Imagine if simply deciding the order of transactions on a blockchain could earn someone extra money. That’s exactly what happens with MEV, short for Maximal Extractable Value. MEV is the extra profit miners or validators earn by changing the order of transactions before a block is finalized.
MEV isn’t a flaw in blockchain design, it’s the price of open access to block space.
MEV exists because the sequence of transactions on a blockchain isn’t random or neutral. The order matters, and in many cases, it can be optimized for profit. For example, a validator might rearrange transactions in a way that benefits them, such as placing their own trade before others in a decentralized exchange.
While the concept may sound complex, understanding MEV is crucial. It shows how control over transaction ordering can influence fairness, efficiency, and even network stability across the blockchain ecosystem.
Understanding How MEV Works
MEV emerges from a simple sequence of events on blockchains where the order and inclusion of transactions can be changed for profit. Imagine a ticket line where one person controls the gate. People line up but the gatekeeper can let higher bidders move forward. Brokers spot the chance and pay to move customers up the line. The gatekeeper and brokers capture extra value simply by changing order and access.
In blockchains, fairness and profit often compete for the same space.
Below is a clear, step by step look at how that sequence works and who is involved.
1. Pending transactions
Users submit transactions to the network. These are valid operations like token swaps or contract calls. Until they are confirmed they remain pending and visible to the system.
2. Mempool
Pending transactions land in the mempool. It is the network waiting area where nodes and other actors can read the mempool to see which transactions are coming. The mempool is where potential opportunities first appear because timing and order matter for many on chain actions.
3. Block creation
Block builders or miners gather transactions from the mempool and assemble them into a block. They decide which transactions to include and the exact order. Some systems use specialized builders who create high value bundles and offer them to validators to sign.
4. Value extraction
When a block is assembled the choices about inclusion and order can be used to extract extra value. Common techniques are front running where a transaction is placed ahead of a known trade back running. The trade back running is where a profitable follow up is placed after a trade and sandwiching which combines both. Validators or builders can accept bundles that capture these opportunities and thereby realize MEV.
In these processes, users are the originators of normal transactions and expect fair execution. Searchers are specialized actors who scan the mempool and craft transactions or bundles aimed at capturing MEV. Validators or miners finalize blocks and capture MEV by choosing which transactions or bundles to include and in what order.
Understanding these steps helps explain why MEV exists and why protocol designers focus on reducing harmful extraction while preserving efficient block production. In blockchains, fairness and profit often compete for the same space.
Common Types of MEV
There are several ways MEV happens on blockchain networks, depending on how transactions are ordered. Some are fairly routine and even useful, while others can harm ordinary users. Let’s break them down in simple terms.
1. Front-running
This happens when someone spots a pending transaction in the mempool and quickly places their own transaction just before it. By doing this, they can profit from the expected market move that the first transaction will cause. It’s like jumping ahead in a queue because you know what’s about to happen next.
Why this matters: front-running can distort fairness in blockchain markets, especially on decentralized exchanges where users expect neutral order execution.
2. Back-running
In back-running, a trader places a transaction immediately after a known large trade or event. They benefit from the price movement that follows the first transaction. For example, after a big token swap pushes a price up, a back-runner might sell to capture the short-term gain.
Why this matters: while sometimes harmless, large-scale back-running can add extra network congestion and volatility that affects smaller traders.
3. Sandwich attacks
This involves placing one transaction before and another right after a user’s transaction. The attacker “sandwiches” the victim, pushing prices up before the victim buys and selling immediately after for profit. Sandwich attacks is one of the more aggressive MEV tactics and directly impacts users by giving them worse prices.
Why this matters: sandwiching hurts user trust and highlights the need for better privacy or ordering protection on blockchain networks.
Legitimate forms of MEV
Not all MEV is bad. Some forms, like arbitrage between exchanges or liquidation bots that help maintain DeFi loan systems, actually make the market healthier. They keep prices aligned and ensure protocols run smoothly.
Not all value extraction is exploitation, sometimes it’s the invisible engine that keeps DeFi running.
Why this matters: distinguishing between harmful and legitimate MEV helps developers and communities design fairer systems without blocking necessary market functions.
Why MEV Matters for Blockchain Integrity
1. When Profit Outranks Fairness
At its core, MEV lets those who control block ordering, miners, validators, or builders, decide which transactions go first. Imagine a digital ticket line where someone at the gate takes bids to let certain people skip ahead. That’s what happens when profit is prioritized over neutrality. Transactions that should be processed fairly can end up reordered for gain.
