On May 17, Ethereum co-founder Vitalik Buterin proposed a series of solutions aimed at addressing Ethereum’s Miner Extracted Value (MEV) problem.
MEV refers to the practice where block producers (miners or validators) maximize their profits by strategically ordering transactions within a block. Buterin provided a scenario to illustrate this:
“Consider decentralized exchanges like Uniswap. Suppose at time T, the USD/ETH exchange rate—both on centralized exchanges and on Uniswap—is $3000. At time T+11, the rate on centralized exchanges rises to $3005, but Ethereum hasn’t yet added its next block. At time T+12, it does.”
By using MEV strategies, the miner or validator who adds the next block could rearrange the transactions so that Ether purchased at a lower price on Uniswap could be sold on centralized exchanges at a higher price, capturing the profit.
While MEV can be profitable for validators, it also introduces several problems: network congestion, higher gas fees on Ethereum, and increased slippage for traders. This creates an invisible “tax” on users transacting over the network.
More critically, MEV can erode trust in Ethereum’s consensus mechanism. If users perceive that validators are compromising the integrity of the network to maximize profits, they may seek alternatives, leaving Ethereum vulnerable to losing its user base.
This arbitrage practice has drawn criticism from developers such as Péter Szilágyi, a core developer of Geth, who argued that the Ethereum network is enabling such practices by catering to MEV developers rather than addressing the problem directly.
In response to this, Buterin proposed several solutions to mitigate MEV:
- MEV Minimization
MEV minimization involves building alternative solutions to exchanges like Uniswap and implementing protocol-level mechanisms to limit the amount of information available to MEV developers. While effective, these techniques are complex and resource-intensive to implement. - MEV Quarantining
This approach separates the validation process from the block’s contents, outsourcing the responsibility of choosing the contents of a block to designated “builders.” This strategy, known as Proposal/Builder Separation (PBS), can be effective in reducing MEV, but it risks increasing centralization, as builders could potentially exclude transactions arbitrarily. - Inclusion Lists
To mitigate the risks of centralization, Buterin proposed the use of inclusion lists. These lists would allow builders to arrange transactions but require them to include all transactions submitted to them in their block proposal. This ensures that transactions are not unfairly excluded by builders, adding a layer of accountability.
Ultimately, Buterin concluded that the most viable way to solve the MEV problem involves a combination of minimization techniques, quarantining, inclusion lists, and lowering node requirements. These solutions aim to keep Ethereum as decentralized, transparent, and democratic as possible while reducing the negative impact of MEV on users.