MEV Value Capture

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MEV (Maximal Extractable Value) involves capturing value by reordering, inserting, or censoring transactions within a block. This concept initially referred to miners' ability to extract value, but with Ethereum's shift to proof-of-stake, it now includes validators and other actors in the ecosystem.

Key Points on MEV Value Capture:

  1. Definition and Impact: MEV refers to the maximum value that actors within a blockchain system can extract by manipulating transaction order. Originally termed Miner Extractable Value, it has been updated to Maximal Extractable Value to fit the broader scope 1.

  2. Oracle MEV: A form of MEV arises through oracles, such as Chainlink price updates triggering liquidations in DeFi protocols. These updates drop into the public mempool and create MEV opportunities similar to Uniswap transactions with slippage 2.

  3. Ethereum's MEV Model: On platforms like Uniswap, a third of the economic activity results in MEV, with significant value leaking to miners or validators through manipulation opportunities. Alternatives like app chains aim to reduce this leakage, capturing more value within the application layer itself 3.

    Understanding MEV

    Charlie Noyes explains the concept of Maximum Extractable Value (MEV) and its impact on blockchain security. MEV quantifies the effect on consensus games and corrupts incentives for miners, potentially compromising the security of the system. This episode provides valuable insights into the MEV and its implications for all blockchain users.
    Bankless
    66 - Crypto’s Existential Threat | MEV Panel: Phil Daian, Georgios Konstanopolus, Charlie Noyes
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  4. DeFi Evolution: Innovations in DeFi aim to reduce MEV leakage, improving capital efficiency and retaining more value within the application layer, benefiting users instead of validators 4.

  5. Rollup-Centric Roadmap: Future Ethereum developments may see rollup sequencers and projects capturing more MEV. This shift aims to direct some of the extracted value towards funding Ethereum-level public goods 5.

MEV remains a double-edged sword, with efforts focused on ensuring it benefits the broader ecosystem rather than destabilizing blockchain security and efficiency.

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