Why is the MEV problem in Ethereum more serious than you think?

This article is from Coindesk Chinese, author: Pmcgoohan.

As I write this article, the Ethereum market is booming! The price has risen by 370% this year, and ETH holders are making a fortune. However, amidst all this hype, you may have heard some discussions about MEV (Miner Extractable Value).

In short, miners are responsible for packaging transactions into blocks, and they can profit from users through front-running, back-running, sandwich attacks, or reordering the transaction sequence on the blockchain. The term MEV was coined in the Flash Boys 2.0 paper written by researchers from Cornell Tech to describe this phenomenon.

But is it really that bad? Is it unavoidable? As long as there is money to be made, who cares if Uniswap has a bit of extra slippage? Perhaps the whole MEV issue has been exaggerated, or even turned into FUD.

As an algorithmic trader with 12 years of experience, I was the first to predict in 2014 that MEV would become a hidden danger. Next, let’s try to imagine the future!

It is now 2035, and the price of ETH has risen to $100,000, but this dollar price no longer means much, as no one uses dollars; they use ETH.

However, with the widespread adoption of Ethereum, the price of ETH no longer rises. You cannot simply increase your wealth by holding ETH, which is hard to imagine now. But at that time, ETH as a currency is so ubiquitous that everyone has become accustomed to it, even finding it boring.

Currently, about $1.4 billion is extracted from Ethereum users each year as MEV, while the total DeFi market is around $50 billion. The global financial market is valued at $100 trillion.

So, by 2035, since Ethereum has become the global financial market, how much will MEV be? $20 billion extracted from MEV each year? $200 billion? No, but rather $2 trillion worth of wealth taken from ordinary people due to unaddressed network flaws. This figure is slightly lower than the annual national budget of the United States but exceeds that of China.

Remember, this does not account for other taxes. Therefore, the world population will be subjected to a tax that is socially unbeneficial (implying MEV), which will flow directly to the new masters of the universe, and on top of that, you will still have to pay actual taxes.

It's pretty bad, isn't it? But this is just the beginning, because Ethereum is not just about decentralized finance. For our children, ETH is the primary currency globally; it is everywhere: when you buy insurance, when you buy train tickets, when you pay restaurant bills, when you go to a game, when you buy pizza, when you pay tuition.

You order some groceries on an open market smart contract, and a local small business sees your order and can offer you the best price, including bicycle delivery. But big companies can collaborate with packaged miners to exclude small businesses' transactions from the block, meaning big companies do not even need to compete on price with small businesses. In the end, you end up overpaying for your groceries, and local stores go out of business. You might find an NFT ticket for Dua Lipa's comeback tour on an auction dapp for $50. When you try to buy it, a bot sees your transaction and completes it at the same price first. But don't worry, in the same block, they have already sold it back to you at your highest bid of $100. This is a sandwich attack.

You want to convert your ETH into carecoins to fund your mother's cancer treatment, but the winner of the MEV auction keeps driving up the price. What you are executing here is not some exotic DeFi transaction. These tokens are crucial for the well-being of your loved ones. You cannot afford the full treatment your mother, sister, or child needs.

We won't let this happen, right? By then, we will have solved all of this.

Looking for Solutions

We better hope so. The outcome I just described is a product of serious data integrity issues within the Ethereum network that must be addressed. Solutions exist, but whether they can be researched depends on our community.

Dapp designers can use more anti-MEV design patterns in their smart contracts. Time locks, SGX, or threshold encryption can be used to hide transactions from attackers. I am collaborating on a preferred solution of mine, which is a decentralized content layer with fair ordering involving roots. This is promising, but I really don’t care whether this or other methods are implemented, as long as it can truly solve the problem. I initiated this project to inspire the community to break free from fatalism and move towards real solutions.

Decentralization requires more effort. It is expensive in terms of development time and computational resources. The payoff is that such a system can be powerful and fair. However, if a decentralized solution becomes more fragile and unfair (and more expensive) than traditional centralized competitors, it cannot succeed in the long run. I joined Ethereum in 2014, full of hope that it could provide an alternative to the corruption exposed by the 2008 financial crisis. I still hold onto that hope. I sincerely hope we can achieve this, but if maximizing MEV auctions is our primary response, then we cannot reach that vision. None of this addresses the MEV issue, just as running a market selling stolen credit cards does not help the victims of credit card theft. In fact, I have demonstrated that MEV auctions only make things worse, introducing a loophole that only large players can profit from.

The destructiveness of MEV in layer two networks may be greater than on the mainnet, as the role of rollup sequencers is more significant than that of miners. Currently, a leading scaling solution provider is already discussing the extraction of value being written into the protocol, and this time it is not coincidental but a deliberate design.

Is MEV unavoidable? No, unless we embrace it ourselves. We must address the MEV hazard; otherwise, we better hope Ethereum fails, or we will have a lot of trouble later on.