Maximal Extractable Value (MEV)

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The term refers to the maximum potential profit that can be realized by entities responsible for creating new blocks on a blockchain (such as miners in Proof-of-Work systems or validators in Proof-of-Stake systems) by virtue of their ability to arbitrarily include, exclude, or reorder transactions within the blocks they produce. This value is extracted above and beyond the standard block rewards and transaction fees.

MEV arises because block producers have the discretion to decide which transactions make it into a block and in what sequence. This power allows them to identify and capitalize on profitable opportunities presented by the pool of pending transactions. Common strategies for extracting MEV include front-running, where a block producer places their own transaction ahead of a known future transaction to profit from the anticipated price movement, back-running, where a transaction is placed immediately after a large trade to capitalize on its effects, and sandwich attacks, which involve placing transactions both before and after a target transaction to exploit price changes. While some forms of MEV can be seen as an efficient market mechanism, others can be detrimental to ordinary users by leading to higher transaction costs or less favorable execution prices.

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