MEV: how profit is made from transaction ordering in the blockchain
In some blockchains, such as Ethereum, validators can influence the order of transactions to increase their profits. This is how the concept of MEV emerged.
What is MEV?
The abbreviation MEV stands for Maximal Extractable Value. MEV is a strategy based on the ability of blockchain operators to reorder transactions, include them in a block, or remove them from it in order to increase their profit.
The concept of MEV was introduced in 2019 by a group of blockchain researchers, including Chainlink specialists. They found that miners could earn not only from fees but also by changing the order of transactions in the mempool.
Initially, the concept of MEV was defined as Miner Extractable Value, since at that time the Ethereum blockchain processed transactions using the Proof-of-Work (PoW) consensus mechanism — the same as in the Bitcoin protocol.
However, in 2022, Ethereum transitioned to another consensus mechanism — Proof-of-Stake (PoS). From that moment, the MEV strategy began to be used not only by blockchain operators but also by other network participants, including ordinary users. Such users became known as "MEV searchers."
How does MEV work?
In the case of Ethereum and similar blockchains, transactions are not included in a block immediately. They must first be confirmed by validators. Therefore, a transaction first enters a waiting queue, where its order can change depending on network participants' actions — creating opportunities for MEV.
Within MEV, network participants are divided into two main roles, each benefiting in different ways:
- Validators increase their income from gas* fees: the higher the transaction fee, the more profit block producers earn;
- Searchers extract profit from arbitrage* or liquidations — even from other users' trades.
* Gas — the minimum unit of network fee in the Ethereum network, also known as gwei.
* Arbitrage — a strategy of profiting from price differences of the same asset across different exchanges, protocols, or liquidity pools. In crypto, this is often automated: a bot detects a price mismatch, buys the asset at a lower price in one place, and sells it at a higher price in another, capturing the difference as profit.
MEV strategies are often executed with the help of MEV bots — automated programs designed to extract profit from transaction ordering. MEV bots scan the mempool and independently submit suitable transactions or remove unnecessary ones.
However, MEV is not used only for personal gain — it can also benefit the broader crypto ecosystem. For example, it helps equalize prices across multiple decentralized exchanges.
Strengths and weaknesses of MEV
The strategy itself is not inherently harmful to the crypto industry, and MEV can have both positive and negative effects on the digital asset market.
On one hand, it improves the resilience of decentralized protocols such as exchanges and lending platforms (Uniswap, Aave, Balancer, and many others).
On the other hand, it can cause negative consequences, such as high slippage* on decentralized exchanges.
* Slippage — the difference between the expected and actual execution price of a trade.
Common MEV strategies
Arbitrage between decentralized exchanges
MEV enables profit from arbitrage due to price differences across different decentralized exchanges. This can occur, for example, after a large trade on one exchange affects the asset's price there.
In such cases, an MEV bot identifies and exploits arbitrage opportunities. At the same time, it not only earns profit but also helps align prices between exchanges.
Liquidations in lending protocols
Lending protocols allow users to borrow cryptocurrency by providing digital assets as collateral, which are temporarily locked in liquidity pools. Due to crypto volatility, a borrower's position can be liquidated if the asset's price drops below a critical level, creating MEV opportunities.
If a borrower's position approaches liquidation, MEV bots can quickly detect it and submit a transaction. The position is forcibly liquidated, and the MEV bot earns a "protocol rescue fee."
Frontrunning
Frontrunning is a more advanced MEV strategy. In this scenario, an MEV searcher places a transaction (e.g., a buy order) right before the victim's trade, causing the victim to purchase the asset at a higher price and incur a loss.
Frontrunning is a "preemptive trade" — one of the most common MEV strategies in decentralized exchange trading.
MEV attacks
Due to the ability to manipulate transactions in Ethereum, so-called MEV attacks have emerged.
This type of blockchain threat is also known as a sandwich attack. A sandwich attack is a specific case of frontrunning. The difference is that the MEV searcher places two transactions — one before and one after the victim's transaction.
As a result, the victim's trade becomes "sandwiched" between the attacker's transactions. The targeted trader incurs a loss after execution, while the MEV searcher extracts additional profit from the price movement caused by the victim's trade.