The article discusses the concept of "Extractable Value" (EV) in blockchain networks, particularly on Ethereum, which refers to the ability of validators to reorder transactions and extract additional rents from users of the network. This phenomenon is also known as "MEV" (Maximal Extractable Value). The article explores how MEV can be used by validators to front-run or sandwich transactions, resulting in significant losses for users.
Here are the key points discussed in the article:
- Extractable Value (EV): Validators on blockchain networks have the ability to reorder transactions and extract additional rents from users.
- Maximal Extractable Value (MEV): MEV refers to the maximum amount of value that can be extracted by validators through reordering transactions.
- Front-running: Validators can use their ability to reorder transactions to front-run or execute trades before they are executed by other users, resulting in losses for those users.
- Sandwiching: Validators can also sandwich transactions, which involves executing a trade and then immediately reversing it, resulting in a loss for the user who initiated the trade.
- Flashbots: The Flashbots project aims to mitigate centralization by democratizing MEV search and separating it from block creation. This is done through private MEV relays that let MEV searchers bypass Ethereum’s main mempool.
The article highlights several risks associated with MEV, including:
- Centralization: The ability of validators to extract additional rents can lead to centralization, as corporate entities may deploy more sophisticated algorithms to extract MEV efficiently.
- Losses for users: Users who are front-run or sandwiched by validators can incur significant losses during market swings and high-volume events.
To mitigate these risks, investors in the DeFi ecosystem should be aware of tools that can help prevent being front-run or sandwiched, such as connecting to alternative RPC endpoints of block builders instead of the standard Ethereum mainnet RPC nodes.
