Maximal extractable value (MEV) is the process of including, excluding, and transaction scheduling in the block to get maximal value from block creation (ethereum.org, 2022).
The analogy from the classical financial world is the high frequency trading: executing profitable transactions before other traders. MEV is more democratized since no huge initial capital investments are required.
MEV searcher is someone who watches the mempool (pool of Ethereum pending transactions) for earning opportunities and execute such MEV opportunities.
Let's try to grasp it with an easy example: we have a MEV searcher and a miner.
The MEV searcher has found a brilliant opportunity and wants to submit his transaction and get it included in the block as soon as possible. He told the miner that he will pay 1 BTC if he included his transaction to the block. The miner accepted the offer and includes the translation to the newly proposed block.
After the block was created, the searcher gets 1 BTC as profit from his transaction.
The most poplar MEV types:
- Arbitrage
- Sandwiching
- Liquidation
MEV is a new revenue source for MEV searchers as well as miners / validators.
The current validators market share might be changed if some Ethereum validator specialize in MEV search & extraction, because they would offer higher APY for Ethereum users and thus get more stakes from them.
The research studies whether the validators who decided to play the role of MEV searcher and validator simultaneously can get higher returns (and thus offer higher yield).
Here are the key findings from historical and simulated MEV data:
