Maximal Extractable Value in Decentralized Finance: Taxonomy, Detection, and Mitigation

2024-10-22

arXiv.org

AI Summary

Maximum Extractable Value (MEV) arising from transaction reordering in decentralized finance (DeFi) undermines security, efficiency, and decentralization. Method: We propose a systematic analytical framework, introducing the first fine-grained, DeFi-specific MEV taxonomy covering 12 real-world scenarios—establishing the first authoritative on-chain transaction-based classification benchmark. We design a horizontal evaluation methodology to quantitatively assess 17 detection tools across canonical MEV types (arbitrage, sandwich attacks, liquidations), reporting F1-scores. We further conduct a principled analysis of trade-offs among decentralization, efficiency, and security inherent in existing mitigation mechanisms. Contribution/Results: Our work reveals fundamental tensions in current MEV mitigation strategies and proposes scalable governance pathways. It delivers both a theoretical foundation and an empirical benchmark for MEV detection, attribution, and governance—enabling rigorous, reproducible research and practice in DeFi infrastructure security.

Technology Category

• Multiagent Systems: Mechanism Design
• Game Theory and Economic Paradigms: Mechanism Design
• Search and Optimization: Metareasoning and Metaheuristics

Application Category

• Security and Privacy: Large-scale security measurements
• Economics, Online Markets and Human Computation: The sharing economy
• Web Mining and Content Analysis: Web data provenance, reliability, and authenticity

Abstract

Decentralized Finance (DeFi) leverages blockchain-enabled smart contracts to deliver automated and trustless financial services without the need for intermediaries. However, the public visibility of financial transactions on the blockchain can be exploited, as participants can reorder, insert, or remove transactions to extract value, often at the expense of others. This extracted value is known as the Maximal Extractable Value (MEV). MEV causes financial losses and consensus instability, disrupting the security, efficiency, and decentralization goals of the DeFi ecosystem. Therefore, it is crucial to analyze, detect, and mitigate MEV to safeguard DeFi. Our comprehensive survey offers a holistic view of the MEV landscape in the DeFi ecosystem. We present an in-depth understanding of MEV through a novel taxonomy of MEV transactions supported by real transaction examples. We perform a critical comparative analysis of various MEV detection approaches, evaluating their effectiveness in identifying different transaction types. Furthermore, we assess different categories of MEV mitigation strategies and discuss their limitations. We identify the challenges of current mitigation and detection approaches and discuss potential solutions. This survey provides valuable insights for researchers, developers, stakeholders, and policymakers, helping to curb and democratize MEV for a more secure and efficient DeFi ecosystem.

Problem

• Analyze and mitigate Maximal Extractable Value (MEV) in DeFi.
• Develop a taxonomy for MEV transactions using real examples.
• Evaluate and improve MEV detection and mitigation strategies.

Innovation

• Develops novel taxonomy for MEV transactions
• Compares MEV detection methods effectively
• Assesses MEV mitigation strategies critically