Is All MEV Considered Harmful or Exploitative?
Not all Maximal Extractable Value (MEV) is considered harmful; some forms are necessary for market efficiency. For example, arbitrage is a form of MEV where bots profit by correcting price discrepancies between different exchanges.
This activity is generally viewed as beneficial because it helps synchronize prices and ensures market efficiency. However, exploitative MEV, such as front-running and sandwich attacks, is widely condemned because it directly harms retail users by worsening their execution price.
Glossar
Liquidation
Trigger ⎊ Liquidation in cryptocurrency derivatives represents the forced closure of a trading position due to insufficient margin to cover accruing losses, a critical event impacting market stability.
Price Discrepancies
Detection ⎊ Identifying these variances involves continuous, high-frequency comparison of asset prices, implied volatilities, or funding rates across different exchanges or derivative contracts.
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.
Retail Users
Participation ⎊ Retail users, within cryptocurrency, options, and derivatives markets, represent non-institutional traders engaging directly with these financial instruments.
DeFi Lending Protocols
Protocol ⎊ DeFi lending protocols represent a suite of decentralized financial applications built on blockchain networks, primarily Ethereum, facilitating peer-to-peer lending and borrowing of cryptocurrency assets without traditional intermediaries.
Market Manipulation
Influence ⎊ The deliberate manipulation of market prices or trading activity to create a false or misleading impression of supply and demand, impacting investor decisions and potentially generating illicit profits.