Intern Breakdown #2: MEV

MEV is like a soap opera, if the characters were all trading bots and crypto geeks. There are stories of bot-vs-bot battles, complex heists, and millions of dollars made and lost in seconds.

MEV trades also benefit the blockchain ecosystem at large by making markets more efficient. For example, arbitrage bots ensure prices are stable across exchanges, and liquidation bots allow collateralized lending applications to function properly.

Profit-maximizing strategies can be benign (e.g. builders prioritizing transactions that offer fees for being included) or more problematic (e.g. if the builder observes a profitable trade, they can front-run it by including their own copy of the transaction first).

MEV is all about exploiting the privilege of being able to include, exclude, re-order, or insert transactions into the next block.

MEV is the potential profit that’s available to whoever builds the blocks in a blockchain.

Buuuuut of course shady trading bots also come with their downsides. Various MEV strategies can result in greater slippage (worse prices) on token swaps, failed transactions because trades were front-run, and have historically contributed to higher gas prices for all users as bots spammed the network with transactions.