1 min read

Abusing blockchains for profit (aka MEV)

Blockchains are public, programmable money machines. So, it's only natural that some people will squeeze as much money out of it as possible. This is called MEV or Maximal Extractable Value.

MEV is not a form of investing. You're not buying cryptocurrency or NFTs with hopes of a future return. Instead, you're finding specific loopholes that offer a guaranteed return on investment. In order to get that ROI, you have to pay more for the privilege than anyone else. The most anyone should be willing to pay is just under 100% of the expected profit. So, if you're in a bidding war for commonly known/targeted MEV opportunities, you're fighting for pennies.

In order to make a meaningful amount of money in MEV, you have to play and win a lot of these small opportunities. Alternatively, you can find lesser known opportunities (which is hard).

MEV's existence can cause increased gas prices, slower transaction times for "real" users, and even instability of consensus. Don't get me wrong. It's not all bad. The main benefit in my mind is that market prices tend to be balanced efficiently.

The thing is that you can have an efficient market without MEV. Koinos is built with two key differences from Ethereum that change the nature of MEV:

  1. Mana instead of gas. Because the blockchain isn't pay-to-play, the math on "is this opportunity worth it" changes. Instead of asking whether you'd pay $9 to get $10, you have to ask whether you're willing to pass on a future opportunity for $10 now. Not as straightforward.
  2. No priority transactions. Koinos doesn't let you bid more mana to get your transaction included before someone else's. Transactions are first come, first served.

The profit incentive is still there, so the market will include bots and pricing will still be efficient. From a game theory perspective, these changes will prevent a significant amount of network abuse, leading to a better experience for "real" users.


P.S. MEV opportunists are typically bots using flash loans to be competitive.