Opinion: Why Ethereum’s MEV Is Way Worse Than You Think

As I write this, ethereum is moon-bound. ETH holders are making a bundle, with the price up 370% this year alone. In all this fanfare, though, you may have heard some chatter about MEV (miner extractable value).

In a nutshell, the Ethereum blockchain is written by consensus, but the content of each block is chosen by just one miner. Miners can profit from users by front-running, back-running, sandwiching and generally exploiting transactions in their block however they choose. The Flash Boys 2.0 paper, written by researchers at Cornell Tech, coined the term MEV to describe such exploits.

But is it really that bad? Isn’t it inevitable? And who cares if there’s a little extra slippage on Uniswap if by the end of the day your coins are worth 5% more regardless. We’re all making hay here. Perhaps the whole MEV thing is overblown, FUD even. 

Pmcgoohan (a pseudonym) discovered the MEV issue in Ethereum pre-genesis in 2014. He makes a living working with purely algorithmic trading, using his own money. An analyst/coder, he has worked with scientific bodies, corporations and financial firms.

As an algorithmic trader for 12 years, I was the first to predict pre-genesis in 2014 that MEV would become an issue. So let me wind the clock forwards once again.  

It’s 2035 and the ETH price has risen to $100,000, except that dollar price doesn’t mean anything anymore because no-one uses dollars, they use ETH. Mission accomplished. We’re where we want to be.

But with Ethereum at full adoption the price is no longer moving up. You can’t grow wealth just from holding ETH anymore beyond 1.6% APR in staking rewards. It’s hard to imagine now, but by this time the currency is so ubiquitous that it’s invisible to most people. Boring even.

Today, around $1.4 billion dollars of MEV is being taken from Ethereum blockchain users annually from a total decentralized finance (DeFi) market of around $50 billion. Global financial markets are worth $100 trillion. 

So, in 2035, now that Ethereum is the global financial marketplace, how much MEV will that be? $20 billion extracted in MEV per year? $200 billion? No. It’s $2 trillion worth of wealth annually taken from ordinary people due to an unfixed network vulnerability (in 2021 money). That is just shy of the yearly national budget of the United States and more than China.

That’s before any other taxes, remember. So the population of the world will be charged the entire annual budget of China in a socially useless tax that goes directly to the new masters of the universe (hint: very likely the same old masters of the universe) who have no obligation to build a single hospital, school, road, wind farm, law court, library, food bank, etc., and then you still have to pay your actual taxes on top of that.

MEV is inevitable? Not unless we choose it to be.

decentralized content layer with fair ordering that engages root causes. It’s promising, but I really don’t care if this or some other approach gets implemented as long as it truly addresses the issue. I started the project to galvanize the community away from fatalism and towards real solutions.

Decentralization takes work. It is expensive in development time and computing resources. The payoff is that such systems can be robust and equitable. But if a decentralized solution becomes more vulnerable and less fair than a traditional centralized competitor (as well as more expensive) then it is unlikely to succeed long term.

I got involved in Ethereum in 2014 full of hope that it would offer an alternative to the corruption that was laid bare in the financial crash of 2008. I still hold that hope. I dearly want us to get there, but we’re not going to while maximally exploitative MEV auctions are our primary response. These no more fix the problem of MEV than running a market selling stolen credit cards helps the victims who had their cards stolen. In fact, I have shown that MEV auctions worsen the situation by introducing exploits in which only the most wealthy can profit.

MEV is potentially more damaging in layer 2 (where transactions are made off the main chain) than in mainnet because the rollup sequencer is more powerful than any one miner. One leading scaling solution provider is openly discussing building this exploitation of users into their protocol, not by accident this time, but by design.

MEV is inevitable? Not unless we choose it to be. What needs to be inevitable is that MEV becomes history because if it doesn’t, we’d better start hoping Ethereum fails or we’re all in a lot of trouble.