Discussion Post: What are the current major topics of discussion and research in MEV?

Mechanism Design and Game Theory
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These are terrific, thank you!

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Thanks @jmcgirk for this, After bringing into consideration all different types of high-frequency exchanging methods, we could ascertain that arbitrage is one in every of the sole methods ever known, in addition most used methodologies. Hence, the foremost common form of MEV seen these days are third-party bots performing arts which is the abitrage between 2 or additional decentralized trades (DEXs). Since there is an increasing omnipresence of decentralised fund, the arbitrage openings comes as a regard in fiercer competition between arbitrage bots. What’s additional, arbitrage as a rule happens between a number of exceptionally fluid decentralized trades and the time window is because it only took a short time.

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Summary of Main Point Emerging in the Conversation:

Broad Definition of MEV:

  • Miners can extract additional profit from users by taking advantage of their ability to order transactions included in the new block, This creates what is known as Miner Extractable Value.

Main Actors

  • Miners: miners could intentionally re-organize the blocks when the profit from re-org is higher than the block rewards and potential penalties. However, the risk of losing one’s hashrate investment can deter endless re-organizations.
  • Bots: currently, most of the MEV opportunities are captured by bots using arbitrage opportunities between exchanges.
  • Searchers: they continuously watch the mempool for MEV opportunities. They often operate through off chain coordination with miners

Potential Consequences of MEV

  • Destabilizing consensus: opinioins vary on the extent of MEV’s impact on consensus. Some argue that MEV will take the form of shorter, more frequent re-orgs that do not halt progress
  • Increasing gas prices.
  • Contributing to an environment of mistrust and suspicion over honesety of miners, and reluctance of new comers for joining the crypto ecosystem

MEV as “dishonest behavior” or as “rational choice”

  • The boundaries between calculative selfish behavior and malicious behavior are ambiguous. Some behaviors seem more clearly “dishonest” such as miners censoring NFT transactions to mint their own. In other cases, miners conttributing to MEV could simply be choosing the highest offered transaction fee.

Suggested Solutions for MEV:

  • Dynamic slashing penalty on proof of stake chains (example: Polkadot): as the number of offenders compared to the total number of validators in the network increases, the penalty charged also icnreases.
  • Tokenized mempool: creating established markets for block space where the highest bidder can get their transactions prioritized.
  • Decentralized Exchanges and Decentralized apps.
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@Raha thank you for this amazing summary

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@jmcgirk After reading your post, I’m glad you opened the door to a candid discussion about Miner Extractable Value. Here are some questions I have for you:

•Will Miner Extractable Value (MEV) affect Cardano? Why, if so? Why not, if not?

•Is Bitcoin compatible with Miner Extractable Value (MEV)?

As I wait for your response, thank you in advance.

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