I’ve been studying a pretty interesting concept lately called MEV (Maximum Extractable Value), which was previously also known as Miner Extractable Value. Simply put, it’s a strategy where block producers profit by adjusting the transaction order or adding/removing transactions.

Why is this a big deal? Because transactions on the blockchain are not arranged randomly. When block producers package transactions, they have the right to decide who goes first and who goes later, which gives them opportunities to profit from it. The Ethereum ecosystem is especially prone to this, because DeFi transactions are highly complex, with a large amount of information from smart contract interactions—so there are particularly many MEV opportunities.

What’s interesting is that these opportunities aren’t only something block producers can capture. There’s also a group of people called “searchers.” By analyzing on-chain data, they look for MEV profit opportunities, and then pay high gas fees to have their transactions executed first. It’s said that in DEX arbitrage, searchers sometimes have to give up more than 90% of their profits as gas fees just to ensure their arbitrage trades get executed ahead of others.

The most common MEV strategies come in three types. First is arbitrage trading: the same token has different prices on different DEXs, and once robots detect it, they immediately insert their own transactions to profit. Second is front-running: seeing a large pending buy order, searchers place orders in advance to drive the price up, and then profit along with the big order. There’s also a harsher one called “sandwich attacks,” where they insert their own transactions both before and after a particular trade, making money from price movements on both sides. The third is forced liquidation trades: in DeFi lending protocols, when the value of collateral falls to a certain level, liquidation is triggered—searchers rush to execute the liquidation transaction to earn rewards.

Speaking of Ethereum, the September 2022 Merge was a turning point. Previously, miners produced blocks; now it’s validators. But the MEV problem didn’t disappear—it just changed the participants. Whoever is doing transaction ordering still has incentives to maximize profits.

To be honest, MEV has both pros and cons. On the positive side, competition among searchers in arbitrage can quickly correct price discrepancies between DEXs, and the forced liquidation mechanism can handle risky loans in a timely manner. But the negative impact is also significant—ordinary users are forced to pay higher gas fees and suffer losses from slippage, and searchers competing for position can also cause network congestion and a surge in gas fees. Even worse, if the value of reordering old blocks exceeds the rewards of new blocks, block producers may even have economic incentives to reorganize the blockchain, which threatens the security and consensus of the entire network.

So right now, the industry’s research focus is on how to solve these problems caused by MEV, and this has already become an important issue in the development of blockchain technology.