Have you ever been of the opinion that your trades are closing at worse prices than expected, or you glance upon some lucrative arbitrage opportunities which instantly vanish the very minute you try to act upon? If yes, well, so probably, you have likely been a victim of the most pervasive and underrecognized issue in blockchain technology generally referred to as MEV-which stands for "Maximal Extractable Value.".
In a nutshell, MEV is a concept describing profits that can be extracted from blockchain users by manipulating the order of transactions. It is really just high-tech front-running where someone else is simply able to anticipate your move and profit from it at your expense. Originally attributed to miners, MEV has come to involve any entity that can reorder transactions to their financial benefit. For regular users, this often means higher costs, worse trade execution, and unexpected financial losses.
This, in turn, is an extremely expensive vulnerability, siphoning off hundreds of millions every year from users on Ethereum alone. Really, this is just one example of how a key principle of blockchain-the transparency-can turn against its users in systems not designed to protect them. Web3 aims at providing more inclusivity in finances and financial freedom; however, challenges such as MEV have shown just how far it has to go in terms of blockchain being friendly to the end user.
Breaking Down MEV
To understand MEV, first one needs to understand how blockchain transactions are settled. A transaction does not simply end up on the blockchain in a block. It actually ends up in a "mempool"-a special holding area for pending transactions yet to be confirmed and fitted into blocks. That is where MEV actors operate, constantly sniffing the pools in search of opportunities to extract profit by reordering unconfirmed transactions.
The mempool is like a transparent line in which everybody can see what trades or transactions other people are about to make. While this openness is key to the design of blockchain, it also allows some smart players to analyze and front-run your intentions before they are executed. Miners, validators, and even Layer 2 sequencers have partial control over the ordering of transactions, allowing a range of MEV strategies:
Frontrunning: MEV actors monitor pending transactions in the mempool to identify lucrative trades. For example, if you submit a large buy order on Uniswap, bots will immediately frontrun you by paying a higher gas price than you've offered. By the time your transaction gets executed, the token price has already been pumped by the bot's action, so you will have worse terms than initially expected.
Sandwich Attacks: This attack will exploit your transaction from both sides. For example, if you are swapping 10 ETH for USDT, the MEV bot might first place a buy order to raise the price and then immediately sell after your transaction, profiting from both the price hike and your slippage tolerance. Larger trades are especially attractive targets.
Back-Running: Large trades and other such events on-chain are known to cause predictable price movements; MEV bots profit by being the immediate successor transactions of yours, benefiting from the price changes you will have caused. Less direct than either frontrunning or sandwich attacks, back-running nonetheless extracts value from the system.
Liquidation sniping: this refers to when an emerging opportunity of liquidation arises if the value of collateral has fallen below certain thresholds in DeFi lending protocols. The MEV bot races towards triggering it-they are rewarded via premiums on liquidation, together with liquidated collateral at salvage rates-because by doing this using another MEV strategy, they drive up their revenue substantially.
Protecting Users: Morph’s Innovative Approach to Decentralized Sequencing
Morph's Approach towards Consumer Protection Solutions at Layer 2 are designed to make blockchain more usable by offering faster and cheaper transactions. However, most of them rely on centralized sequencers that have full control over the ordering of transactions. This, in turn, makes the MEV problem worse because such entities can extract maximum value with no competition, leading to inequitable outcomes for users. The first ever decentralized sequencer network of Layer 2 proposed by Morph tackles this, whereby the Morph system will put in several independent sequencers working concurrently on a transaction. Hence:
Prevents MEV monopolies by introducing competitive market dynamics.
Distributes extracted value across the network instead of hoarding it.
Ensures fair ordering of transactions that is resistant to manipulation.
Delivers robust performance without single points of failure Morph aspires to be a global consumer-oriented layer that protects users from exploitation through technology working unobtrusively behind the scenes.
Users of blockchains should not need deep knowledge or special tools to safely navigate these risks. With Morph, MEV is addressed through decentralized sequencing that eliminates one of the major usability barriers for blockchains. Trust and fairness are fundamental to broad adoption, and Morph is committed to building a blockchain ecosystem that serves the interests of its users.
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