Why this matters: When profit drives priority, it can erode the idea of equal access that makes blockchain trustworthy in the first place.
2. Congestion and Higher Gas Fees
Every time multiple actors compete to capture MEV, they send extra transactions or bundles to outbid each other. It’s like everyone revving their engines at a traffic light to move first, the result is network congestion. This activity drives up gas fees, slowing down ordinary users who just want their transactions confirmed.
Why this matters: MEV races can turn normal network activity into a bidding war, making transactions slower and more expensive for everyone else.
3. Impact on User Experience and Trust
For most users, blockchain should feel predictable and fair, your transaction goes through in order, and the price you see is close to what you get. MEV can quietly change that. If your trade gets “sandwiched” or front-run, you might pay more or receive less than expected. Over time, these hidden losses chip away at trust.
Why this matters: When users feel they’re playing a rigged game, confidence in decentralized systems fades.
4. The Counterpoint: Managed MEV Can Improve Efficiency
Not all MEV is harmful. In fact, some forms like arbitrage or DeFi liquidations, keep prices balanced and protocols stable. When handled transparently, MEV can act like priority bidding for efficiency, rewarding those who help maintain healthy markets.
Why this matters: MEV isn’t a bug in blockchain design, it’s a by-product of open competition for block space. The challenge is not to eliminate it, but to manage it so that the system stays fair, efficient, and transparent.
Mitigating MEV: Toward Fairer Networks
1. MEV-Boost and Proposer-Builder Separation (PBS)
Ethereum has been leading the charge in reducing harmful MEV through tools like MEV-Boost and Proposer-Builder Separation (PBS). These systems are designed to split responsibilities between two key players:
- Builders: They gather transactions and create complete blocks.
- Proposers (Validators): They choose the best block from builders to add to the blockchain.
Think of it like separating the auctioneer from the judge in a contest. Builders compete to create the most valuable blocks, but proposers simply select one based on transparent bids—not based on personal gain or favoritism. This separation keeps the process competitive while reducing the chances of validators secretly reordering transactions for profit.
Why this matters: By dividing roles, Ethereum makes it harder for any single actor to control both what goes into a block and how it’s ordered, helping restore fairness and transparency.
2. Encrypted Mempools and Fair Ordering Protocols
Another promising solution is the use of encrypted mempools, essentially privacy layers that hide pending transactions until they’re confirmed. In our earlier “digital ticket line” analogy, this would be like covering the list of who’s waiting, so no one can pay to cut ahead.
Meanwhile, fair ordering protocols go a step further by locking in transaction order based on when they were received, not how much someone is willing to pay. This prevents front-running and sandwich attacks by removing the information advantage that searchers currently exploit.
Why this matters: Encrypted mempools and fair ordering turn blockchain transaction flow into a level playing field, where timing, not manipulation, determines order.
Balancing Transparency and Competition
Each of these tools aims to strike a balance: keep the network open and competitive, but make it fairer for ordinary users. Total elimination of MEV isn’t realistic, but smarter design can limit abuse while preserving efficiency.
Why this matters: MEV management is evolving from a tug-of-war into a system of checks and balances. The goal isn’t to silence competition, it’s to make sure it happens under fair rules.
The Future of MEV in Decentralized Systems
As blockchain technology grows, MEV (Maximal Extractable Value) is expected to change shape alongside it. With the rise of Layer 2 rollups, cross-chain bridges, and modular blockchain architectures, MEV is moving into new territories where coordination and transparency will matter more than ever.
On Layer 2 rollups, sequencers may play a major role in how MEV is captured. These systems can help reduce costs and speed up transactions, but they also create new opportunities for value extraction. Finding a fair and open way to manage transaction ordering will be key to maintaining trust.
In cross-chain bridges, MEV could appear between networks as assets move across different blockchains. Validators and relayers might try to profit from timing differences or price gaps, making cooperation between chains essential to avoid security risks and unfair advantages.
Modular architectures—where execution, consensus, and data availability are separated—could make MEV more distributed. This development will require better coordination to keep systems transparent and efficient across all layers.
Overall, as these technologies mature, transparency and open coordination will be critical to shaping a healthier blockchain economy. Managing MEV responsibly is key to ensuring blockchain remains open, fair, and efficient.
