How Does MEV Specifically Affect Decentralized Derivatives Exchanges?
MEV (Maximum Extractable Value) in decentralized derivatives exchanges primarily manifests through forced liquidations and arbitrage opportunities. Validators can reorder transactions to ensure their liquidation or arbitrage trade is executed first, profiting from the liquidation fee or the price difference.
This can lead to worse execution prices for regular users and can destabilize the exchange's solvency if not managed correctly.
Glossar
Validators
Role ⎊ Validators are the network participants, typically in Proof-of-Stake systems, responsible for verifying the correctness of new transactions and proposing new blocks to be added to the blockchain ledger.
Decentralized Derivatives Exchanges
Landscape ⎊ Decentralized Derivatives Exchanges (DEXs) are platforms that facilitate the trading of financial contracts, including options and futures, using non-custodial smart contracts on a blockchain, bypassing traditional brokerage and clearing intermediaries.
Decentralized Derivatives
Architecture ⎊ Decentralized derivatives represent a fundamental shift in financial contract design, moving away from centralized exchanges and intermediaries towards blockchain-based systems.
Collateral Requirements
Condition ⎊ Collateral requirements stipulate that an asset or security must be pledged to secure a financial obligation or position.
Decentralized Sequencer
Architecture ⎊ A Decentralized Sequencer fundamentally alters order flow management within cryptocurrency derivatives, moving from centralized exchange control to a network-based consensus mechanism.
Forced Liquidations
Trigger ⎊ Forced liquidations represent the involuntary closure of leveraged positions due to insufficient margin to cover accruing losses, a critical event in cryptocurrency, options, and derivatives markets.