MEV Ecosystem Evolution From Ethereum 1.0

TL;DR

This paper surveys the evolution of MEV in Ethereum 1.0, highlighting its profitability, threats to blockchain principles, and community efforts to restore trustlessness and fairness in DeFi markets.

Contribution

It provides a comprehensive overview of MEV's development, its impact on blockchain security and decentralization, and reviews current research on mitigating its negative effects.

Findings

MEV opportunities are highly lucrative for participants.

MEV extraction threatens blockchain decentralization and trust.

Current research aims to restore fairness and trustlessness in DeFi.

Abstract

Smart contracts led to the emergence of the decentralized finance (DeFi) marketplace within blockchain ecosystems, where diverse participants engage in financial activities. In traditional finance, there are possibilities to create values, e.g., arbitrage offers to create value from market inefficiencies or front-running offers to extract value for the participants having privileged roles. Such opportunities are readily available -- searching programmatically in DeFi. It is commonly known as Maximal Extractable Value (MEV) in the literature. In this survey, first, we show how lucrative such opportunities can be. Next, we discuss how protocol-following participants trying to capture such opportunities threaten to sabotage blockchain's performance and the core tenets of decentralization, transparency, and trustlessness that blockchains are based on. Then, we explain different attempts by the community in the past to address these issues and the problems introduced by these solutions. Finally, we review the current state of research trying to restore trustlessness and decentralization to provide all DeFi participants with a fair marketplace.