For the most part, people who regularly transact on Ethereum are completely unaware that MEV exists, but it affects all of the transactions that the user sends, from the price you receive on a swap to the gas price you pay to whether or not your transaction gets mined.
What is a block?
Transactions are not handled one-at-a-time in real-time. Instead, they are batched together into blocks. Blocks are approximately created every 12 seconds, and each block is essentially just a data structure that includes ordered transactions. The order is extremely important, because transactions that affect each other (like trading one asset for another, taking out a loan, or getting liquidated) will behave differently depending on their order in the block.
The mempool: Ethereum’s public waiting room
When you send a transaction, it’s not instantly included in a block. Instead, it gets added to the “mempool,” or memory pool. This is a public pool of pending, unconfirmed transactions that are looking to get picked up by a block builder. Every node on the network can view every transaction in the mempool, including who sent what, what it did, and how big the gas fee was. This visibility, which is central to Ethereum’s design, has an often-overlooked implication: if your transaction is public before it’s executed, someone else can view it and take action to gain value. This action of injecting a transaction into the block before, after, or around another transaction for gain is what MEV is all about.
What MEV is
MEV stands for Maximal Extractable Value. This is the total profit that can be obtained by controlling transaction inclusion in a block and transaction order within a block. It originally stood for “Miner Extractable Value” while Ethereum was running on proof-of-work, but as miners became validators following The Merge in September 2022 the name was amended to cover MEV still-conceptually not changed.
The three sources for MEV are arbitrage, sandwich attacks, and liquidation sniping. First, MEV comes from arbitrage. If there is a price difference for ETH between different markets (i.e., at $3,000 in Uniswap and $3,020 in SushiSwap), a large pending swap is in the mempool that would drive the price of ETH in Uniswap up to $3,015 and an arbitrageur can put in buy orders before it and sell orders after and make about $20 of profit per ETH. This type of MEV tends to bring efficiency into markets. The second is called sandwich attacks, which cause negative externalities to users. Similar to arbitrage, a searcher sees a large pending swap in the mempool, puts in a buy order just before and a sell order just after the swap order. It will cause the original swap order to have a worse price, and the searcher makes a profit. Finally, MEV comes from liquidation sniping. If a borrower using protocols such as Aave or Compound falls below the minimum ratio threshold of the collateral amount and the loan amount, their collateral position becomes liquidatable, and it may get liquidated with a discount.
Proposer-Builder Separation
The community’s solution to this problem was Proposer-Builder Separation (PBS), dividing the responsibility of constructing and proposing a block into two distinct roles. The builder is a specialized entity whose sole purpose is to construct the most profitable block. A proposer-validator then simply signs the most lucrative block submitted to them. A home validator running a single node gets the same MEV-boosted profits as an institution, as they too are accepting bids from the same builder marketplace.
How blocks were built before PBS
Before 2022 miners pulled transactions from the mempool, ordered them by fee, and filled up a block with up to the gas limit. The more advanced miners recognized they could make additional profit by reordering transactions or placing themselves in between them or running bots in the mempool; they can make MEV in addition to fees. These changes resulted in a compounding structural advantage in favor of large operators and further concentration; more MEV led to more ETH, and more mining power, leading to more MEV.
What this means for users
MEV shows traders how DEX swaps end up executing at the lowest possible price within slippage tolerance. By keeping slippage tight (0.1 to 0.5 percent), sandwiching exposure can be minimized. Services like MEV Blocker and Flashbots Protect and remove transactions from the public mempool by sending them through private channels. For LPs, MEV of arbitrage means reduced profits-bots withdraw liquidity from pools each time an off-chain price change occurs before the pool price is adjusted. For all, high levels of MEV mean bidding wars for gas.
The bigger picture
MEV is not going away. It is a structural consequence of a transparent mempool in a system where transaction order determines outcome. The more meaningful question is who captures that value and at what cost to users. Ethereum has made real progress since 2022 in distributing MEV revenue more equitably. The work on censorship resistance and decentralized block building is what comes next.
