What Is ‘Maximal Extractable Value’ (MEV) and How Does It Relate to Arbitrage on Blockchains like Ethereum?
Maximal Extractable Value (MEV), formerly known as Miner Extractable Value, refers to the maximum value that can be extracted from block production in excess of the standard block reward and gas fees. This is achieved by reordering, inserting, or censoring transactions within a block.
Arbitrage is a primary form of MEV. 'Searchers' identify arbitrage opportunities (e.g. on a DEX) and submit transactions to capture them.
Block builders can then order these transactions in a way that maximizes their own profit, often by front-running the original arbitrageur or executing the trade themselves.
Glossar
Arbitrage Opportunities
Exploitation ⎊ Arbitrage Opportunities in crypto derivatives arise from temporary price dislocations between related instruments across different venues or between the derivative and its underlying spot asset, demanding rapid, automated execution to capture the spread.
Mev
Extraction ⎊ Maximal Extractable Value, or MEV, refers to the profit that can be extracted by block producers through their ability to reorder, insert, or censor transactions within a block.
Block Production
Validation Event ⎊ Block Production is the discrete event where a successful miner solves the cryptographic puzzle required to propose the next block of validated transactions to the network.
Block Builders
Role ⎊ Block Builders play a critical role in proof-of-stake blockchain networks, particularly in the context of Ethereum's post-Merge architecture.
Extractable Value
Definition ⎊ Extractable Value, commonly known as MEV, quantifies the profit a block producer can realize by including, excluding, or reordering transactions within a block beyond the standard block reward and explicit transaction fees.
Blockchains
Architecture ⎊ A blockchain represents a distributed, immutable ledger structured as a chain of cryptographically linked data blocks, validated and maintained by a decentralized network of nodes.