4min chapter

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151 - MEV for Public Goods Funding with Nikete Della Penna

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CHAPTER

MEB and MEV: Exploring Miners' Extractable Value

This chapter delves into the concept of Minor Extractable Value (MEB) and its definition. It explores how miners can utilize their privileged position to see, censor, insert, and reorder transactions. It also discusses the concept of Maximum Extractable Value (MEV) through an example of a sandwich attack, highlighting how miners can bundle transactions and extract the price difference between buyers and sellers.

00:00
Speaker 2
Yeah, really excited to get into your research. So maybe we could just tee you off of a softball. What is what is
Speaker 1
MEB? MEB was originally defined in a paper by Diana et al. as the minor extractable value. So when you have a distributed system that relies on minors for creating and propagating blocks. Those minors are in a privileged position in that they can see and they can censor and they can insert based on what they saw and what they censored transactions and they can reorder transactions around of other people in deciding how they build the block. So there's a certain amount of value that is extractable by the nature of being in this privileged position. So this was the original definition of MEB. By and large this will be the definition of MEB appropriately generalized to validators that I will be using in this talk. Some people then took this in a very maximalist direction where they define MEB as the maximal extractable value. That definition is a little bit trickier to work on because this kind of maximal MEB can depend on your privileged access to information outside the domain that you are ordering or reordering. And so it is more difficult in protocol design to make guarantees about this more maximalist view of MEB. So in terms of informing policy or informing the decisions that the networks state that one is there's maybe less positive results or there's less clarity still on these more maximal decisions of what they mean in so much more active research area. The other one we understand a lot better ways.
Speaker 2
My example that I always like to give of MEB is a sandwich attack where user X wants to buy an asset at price Y and user Z wants to sell it at Y minus two. And so there's a sandwich attack inserted by the miners who can see the M pool or anyone who can see the M pool it's a transaction in between them and they bundle the transactions together and then they take the difference between the two prices there. So that's a sandwich attack and that's sort of an example of the value that's created by having access to the M pool. And I guess an example of MEB although maybe a trivially simple example of MEB. So how much value is there right now in the Ethereum layer one associated with MEB?
Speaker 1
This is a very hard number to precisely articulate. But so a very naive view would be what's the slippage tolerance of all uniswap orders that pass through the M pool. So that's like the bare minimum amount of MEB. So basically because of the any amount of slippage that you allow is creating pure MEB for someone that front and back runs you.
Speaker 2
So slippage is just the difference between Y and Y minus two in my example.
Speaker 1
Yeah, so if you when in the interface to uniswap contracts you're allowed to say, okay, I'm trying to get this price plus minus something. And so the miner can always guarantee that the UX accused right at the boundary of what that tolerance is. And so they're able to extract all the difference between the current price of the market make and the tolerance that you had.

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