Thread by @eli5_defi

#GM!
1/ What is Maximal Extractable Value (#MEV)? How does it become an integral part of the #blockchain network? How does MEV work? All of your questions will be answered in our latest #visualguide.

#Ethereum #cryptocurrency #TheMerge $ETH #DeFi

2/ In the blockchain transaction ordering process, the block producers are responsible to aggregate, selecting, and reordering transactions in the #blockchain network based on the given economic incentives thus creating opportunities for #MEV

3/ #MEV refers to the maximum value that can be extracted from a block more than the standard block reward and gas fees by including, excluding, and changing the order of transactions in a block

4/ In practice, a large portion of #MEV is extracted by independent participants (The Searchers) that deploy sophisticated value extraction strategies and compete with each other to have their transactions included in a given block

5/ There are several examples of value extractions strategies for #MEV:
- Gas golfing
- Generalized front-running
- Back running
- Time-Bandit Attack

6/ #MEV is also being utilized for several conditions:
- #DEX Arbitrage
- Liquidations
- Sandwich Trading
- #NFT MEV

7/ #MEV efficiency/ incentive create lucrative opportunities and competition in a limited block space resulting in a congested network and exorbitant gas fees. MEV also can destabilize the consensus and lead to blockchain reorganization.

8/ Several mitigations have been proposed to reduce #MEV negative externalities, such as:
- Chain architectures (@arbitrum)
- Encrypted transactions (@chainlink)
- Private/ stealth transactions (@bloxroute)
- MEV Auctions (#FlashBots, @optimism)

9/ #FlashBots is a research and development organization that aims to bring transparency to MEV activity, democratize MEV and distribute the fair redistribution of #MEV revenue to prevent the existential risk caused by #MEV.
@thegostep @hasufl @bertcmiller

10/ #FlashBots work by connecting up The Searchers and The Block Producers together through their sealed-bid block auction mechanism. The transactions relayed to the Flashbots server will not be broadcasted to the public pool which lessens the negative #MEV externalities.

11/ Proposer/ Builder Separation (#PBS) is splitting the block construction role from the block proposal role in #POS #Ethereum. However, it is not an immediate requirement for #TheMerge to complete.

@VitalikButerin @drakefjustin @fradamt @ObadiaAlex @phildaian

12/ #PBS integration will be disruptive for #Ethereum and #MEV because of these reasons:
- Encourage block diversity
- Competition to create 'The Best Block'
- Non-economic agenda can be accommodated by the block proposers
- Drive Ethereum towards modularization

13/ As the #PBS isn't required immediately after The Merge, the community put efforts into a project called MEV-Boost. #MEV-Boost streamlines and utilizes the post-merge MEV process that aligns with PBS.
@thegostep

14/ The Takeaway from The Dark Forest

#MEV #Ethereum $ETH #Flashbots #TheMerge

15/ References

#MEV #Ethereum $ETH #Flashbots #TheMerge

16/ The complete A to Z information about #Ethereum #Merge to #POS can be found in our previous thread:

17/ We also cover #Ethereum Layer 2 rollups solution in here:

#DeFi #Crypto #Bitcoin #Ethereum #Arbitrum #Optimism #L222 #ZKSync $ETH

18/ Tagged account below for #MEV education and visibilities:
@hasufl
@thegostep
@0xmisaka
@bertcmiller
@sxysun1
@libevm
@FrankieIsLost
@0xfoobar
@noxx3xxon
@mevintern
@mevcollector
@snoopy_mev
@0xShitTrader
@Figment_io

19/ And shout-out to the account below for amazing educational content across CT:
@SalomonCrypto
@blocmatesdotcom
@shivsakhuja
@rektdiomedes
@knowerofmarkets
@rektdiomedes
@BarryFried1
@The_ReadingApe
@VirtualKenji
@ManoppoMarco
@Storgan_ManleyX

20/ Like our thread and want to support us? please use our #GMX referral link for 10% trading discount:
gmx.io/#/?ref=eli5defi

21/ If you find our thread and visual guide useful, please like and retweet. Also, big thanks to @mimiLFG and @minnymousegirl for proofreading and reviewing this #visualguide