SSV brought us a very hot and interesting topic in this 7th episode: "Maximum Extractable Value" (MEV). MEV has also recently been one of the most requested topics by the majority of the audience on SSV Twitter Space.

So, what exactly is MEV? How does it work? And why it matters? This recap article will tell you everything.

This time, Sassal and OxJim co-host the podcast, and it's MEVing time to talk about MEV, according to them.

There has obviously been a lot of discussion about MEV in the last few days, especially with all of the tornado cash talk. And what that will look like after the merge, and then what it will look like when Beacon Chain withdraws are enabled so people can shuffle their stake around and we can get a more distributed potential stake centralization or censorship concerns, which OxJim think is pretty topical right now.

a) What is MEV?

MEV refers to profits that can be made by extracting value from Ethereum users by reordering, inserting or censoring transactions within blocks being produced. It typically affects DeFi users interacting with automated market makers and other apps.

OxJim stated that there's something called just in time liquidity, which is somewhat similar to Uni V3 thing where basically you're depositing liquidity and withdrawing liquidity really quickly in order to capitalize on the majority that the fees of what a large bundle or a large transaction will have in a mempool. And there are liquidations too, which keeps a lot of DeFi protocols healthy.

b) Good MEV & Bad MEV

People may consider something bad MEV or good MEV depending on how they view things. The reason people extracting MEV is simply because it generate them benefits. Searchers have no role to play in the larger ecosystem. However, as with any good cryptoeconomic design, you consider selfish players, and you know that in this case, searchers are intrinsically motivated to make money.

They may have positive impacts in some deep fried protocols, such as keeping pools or prices close to certain pools in line, or having healthy liquidations in a debt protocol.

The builder could also be the searcher, and they're the ones who put together these block contents before submitting them. They submit these contents to a trusted relayer, and the relayer verifies that it is not spam before forwarding the block header to the validator, who will sign and propose into the network.

MEV is presently collected by the miners under PoW Ethereum. This MEV will almost certainly go to the validators after ETH switch to PoS. While MEV after the merge may not benefit individual validators, it will benefit the entire network, according to @OxJim.

In the bright side, MEV supporters believe that it ensures the usefulness of #DeFi projects like lending protocols by allowing them to quickly and smoothly liquidate insolvent users. They believe MEV extractors are rational actors who seek and correct economic inefficiencies in DeFi protocols, thereby making them more robust.

Flashbots has a product called MEV-Geth, which offers front-running-as-a-service with a primary focus on enabling a permissionless, transparent, and fair ecosystem for MEV extraction.

On the negative side, there are obvious concerns that MEV will make everyday users' lives more difficult. It primarily results in more expensive transactions and revenue loss. Front-running and sandwich attacks, for example, cost users millions of dollars in price slippage and missed arbitration opportunities at the application layer. Additionally, at a network level, generalized front-runners compete against each other by increasing gas fees. This frequently leads to network congestion and high transaction fees. As a result, network users suffer (as well as the network itself, which becomes inefficient and costly).

OxJim mentioned PBS in the episode as a solution for further develop Ethereum post-merge. So let’s find out about it.

What is PBS and how it going to solve the problem?

Proposer-Builder Separation (PBS) is a potential solution to the blockchain censorship and MEV attack problems by assigning different roles in the network to block construction (i.e. block building) and block proposing.

Under the current design, miners are able to capture a large portion of MEV by choosing which transactions to include in a block. This allows them to front-run other users or conduct other MEV attacks.

PBS would address this issue by separating the block construction and block proposal processes. Builders would be chosen based on the highest fee they are willing to pay, while proposers would simply choose the exec with the highest fee.

At this time, PBS is simply a research idea. It's not being used in Ethereum, or any other blockchain.

PBS allows Ethereum to have neat features such as EIP-4844/Danksharding that would have otherwise required a more significant tradeoffs.

PBS improves scalability by allowing for stateless validators. If all builders include a witness for each transaction, then the proposer can just select the header with the highest fee, without having to process any data. This means that validators wouldn't need to keep track of the entire blockchain history.

The next huge milestone for the Protocol will be the introduction of Danksharding in the next major update within that 6 to 12 month timeframe.

EIP-4844 is essentially Danksharding without the sharding part (though it is limited to a smaller amount of blob transactions per block). KZG commitment computation is a hardware-intensive task, meaning that with PBS, it allows Ethereum to leverage the computational power of a few centralized builders as opposed to raising hardware requirements for all the validator nodes.

PBS without crLists is prone to censorship attacks. crLists enable validators to create a list of txs that they want to see included in the block, meaning that as long as the honest majority of validators is maintained, the centralized builders cannot censor.

MEV is one of the most underrated topics, but it's clearly becoming more popular as the Merge approaches.

As long as there is a finance-based protocol, there will undoubtedly be people who seek to maximize value. This is unavoidable, and it will result in a more dynamic ecosystem.

