How Does Miner Extractable Value (MEV) Relate to Front-Running in Decentralized Finance (DeFi)?
MEV is the profit a block producer (miner or validator) can extract by including, excluding, or reordering transactions within a block. Front-running is a common form of MEV where a bot sees a large pending transaction and places its own order just before it to profit from the price change the large transaction will cause.
This is often done by paying a higher gas fee to ensure their transaction is processed first. Solutions like Flashbots aim to mitigate this by creating a private communication channel between users and miners, bypassing the public mempool.
Glossar
Gas Fees
Mechanism ⎊ Gas fees represent the computational cost required to execute transactions or smart contracts on a blockchain network, particularly Ethereum and its Layer-2 solutions, functioning as a deterrent against denial-of-service attacks and a reward for network validators.
DeFi
Sector ⎊ DeFi Decentralized Finance represents the ecosystem of financial applications built atop public blockchains, encompassing lending, decentralized exchanges, and structured products like crypto options and perpetual swaps that operate without traditional intermediaries.
Miner Extractable Value
Extraction ⎊ Miner Extractable Value refers to the profit a miner or validator can gain by strategically including, excluding, or reordering transactions within a block they are building, often exploiting knowledge of pending transactions in the mempool.
Block Producer
Validation ⎊ The role of a Block Producer transcends simple transaction validation; it represents a critical node within a delegated proof-of-stake (DPoS) consensus mechanism, particularly prevalent in blockchain networks like EOS and Tezos.
Flashbots
Architecture ⎊ Flashbots operates as a research and development organization focused on mitigating the negative externalities inherent in public blockchain systems, particularly those related to Miner Extractable Value (MEV).
Decentralized Finance
Architecture ⎊ Decentralized Finance, or DeFi, fundamentally reimagines traditional financial infrastructure through blockchain technology, specifically leveraging smart contracts to automate and execute financial agreements without intermediaries.