It’s important to note that, unlike wash trading—which is designed to create false volume in the DeFi and NFT spaces—MEV transactions are the opposite. They extract real transaction volume from decentralized networks in small yet meaningful ways, beyond conventional trading activity. In this article, we’ll dive deep into the world of the MEV industry, explore the different types of MEV transactions, their impact, and discuss how to protect ourselves from malicious MEV attacks.
To better understand the impact of MEV (Maximal Extractable Value) transactions on a blockchain or network, it’s essential to explore the various MEV techniques in use today. Some of the most common techniques include arbitrage, sandwich attacks, liquidations, and just-in-time (JIT) liquidity provision.
These MEV strategies can generally be divided into two main categories:
- MEVs that require block space: This includes techniques like arbitrage and liquidations.
- MEVs that require precise timing: This encompasses sandwich attacks and JIT liquidity provision.
Arbitrage and liquidations typically involve a sequence of actions, often executed within a single transaction. These strategies usually require swapping assets across multiple liquidity pools. The introduction of DEX aggregators further complicates these operations, as it becomes harder to fit all the necessary token transfers into one transaction that fits within the block size limits.
On the other hand, sandwich attacks and JIT liquidity provision involve a series of distinct transactions that must be executed in quick succession to successfully capture a profit. While they also leverage multiple liquidity pools and protocols, the execution of these strategies relies heavily on timing and the ability to complete the required trades within a specific time frame.
Having defined these broad categories, we can now take a deeper dive into the specifics of arbitrage, sandwich attacks, and liquidations to better understand how each technique works in practice.
After completing the transactions, Alice will be left with 10.37 WETH, resulting in a gross profit of 0.37 ETH. However, Alice needs to consider the transaction fees incurred from executing the two transactions. With a total gas cost of 0.008 WETH, Alice’s net profit will amount to 0.362 ETH.
Now, let’s explore what a real-world transaction could look like in this scenario.
After completing the transactions, Alice will be left with 10.37 WETH, resulting in a gross profit of 0.37 ETH. However, Alice needs to consider the transaction fees incurred from executing the two transactions. With a total gas cost of 0.008 WETH, Alice’s net profit will amount to 0.362 ETH.
Now, let’s explore what a real-world transaction could look like in this scenario.