Maximal Extractable Value (MEV) Bribes

Maximal Extractable Value (MEV) is a concept that describes the maximum value that can be extracted from the block production process beyond the standard block reward and gas fees paid by the inclusion, exclusion, and re-ordering of transactions within a block.

MEV opportunities can arise in various ways, including but not limited to DEX arbitrage, liquidations in lending protocols, and sandwich trading. While MEV plays a role in optimizing DeFi protocols by correcting economic inefficiencies, there are potential negative consequences, such as increased slippage and network congestion.

The economics of MEV is complex and generally includes 4 parties: users, searchers, builders, and proposers.

1. Users: Typical users of the Ethereum network that submit transactions to the public mempool to be confirmed.

2. Searchers: Sophisticated users or bots that identify and create transactions aiming to capitalize on MEV opportunities. The goal of a Searcher is to minimize gas fees and maximize MEV profits as Searchers have to pay a competitive bribe in order to incentivize Builders to select their transactions to be included in the final block.

3. Builders: A new role in the MEV supply chain introduced after 'The Merge' with the implementation of proposer-builder-separation (PBS). Builders are sophisticated users or bots that construct blocks by taking the bundle of transactions provided by Searchers, along with regular transactions from Users, to form a candidate block that is subsequently forwarded to the proposer using an MEV relay. Their goal is to create the most profitable block for Proposers as Proposers are unable to see transactions within a block.

4. Proposers: Block proposers on the consensus layer who receive a cut of the MEV profits in the form of bribes, on top of the normal staking rewards. Historically, block Proposers earn the majority of the MEV profits in the MEV lifecycle because the markets for Searchers and Builders are extremely competitive.

Notably, the acceptance of MEV rewards is entirely voluntary by validators who wish to participate in the MEV supply chain. In reality, the majority of validators run MEV-boost software. If a validator decides to run the MEV-boost software and is selected as the Proposer for a block, they will receive the MEV bribes if the block qualifies as an MEV block. Meanwhile, the priority fees that the proposer typically receives will instead be directed to the Builders. This redirection is achieved by modifying the fee recipient address to that of the builder's address using the proposer's validator client.