How Does MEV Extraction Affect the Overall Network Security and User Trust?
High levels of MEV can incentivize block producers to engage in "time-bandit" attacks, where they reorg the chain to capture more MEV, potentially destabilizing the network. Furthermore, the constant exploitation of users through front-running and sandwich attacks erodes user trust in the fairness and integrity of the decentralized system.
This loss of trust can hinder mainstream adoption of DeFi.
Glossar
MEV Extraction
Extraction ⎊ Within cryptocurrency markets, particularly concerning options trading and financial derivatives, extraction denotes the opportunistic capture of value arising from predictable transaction ordering vulnerabilities within blockchain networks.
User Trust
Validation ⎊ User trust within cryptocurrency, options trading, and financial derivatives represents a critical, albeit often implicit, component of market function, influencing liquidity and price discovery.
Loss of Trust
Erosion ⎊ Loss of trust within cryptocurrency, options trading, and financial derivatives manifests as a quantifiable decline in market participation, directly impacting liquidity and price discovery mechanisms.
Sandwich Attacks
Execution ⎊ Sandwich attacks, within cryptocurrency derivatives and options trading, represent a sophisticated market manipulation tactic exploiting order book dynamics.
Block Producers
Validation ⎊ These entities are responsible for the critical process of validating transactions and proposing new blocks according to the network's protocol.
Overall Network Security
Assurance ⎊ Overall Network Security quantifies the cryptographic and economic robustness of a Proof-of-Work blockchain, representing the difficulty and cost for a malicious actor to gain control of the network's consensus mechanism.