attack

6/ #MEV is also being utilized for several conditions: - #DEX Arbitrage - Liquidations - Sandwich Trading - #NFT MEV

7/ #MEV efficiency/ incentive create lucrative opportunities and competition in a limited block space resulting in a congested network and exorbitant gas fees. MEV also can destabilize the consensus and lead to blockchain reorganization.

8/ Several mitigations have been proposed to reduce #MEV negative externalities, such as: - Chain architectures (@arbitrum) - Encrypted transactions (@chainlink) - Private/ stealth transactions (@bloxroute) - MEV Auctions (#FlashBots, @optimism)

9/ #FlashBots is a research and development organization that aims to bring transparency to MEV activity, democratize MEV and distribute the fair redistribution of #MEV revenue to prevent the existential risk caused by #MEV. @thegostep @hasufl @bertcmiller

10/ #FlashBots work by connecting up The Searchers and The Block Producers together through their sealed-bid block auction mechanism. The transactions relayed to the Flashbots server will not be broadcasted to the public pool which lessens the negative #MEV externalities.

11/ Proposer/ Builder Separation (#PBS) is splitting the block construction role from the block proposal role in #POS #Ethereum. However, it is not an immediate requirement for #TheMerge to complete. @VitalikButerin @drakefjustin @fradamt @ObadiaAlex @phildaian

12/ #PBS integration will be disruptive for #Ethereum and #MEV because of these reasons: - Encourage block diversity - Competition to create 'The Best Block' - Non-economic agenda can be accommodated by the block proposers - Drive Ethereum towards modularization

13/ As the #PBS isn't required immediately after The Merge, the community put efforts into a project called MEV-Boost. #MEV-Boost streamlines and utilizes the post-merge MEV process that aligns with PBS. @thegostep