SSV brought us a very hot and interesting topic in this 7th episode: "Maximum Extractable Value" (MEV). MEV has also recently been one of the most requested topics by the majority of the audience on SSV Twitter Space.

So, what exactly is MEV? How does it work? And why it matters? This recap article will tell you everything.

This time, Sassal and OxJim co-host the podcast, and it's MEVing time to talk about MEV, according to them.

There has obviously been a lot of discussion about MEV in the last few days, especially with all of the tornado cash talk. And what that will look like after the merge, and then what it will look like when Beacon Chain withdraws are enabled so people can shuffle their stake around and we can get a more distributed potential stake centralization or censorship concerns, which OxJim think is pretty topical right now.

a) What is MEV?

MEV refers to profits that can be made by extracting value from Ethereum users by reordering, inserting or censoring transactions within blocks being produced. It typically affects DeFi users interacting with automated market makers and other apps.

OxJim stated that there's something called just in time liquidity, which is somewhat similar to Uni V3 thing where basically you're depositing liquidity and withdrawing liquidity really quickly in order to capitalize on the majority that the fees of what a large bundle or a large transaction will have in a mempool. And there are liquidations too, which keeps a lot of DeFi protocols healthy.

b) Good MEV & Bad MEV

People may consider something bad MEV or good MEV depending on how they view things. The reason people extracting MEV is simply because it generate them benefits. Searchers have no role to play in the larger ecosystem. However, as with any good cryptoeconomic design, you consider selfish players, and you know that in this case, searchers are intrinsically motivated to make money.

They may have positive impacts in some deep fried protocols, such as keeping pools or prices close to certain pools in line, or having healthy liquidations in a debt protocol.

The builder could also be the searcher, and they're the ones who put together these block contents before submitting them. They submit these contents to a trusted relayer, and the relayer verifies that it is not spam before forwarding the block header to the validator, who will sign and propose into the network.

MEV is presently collected by the miners under PoW Ethereum. This MEV will almost certainly go to the validators after ETH switch to PoS. While MEV after the merge may not benefit individual validators, it will benefit the entire network, according to @OxJim.

In the bright side, MEV supporters believe that it ensures the usefulness of #DeFi projects like lending protocols by allowing them to quickly and smoothly liquidate insolvent users. They believe MEV extractors are rational actors who seek and correct economic inefficiencies in DeFi protocols, thereby making them more robust.

Flashbots has a product called MEV-Geth, which offers front-running-as-a-service with a primary focus on enabling a permissionless, transparent, and fair ecosystem for MEV extraction.

On the negative side, there are obvious concerns that MEV will make everyday users' lives more difficult. It primarily results in more expensive transactions and revenue loss. Front-running and sandwich attacks, for example, cost users millions of dollars in price slippage and missed arbitration opportunities at the application layer. Additionally, at a network level, generalized front-runners compete against each other by increasing gas fees. This frequently leads to network congestion and high transaction fees. As a result, network users suffer (as well as the network itself, which becomes inefficient and costly).

OxJim mentioned PBS in the episode as a solution for further develop Ethereum post-merge. So let’s find out about it.

What is PBS and how it going to solve the problem?

Proposer-Builder Separation (PBS) is a potential solution to the blockchain censorship and MEV attack problems by assigning different roles in the network to block construction (i.e. block building) and block proposing.

Under the current design, miners are able to capture a large portion of MEV by choosing which transactions to include in a block. This allows them to front-run other users or conduct other MEV attacks.

PBS would address this issue by separating the block construction and block proposal processes. Builders would be chosen based on the highest fee they are willing to pay, while proposers would simply choose the exec with the highest fee.

At this time, PBS is simply a research idea. It's not being used in Ethereum, or any other blockchain.

PBS allows Ethereum to have neat features such as EIP-4844/Danksharding that would have otherwise required a more significant tradeoffs.

PBS improves scalability by allowing for stateless validators. If all builders include a witness for each transaction, then the proposer can just select the header with the highest fee, without having to process any data. This means that validators wouldn't need to keep track of the entire blockchain history.

The next huge milestone for the Protocol will be the introduction of Danksharding in the next major update within that 6 to 12 month timeframe.

EIP-4844 is essentially Danksharding without the sharding part (though it is limited to a smaller amount of blob transactions per block). KZG commitment computation is a hardware-intensive task, meaning that with PBS, it allows Ethereum to leverage the computational power of a few centralized builders as opposed to raising hardware requirements for all the validator nodes.

PBS without crLists is prone to censorship attacks. crLists enable validators to create a list of txs that they want to see included in the block, meaning that as long as the honest majority of validators is maintained, the centralized builders cannot censor.

MEV is one of the most underrated topics, but it's clearly becoming more popular as the Merge approaches.

As long as there is a finance-based protocol, there will undoubtedly be people who seek to maximize value. This is unavoidable, and it will result in a more dynamic ecosystem.