Bots Siphon Profits from Public Blockchains via Maximal Extractable Value

Maximal Extractable Value (MEV) is a concept in decentralized finance (DeFi) that refers to the extra profit available to someone who can choose which transactions go first, last, or together on a blockchain.

On public blockchains like Ethereum, MEV arises from the ordering power of miners and validators. They decide which transactions land first and get priority, allowing them to extract value from price impact, liquidations, and mispriced trades.

Sandwiching is a common form of MEV where a bot buys or sells an asset just before a user's market order executes, capturing the slippage created by the user's trade. This can result in significant losses for users, especially on volatile or thin pairs.

However, there are ways to reduce MEV exposure. Using batch auctions, private RPCs, intents-based routers, and limit orders can all help minimize leakage of value to bots. Additionally, some protocols like UniswapX and CoW Protocol have introduced mechanisms to mitigate sandwiching and other forms of MEV.