MEV Makes Everyone Happy under Greedy Sequencing Rule

TL;DR

This paper analyzes how miners can maximize MEV under a greedy sequencing rule that prevents sandwich attacks, revealing computational complexities and showing that optimal strategies can benefit all users in fee-free scenarios.

Contribution

It systematically studies miners' optimal MEV strategies under a new sequencing rule, proving polynomial-time solutions without fees and NP-hardness with fees, and demonstrates user benefits from optimal strategies.

Findings

Optimal strategies are polynomial-time computable without trading fees.

With trading fees, finding optimal strategies is NP-hard.

User profits are maintained or improved when miners adopt optimal strategies.

Abstract

Trading through decentralized exchanges (DEXs) has become crucial in today's blockchain ecosystem, enabling users to swap tokens efficiently and automatically. However, the capacity of miners to strategically order transactions has led to exploitative practices (e.g., front-running attacks, sandwich attacks) and gain substantial Maximal Extractable Value (MEV) for their own advantage. To mitigate such manipulation, Ferreira and Parkes recently proposed a greedy sequencing rule such that the execution price of transactions in a block moves back and forth around the starting price. Utilizing this sequencing rule makes it impossible for miners to conduct sandwich attacks, consequently mitigating the MEV problem. However, no sequencing rule can prevent miners from obtaining risk-free profits. This paper systemically studies the computation of a miner's optimal strategy for maximizing MEV under the greedy sequencing rule, where the utility of miners is measured by the overall value of their token holdings. Our results unveil a dichotomy between the no trading fee scenario, which can be optimally strategized in polynomial time, and the scenario with a constant fraction of trading fee, where finding the optimal strategy is proven NP-hard. The latter represents a significant challenge for miners seeking optimal MEV. Following the computation results, we further show a remarkable phenomenon: Miner's optimal MEV also benefits users. Precisely, in the scenarios without trading fees, when miners adopt the optimal strategy given by our algorithm, all users' transactions will be executed, and each user will receive equivalent or surpass profits compared to their expectations. This outcome provides further support for the study and design of sequencing rules in decentralized exchanges.