Do L2 Solutions Completely Eliminate MEV Opportunities for Their Own Sequencers?
No, Layer-2 solutions do not completely eliminate Maximal Extractable Value (MEV); they shift the opportunity from the Layer-1 validator to the Layer-2 sequencer. The sequencer is the entity responsible for ordering and batching L2 transactions.
This entity gains control over transaction ordering within the L2 environment, creating new MEV opportunities like front-running and arbitrage that are local to the L2. Solutions are being developed to decentralize the sequencer role to mitigate this.
Glossar
MEV Opportunities
Exploitation ⎊ The term "MEV Opportunities" denotes profitable trading strategies arising from manipulating the order of transactions within a blockchain, particularly prevalent in decentralized finance (DeFi).
L2 Solutions
Scalability ⎊ : L2 solutions fundamentally address the throughput limitations of base-layer cryptocurrencies, enabling a higher volume of transactions necessary for complex financial operations like options trading and high-frequency derivatives settlement.
Transaction Ordering
Sequencing ⎊ Transaction ordering within cryptocurrency, options, and derivatives markets establishes the chronological execution of trades, critical for maintaining systemic integrity and preventing manipulation.
Maximal Extractable Value
Concept ⎊ Maximal Extractable Value, or MEV, refers to the profit that miners or validators can extract by strategically reordering, censoring, or inserting transactions within a block.