Micro Lecture Maximal Extractable Value

Question 1

Why was the name changed from Miner Extractable Value to Maximal Extractable Value

Answer 1

1. MEV can also be extracted by other participants of the network, it is not specific to miners
2. In blockchains that don’t utilize PoW, there still exist block proposer nodes that have the right to order the transactions

Question 2

What is frontrunning?

Answer 2

• When Bob inserts a transaction in front of A’s transaction.

Question 3

MEV definition

Answer 3

• total value that can be extracted permissionlessly from the re-ordering, insertion or censorship of transaction within a block being produced.

Question 4

What are the monetary incentives for miners to find the next block?

Answer 4

• Block reward
• transaction fees
• MEV a block offers

Question 5

Are miners only incentivised to reorganize transactions or might they also reorganize something else?

How is that attack called or reorganzing something else?

Answer 5

• re-organize the block history to claim a MEV in a previous block
  = Time-bandit attack

Question 6

What is the problem with organising the block history?

Answer 6

• threat to the consensus stability

Question 7

Time-bandit attack

Answer 7

• ## strategy in which previous blocks are reorganized and rewritten by miners in order to capture MEV

Question 8

Undercutting attack

Answer 8

Miner forks the longest chain (ignores the current block). The miner does not build on top on the longest chain to get 20 but forks to get 270 and let the next miner get 250.

Question 9

What are bidding wars?

Answer 9

When bots bid against each other trying to offer the highest transaction fee in order to be the first to leverage an MEV opportunity.

Question 10

Disadvantages of MEV

Answer 10

• all the searchers who are not the winner lose money

- transaction fees can increase significantly.

Question 11

What does MEV-Geth do?

Answer 11

• instead of submitting their bids to a public mempool, MEV searchers now submit sealed-bids to a private mempool
• since bids are not exposed until next block, bidders cannot iteratively try to frontrun each otehr
• MEV-Geth client refunds any tips back to the bidder whose bid is not accepted

Question 12

Does MEV-Geth end MEV scene?

Answer 12

No. It is only a mechanism for bidders to bypass the Ethereum public mempool..

Question 13

Is MEV quantifiable? And why?

Answer 13

No. MEV can be generated almost from any interaction of a user with a blockchain. Since smart contracts offer almost infinitely many ways for interaction it is infeasible to calculate an exact value.

Question 14

Can lower bounds of MEV be calculated?

Answer 14

Yes. Lower bound can be calculated by summing the amount that has been extracted by known forms of MEV.

Question 15

Is MEV larger than for Bitcoin or for Ethereum?

Answer 15

• MEV is much larger for Ethereum than for BTC because of the complexity of its application-layer behavior.

Question 16

Can MEV be limited?

Answer 16

BTC: MEV can be reduced through limiting the Lightning Network (payment protocol)
Ethereum: impossible to restrict all possible implications of an application pattern.

Question 17

How can MEV be mitigated?

Answer 17

• offering other stable miners revenue streams besides block reward (basefee)
• designing applications to minimize the MEV exposed
• penalize time-bandits
• auctioning off the right to order transactions

–> all of these solutions require changes to the core Ethereum protocol