Ethereum bots’ profits are getting juicier: Nearly half of the total revenue they’ve made since January 2020 comes from value they’ve extracted in the last 30 days.
Flashbots’ newly launched MEV Dashboard tracks and quantifies MEV extracted on-chain, dating back to the first block of Jan. 1 2020. The tracker has documented over 1.3M MEV transactions totaling $322M worth of extracted MEV to-date, with nearly $112M in just the last 30 days. In other words, MEV is trending upwards. Moreover, MEV-Explore notes that these metrics are the lower bound of MEV transactions.
MEV-Explore v0 is a project aimed at taking a deeper, quantifiable approach to solving the MEV crisis. And while the “MEV crisis” may be an unfamiliar concept to many, its biggest negative impact—artificially driving up gas prices—affects everyone in the space.
Maximum Extractable Value
MEV stands for “Maximum Extractable Value” (and formerly, “Miner Extractable Value”). It is a measure of the total amount of value that a miner, validator, sequencer, or other privileged protocol actor can make through arbitrarily including, excluding, or reordering transactions from the blocks they produce.
To be clear, the term was changed from “Miner” to “Maximum” because it’s actually not miners, but rather DeFi traders, who profit most heavily from MEV transactions through structural arbitrage trading strategies (or taking advantage of mispricing across different assets and exchanges).
Typically, these strategies are executed by bots designed for “frontrunning”—paying gas fees higher than that of an already known transaction in order to skip ahead in priority—and “backrunning”—paying gas fees slightly lower than an already known transaction in order to get mined right afterwards in the same block.
The end result of frontrunning and backrunning is direct profit for traders and indirect profit for miners through transaction fees. The collateral is network congestion, chain congestion, and arbitrarily high gas fees across all of Ethereum.
After the dashboard launch, Flashbots is putting a major focus on Flashbots Alpha, an early stage implementation of a direct communication channel between miners and Ethereum users. While MEV-Explore believes that MEV extraction is unavoidable, it hopes that MEV transactions can eventually occur in a trustless, fair, and efficient environment that won’t degrade the larger state of DeFi.