MEV stands for “maximal extractable value” (formerly “miner extractable value”) and refers to the practice of network validators earning ETH by including, excluding and/or changing the order of transactions in a block. It functions as something of an “invisible tax” on network users.
Today, MEV is one of Ethereum’s most significant issues, with Flashbots, a research and development organisation formed to mitigate the negative externalities posed by MEV, estimating that more than $720m of value was captured by MEV activities on Ethereum in 2021. The most common methods of MEV include: Front running: when an exploiter inserts their transactions before the victims’ transactions, thus creating a price shift Sandwich attacks: when an MEV searcher can see an incoming trade and then buys/sells orders before and after they occur to profit from the resulting price movement DEX arbitrage: when prices for a token differ across two different AMMs, a trader can buy the token on one exchange and sell it on the other for a profit.
Some MEV extraction methods like front-running and sandwich attacks can be harmful and cause network congestion and high gas prices for other users of the blockchain. On the other hand, DEX arbitrage can result in users getting the fairest prices across exchanges and accurately reflecting market-wide demand.