MEV, or miner extractable value, refers to the opportunity for a miner to increase their earnings by choosing the order of transactions in a block. Over the past year, we’ve seen an explosion in MEV thanks to large amounts of capital flowing through Ethereum. Naturally, several businesses emerged around this to capture the opportunity.
The name “miner” extractable value is a tad misleading because it’s not necessarily miners who extract this value. When an arbitrage opportunity exists on-chain, arbitrage bots compete with each other to seize this opportunity. Each arbitrageur submits an identical transaction to the Ethereum mempool.
Arbitrageurs constantly monitor the mempool to see if any competing bots have submitted the same transaction. More often than not, two or more arbitrageurs compete for the same transaction. Whichever arbitrageur is willing to pay more fees to miners to get their transaction included before the others eventually wins. This process is called a Priority Gas Auction (PGA), and it’s usually executed by purpose-built bots. PGAs are naturally expensive, and bots will shell out as much in fees as it makes sense. For example, if the arbitrage opportunity will yield $1000 in profits, the PGA bot might be willing to pay as much as $900-990 in fees.
As yield farming erupted, billions, if not trillions, of dollars were being exchanged across Ethereum every single day. As the depth of MEV extracting opportun