A Study of MEV Extraction Techniques on a First-Come-First-Served Blockchain

TL;DR

This paper investigates how MEV extraction techniques from fee-based blockchains like Ethereum can be adapted to FCFS blockchains like Algorand, highlighting different strategies and vulnerabilities such as arbitrage backruns and network clogging attacks.

Contribution

It provides an analysis of MEV extraction in FCFS blockchains, contrasting it with fee-based systems, and explores new strategies and attack vectors specific to FCFS mechanisms.

Findings

Arbitrage MEV is prevalent and uniformly distributed across block positions.

On-chain data show no evidence of latency optimization between searchers and proposers.

Network clogging attacks can be exploited for MEV in FCFS blockchains.

Abstract

Maximal Extractable Value (MEV) has become a significant incentive on blockchain networks, referring to the value captured through the manipulation of transaction execution order and strategic issuance of profit-generation transactions. We argue that transaction ordering techniques used for MEV extraction in blockchains where fees can influence the execution order do not directly apply to blockchains where the order is determined based on transactions' arrival times. Such blockchains' First-Come-First-Served (FCFS) nature can yield different optimization strategies for entities seeking MEV, known as searchers, requiring further study. This paper explores the applicability of MEV extraction techniques observed on Ethereum, a fee-based blockchain, to Algorand, an FCFS blockchain. Our results show the prevalence of arbitrage MEV getting extracted through backruns on pending transactions in the network, uniformly distributed to block positions. However, on-chain data do not reveal latency optimizations between specific MEV searchers and Algorand block proposers. We also study network clogging attacks and argue how searchers can exploit them as a viable ordering technique for MEV extraction in FCFS networks.