Strategic earnings: What is the maximum extracted value in cryptocurrency – Bits Media

There are different ways to increase profits in the cryptocurrency industry and the strategy of the maximum extracted value is very widespread (MEV) On the Web of Ethereum.

MEV (maximal extractable value) - This is a strategy, with which validators in the ecosystem Ethereum increases its profit, acting an order of magnitude of transactions when creating a block.

Ecosystem of Ethereum is known for its wide tools in the field of decentralized finance (DeFi). It allows you to carry out complex transactions, and smart contracts can be used for trading, lending, voting and so on. it, in its turn, suggests different strategies for profit, available for network participants. for instance, depending on, in what order the transactions will be registered in the new block, the income of those, Who takes part in its creation.

MEV is used outside the Ethereum network, However, in other systems, it is much less popular. We will consider below, who and how can make a profit from this strategy.

Miners, Validators and seekers

This strategy arose even when Ethereum worked on a pow. Then, to increase profit, it was used by separate miners. It was designated by the same abbreviation MEV, However, it was deciphered a little different: «miner extractable value».

In September 2022 Ethereum changed the consensus mechanism and switched to POS. Now the new blocks on the network are not created by miners, And the validators during stakeing. This generally did not affect the general logic of MEV, However, now the miners use the strategy, And individual users, which are called "seekers" (Sometimes "seekers of additional profit"). "Additional" means profit, In addition to the usual reward for the block and, In the case of Ethereum, gas commissions.

Seekers are independent participants in the Ethereum network, who purposefully analyze transactions in the ecosystem and look for opportunities for profitable MEV. In case of detection of such, They send information about the transaction for the new block using bots. Then validators enter the game, which, in its turn, Get a gas fee.

Remarkably, that the main beneficiaries MEV are, usually, It is validators, since seekers have to give them most of their profit in the form of gas fees. Often more 90% The seeker's profit goes to the validator. This is due to that, Which is important to the seeker, so that the validator includes its transaction in the block. The validator can only choose a transaction with the highest gas fee and receive a reward, And the work on the search for MEV is assigned to seekers.

The validators will predictly give preference to the most profitable transactions - topics, in which high commissions are established. High transaction costs contribute to getting into the block, because of which the cost of gas increases during periods of workload. Respectively, Cheaper transactions will expect your turn longer. This method of cutting off transactions by the size of commissions is not the only possible. Generally, Nothing prevents users from adding to the block and more “cheap” transactions, Guided by his criteria. But the most common is the criterion of profit.

The main competition occurs among seekers. This process can be described as a “race for a while” using specific techniques. So, eg, There are front -line strategies (frontrunning), когда бот искателя не ищет возможности для MEV напрямую, And analyzes the mempoule (data on still unconfirmed transactions) for transaction, proposed by another seeker, in order to copy it and offer the best gas fee. Then, Of course, Validator Konket, where there is more gas, The front -line transaction will be processed by the first, And he will make a profit from her.

All in all, It is not enough to “find” a profitable transaction - it is also important to save and “bring” it to the final validator. This strategy developed so, that for protection against front -line began to use flashballs, masking transactions in a mempoule, What makes them impossible to intercept.

Where does MEV come from

Among the main ways to obtain the maximum extracted value, the DEX arbitration can be noted, Sandwich-Ataki, liquidation in the protocols of the loan and the market of non -replaced tokens.

DEX arbitration or arbitration of a decentralized exchange (DEX) - This is the simplest and most popular MEV obtaining strategy. The principle of operation is as follows: If two DEX offers token at different prices, Someone can buy it on a cheaper DEX and sell it on a more expensive one for one atomic transaction. Thanks to the mechanics and strict principles of blockchain, this is a real risk -free arbitration. Ethereum.org provides an example of a profitable arbitration transaction, When the seeker turned 1 000 ETH в 1 045 ETH, Taking advantage of the different pricing of the Eth/DAI pair on Uniswap and Sushiswap.

The next method of obtaining MEV is not so unambiguous and has dubious fame, since it is difficult to call it conscientious-this is Sandwich attacks. The bottom line is, that under the attack is a transaction, which expects confirmation. The attacker is trying to get ahead of her, Having offered the Validator a large commission for the transaction, which will affect the price of assets. Then the attacker can only fix the profit, Having sold the purchased asset at a higher price. First placed the order for the purchase before the transaction and the order for sale after the transaction, And as a result, price pressure is exerted on it at once. In this way, The initial transaction is in the "sandwich" between the transactions of the attacker. The method is rather speculative, belongs to a small class of assets and has high risks for that, Who carries it. An example of obtaining MEV through an attack on UNI/DAI in Uniswap is also considered at Ethereum.org.

Loan protocols, such as Maker and AAVE, In certain cases, they offer rewards for the liquidation transaction. For example, If the cost of a pledge drops below a certain mark, The credit position is eliminated. The remuneration receives one, Whose transaction is the first to launch the liquidation mechanism. It is for him that MV seekers compete - they are the first to see the case of liquidation and start the process.

NFT is another area, where is it possible to get MEV. Since NFT transactions occur in the same block chain, which is used by other transactions of the Ethereum, seekers can use algorithms, Similar to topics, which are used, eg, On the exchange. So, If someone gives out popular NFT, and the other wants to get a certain token, He can try to set the transaction in this way, so that the buyer is the first in line for the purchase of this NFT. Or, If the token is mistaken at a low price, The seeker can get ahead of other buyers and just buy it cheaper.

MEV as a phenomenon

About MEV you can hear rather conflicting opinions. On the one side, The strategy contributes to maximizing effectiveness in the Ethereum network, Since transactions according to the criterion of commissions are distributed as quickly as possible and more expensive always have priority over cheap. The MEV strategy is useful for quick prices for decentralized exchanges, liquidation of ineffective loans and, in the end, Allows you to make a profit.

On the other side, Many of the MEV practitioner (First of all, Sandwich attacks) are considered in the crypto community "unscrupulous". Often manipulation with the transaction order in the block does not occur for the effectiveness of the network, And for the sake of speculative earnings of specific players, which, Judging by their methods, ready to create situations of instability in the blockchain. Separate MEV enthusiasts even claim, that such a practice can threaten consensus and integrity of the entire network, What is doubtful, since the network continues to work effectively even against the background of such attacks. But individual users really incur losses and their dissatisfaction with MEV in this sense is justified.

Against the background of such practices, you should especially carefully monitor any operations in networks and not substitute for Sandwich attacks. To do this, it is useful to set an adequate gas fee, So that the transaction does not freeze in the mempoule and does not attract excess attention of the seekers.

Economics and MEV

Generally, MV strategy can be explained as a natural market mechanism, The main task of which is to satisfy the demand from users, carrying out expensive transactions, and the desire to maximize profit in the processes, related to its extraction (Including mining and staying) from the validators - a natural and rational response to this request.

Moreover, Maximization of profit and, Consequently, an increase in potential income allows you to attract new participants to the network and make it more stable, As well as conducting more expensive transactions, which creates clear and transparent "rules of the game" for all users.

This material and information in it is not an individual or other other investment recommendation. The view of the editorial office may not coincide with the opinions of the author, analytical portals and experts.