MEV Drains DeFi Users: What It Is and How to Reduce Its Impact

Maximal Extractable Value (MEV) is a structural side effect of how blockchains decide which transactions are included in a block and in what order. This can lead to additional fees for users, particularly in decentralized finance (DeFi) applications.

MEV allows those who influence the ordering of transactions to extract value from price impact, liquidations, and mispriced trades. This is often referred to as 'sandwiching,' where a bot buys before a user's market order and sells after it executes at a worse rate, capturing the slippage created.

On Ethereum, MEV-Boost is an open-source sidecar that lets validators source blocks from builders without trusting them. Before a block is proposed, transactions can be routed privately to a builder or solver network, hiding them from the public mempool and often from sandwich bots.

The cost of MEV can vary depending on the protocol and pair, but examples include a 0.4 percent extra fee for a typical sandwich trade and a $1,500 bonus extracted in one move during a liquidation race.