MEV has matured into a billion-dollar industry, doubling from $550M when the ‘dark forest’ was first mapped in 2021. It's also spreading across chains, following trading activity.
Last December’s memecoin frenzy is a case in point. MEV bots siphoned $100M on @Solana during the hype around Trump’s re-election rally. Still, Ethereum is ground zero, accounting for 75% of all MEV extraction thanks to a longer head start and deeper liquidity.
Sandwich attacks are the most common form (~70%) of MEV extraction. Consider the image below, when a user tries to swap ETH for USDC with a 10% slippage tolerance.
A searcher bot spots the transaction in the mempool, wedges its own trade in front, nudges the AMM price up, then dumps right after you, pocketing the spread.
Forgetting to adjust slippage has cost unlucky traders $200k+ in a single swap. Jaredfromsubway.eth is one such bot who’s made over $10M from such attacks.
With increasing MEV activity, blockchains are beginning to take ideological stances. @BNBCHAIN is blacklisting infrastructure providers that include MEV transactions. @SeiNetwork is researching batch auctions to shrink the MEV pie.
Ethereum is moving towards Proposer-Builder Separation (PBS), a design that hands block ordering to specialised “builders” instead of validators. Transactions are pipelined across 5 stages: users, wallets, searcher, builder, and validator.
Builders scoop up raw transactions, package them into full blocks, then auction those blocks to validators who naturally pick the most profitable bundle. By carving out clear roles, PBS will keep validators honest while letting competition at the builder layer squeeze MEV back toward users.
Four approaches to reduce MEV:
1. Hiding: Conceal transactions until they are included in a block. Flashbots is the most popular relay protecting $43Bn+ in DEX volume. But this risks recreating Wall Street's dark pools. What begins as user protection can morph into insider privilege and Robinhood-esque order flow routing.
2. Exploiting: RFQ (Request-for-Quote) models like @PythNetwork’s Express Relay turn market makers against each other. When you request a swap, market makers compete to offer you the best execution price. Requires reliable 24/7 market makers with deep liquidity.
3. Minimising: @CoWSwap processes orders in batches and auctions the entire group at the same clearing price. With all orders executed simultaneously, there's no transaction ordering to exploit. CoWSwap has done $100B+ this way, eliminating the "arms race" for speed.
4. Recycling: If MEV is inevitable, capture and redistribute it. @Arbitrum's TimeBoost auctions a 200ms "express lane" every minute, with an estimated revenue of $30M flowing to ARB DAO yearly. @jito_sol redistributes 3% of MEV to JitoSOL stakers.
We're watching a familiar movie on a brand new screen. Wall Street's dark pool story is playing out on-chain. It’s only a matter of time before heavyweight market makers like Goldman Sachs and Morgan Stanley, who have experience with traditional auction models, join the game.
The most promising frontier? Layer 2s are baking MEV-resistant designs and experimenting with auction mechanisms that TradFi couldn't implement due to regulatory constraints.
Our thesis remains: blockchains are money rails, and products that move money often will emerge as winners in crypto's next evolution.