What Ethereum Stakers Need To Know About MEV

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What is MEV?

  • “Maximal Extractable Value” (MEV) refers to the maximum value that can be extracted from block production in excess of the standard block reward and gas fees by including, excluding, and changing the order of transactions in a block. (Ethereum.org)
  • Engaging in MEV extraction strategies means running modified client software (or additional client software) in your validator software stack.
  • In simple terms, MEV can allow “front-running” or the ability to transact on networks ahead of known future transactions in order to gain profit.
  • MEV will not affect Ethereum transactions until the migration to the Proof of Stake Beacon Chain.

What is Figment doing about MEV?

  • Figment is focused on earning clients the best possible risk-adjusted yield. Part of this objective means understanding both the risks and rewards that MEV brings.
  • Figment believes that understanding MEV is only the beginning, however; being actively involved in the process and driving positive change for the ecosystem is key. 
  • Figment is exploring MEV extraction options and is engaged with the Flashbots Working Group. The goal of the working group is: “to ensure that there is a fair and efficient MEV solution adopted by PoS validators on Ethereum post-merge.”
  • Figment is committed to finding the solution that is best for its client and the broader ecosystem.

What do Stakers need to know?

  • Why should your validator service provider run MEV-friendly modified client software? Because, post-merge, validator revenue from MEV activities could increase between 5 and 30%.
  • Stakers looking at performance of validators need to understand that MEV will add volatility to rewards. Not only will there likely be a large variance between validators that choose to run MEV-enabled software and those that do not, but there will also likely be a large variance within the group of validators that choose to run MEV-enabled software.
  • What are the risks? Adding additional code or an extra layer to a software stack almost always adds some amount of risk no matter how small. However, running MEV-enabled software does not appear to add significant risk and is arguably more than offset by the rewards. The exception is during The Merge - the heightened risk of The Merge means that waiting to add MEV-enabled software is likely best. The missed rewards are not likely high enough to warrant the added risk. Additionally, functionality for MEV-enabled software is not yet available and there are challenges that are currently being worked on.
  • How exactly to engage in MEV extraction is an evolving question. Currently Flashbots seems like the most public and open process for participating in MEV. Other more closed and private methods could foster centralization, which is something Ethereum strives to avoid.

Further references:

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