MEV Ecosystem Evolution From Ethereum 1.0

Abstract

Smart contracts led to the emergence of the decentralized finance (DeFi) marketplace within blockchain ecosystems, where diverse participants engage in financial activities. In traditional finance, there are possibilities to create values, e.g., arbitrage offers to create value from market inefficiencies or front-running offers to extract value for the participants having privileged roles. Such opportunities are readily available -- searching programmatically in DeFi. It is commonly known as Maximal Extractable Value (MEV) in the literature. In this survey, first, we show how lucrative such opportunities can be. Next, we discuss how protocol-following participants trying to capture such opportunities threaten to sabotage blockchain's performance and the core tenets of decentralization, transparency, and trustlessness that blockchains are based on. Then, we explain different attempts by the community in the past to address these issues and the problems introduced by these solutions. Finally, we review the current state of research trying to restore trustlessness and decentralization to provide all DeFi participants with a fair marketplace.