Blockchains, MEV and the knapsack problem: a primer

TL;DR

This paper provides an accessible overview of the MEV problem in blockchains, highlighting its relation to the knapsack problem and discussing how Ethereum's adaptations aim to mitigate MEV through auction design.

Contribution

It offers a comprehensive survey and primer on MEV, knapsack problem variants, and auction-based solutions in blockchain block building.

Findings

Ethereum has redesigned block production to address MEV.

Knapsack auctions can help alleviate MEV issues.

The paper serves as an educational primer for researchers and students.

Abstract

In this paper, we take a close look at a problem labeled maximal extractable value (MEV), which arises in a blockchain due to the ability of a block producer to manipulate the order of transactions within a block. Indeed, blockchains such as Ethereum have spent considerable resources addressing this issue and have redesigned the block production process to account for MEV. This paper provides an overview of the MEV problem and tracks how Ethereum has adapted to its presence. A vital aspect of the block building exercise is that it is a variant of the knapsack problem. Consequently, this paper highlights the role of designing auctions to fill a knapsack--or knapsack auctions--in alleviating the MEV problem. Overall, this paper presents a survey of the main issues and an accessible primer for researchers and students wishing to explore the economics of block building and MEV further.