The topic of Miner Extractable Value (MEV) has been extremely controversial in the blockchain space, especially in DeFi, for quite some time. Originally, it referred to the value that miners could extract by manipulating the order of transactions in Proof-of-Work (PoW) systems. Since then, the concept has evolved with the Ethereum network’s transition to a Proof-of-Stake (PoS) framework – where it is now referred to as Maximum Extractable Value.
MEV arises from the unique position of validators in blockchain networks. That is, they have the power to determine the final order of transactions within a block, opening up profit opportunities beyond the usual block rewards and transaction fees.
These can include strategies such as front-running, sandwich attacks, and arbitrage across various decentralized exchanges (DEXs). As a result, the European Union Securities and Markets Authority (ESMA), one of the three regulators governing the region’s financial landscape, recently labeled the MEV practice as “market abuse.”
A look at the good and the bad
On the one hand, MEV can be considered a mechanism that increases market efficiency, as it incentivizes participants to identify and correct price discrepancies between different platforms – potentially leading to more stable and accurate asset pricing. In addition, it provides validators with an additional incentive to maintain network security.
On the other hand, however, this practice regularly results in higher transaction costs for users as validators prioritize transactions that offer the highest MEV opportunities. This not only increases the overall cost of using blockchain networks but can also lead to transaction delays for regular users whose transactions are considered less profitable.
Perhaps the most troubling aspect of MEV, however, is its potential to drive centralization within networks. As MEV extraction becomes more sophisticated, it requires advanced analytics capabilities and powerful computing resources. This creates a scenario where larger, better-equipped validators can regularly outperform smaller ones, leading to a concentration of power and rewards.
While crypto users continue to struggle with these challenges, innovative solutions have emerged to eliminate these bottlenecks. One of these solutions is “Express Relay” – a service launched by Pyth Network, an oracle solution that provides real-time market data for on-chain applications.
To describe it in more detail, the Express Relay module connects leading trading firms directly to various DeFi protocols through a decentralized system. The main difference is the use of protocol-driven auctions for valuable transactions such as liquidations. This eliminates the extractive role of miners or validators from the MEV process.
By allowing DeFi protocols to auction the priority of critical operations, Express Relay also ensures that seekers (i.e., specialized actors who identify and exploit MEV opportunities) can compete more aggressively for transaction value.
This competition takes place in a separate auction that is not controlled by the miners, effectively removing their ability to extract value from the transaction order.
Numerous advantages
The potential benefits of Express Relay extend to various DeFi participants. For example, protocols can significantly reduce the costs associated with operations such as liquidations, allowing savings to be redirected to more productive initiatives or passed on to users.
Likewise, for seekers, liquidation and other valuable transaction opportunities from multiple protocols are aggregated in one place, reducing the time and cost associated with negotiating and integrating individual protocols and allowing them to work more efficiently.
Early-stage DeFi projects can also benefit from Express Relay’s pre-integrated network of top seekers, which can significantly speed up deployment by eliminating the need to build a liquidator network from scratch.
Finally, end users of various DeFi systems benefit from the elimination of unnecessary costs and increased efficiency, which can translate into better rates and services for them.
Is a more efficient DeFi landscape in sight?
As the crypto economy continues to evolve and grow, there is a pressing need for solutions that can help alleviate the pressure caused by MEV, especially solutions that can holistically align the interests of protocols, seekers, and users.
In this respect, services like Pyth’s Express Relay serve as important technological benchmarks, demonstrating that with innovative thinking and technological advancement, even seemingly intractable problems like MEV can be efficiently addressed.
As these solutions mature and gain wider adoption, it is therefore not unreasonable to expect a future where the DeFi landscape is not only more robust and efficient, but also more in line with its original vision of being a decentralized, equitable financial playground for all.
