Maximal Extractable Value (MEV) represents excess value captured by miners
(or validators) from users in a cryptocurrency network. This excess value often
comes from reordering users transactions to maximize fees or inserting new
transactions that allow a miner to front-run users' transactions. The most
common type of MEV involves what is known as a sandwich attack against a user
trading on a popular class of automated market makers known as CFMMs. In this
first paper of a series on MEV, we analyze game theoretic properties of MEV in
CFMMs that we call reordering and routing MEV. In the case of
reordering, we show conditions when the maximum price impact caused by the
reordering of sandwich attacks in a sequence of trades relative to the average
price impact is $O(n)$ in the number of user trades. In the case of
routing, we present examples where the existence of MEV both degrades and
counterintuitively improves the quality of routing. We construct an
analogue of the price of anarchy for this setting and demonstrate that if the
impact of a sandwich attack is localized in a suitable sense, then the price of
anarchy is constant. Combined, our results provide improvements that both MEV
searchers and CFMM designers can utilize for estimating costs and profits of
MEV.
Описание
Towards a Theory of Maximal Extractable Value I: Constant Function Market Makers
%0 Journal Article
%1 kulkarni2022towards
%A Kulkarni, Kshitij
%A Diamandis, Theo
%A Chitra, Tarun
%D 2022
%K blockchain
%T Towards a Theory of Maximal Extractable Value I: Constant Function
Market Makers
%U http://arxiv.org/abs/2207.11835
%X Maximal Extractable Value (MEV) represents excess value captured by miners
(or validators) from users in a cryptocurrency network. This excess value often
comes from reordering users transactions to maximize fees or inserting new
transactions that allow a miner to front-run users' transactions. The most
common type of MEV involves what is known as a sandwich attack against a user
trading on a popular class of automated market makers known as CFMMs. In this
first paper of a series on MEV, we analyze game theoretic properties of MEV in
CFMMs that we call reordering and routing MEV. In the case of
reordering, we show conditions when the maximum price impact caused by the
reordering of sandwich attacks in a sequence of trades relative to the average
price impact is $O(n)$ in the number of user trades. In the case of
routing, we present examples where the existence of MEV both degrades and
counterintuitively improves the quality of routing. We construct an
analogue of the price of anarchy for this setting and demonstrate that if the
impact of a sandwich attack is localized in a suitable sense, then the price of
anarchy is constant. Combined, our results provide improvements that both MEV
searchers and CFMM designers can utilize for estimating costs and profits of
MEV.
@article{kulkarni2022towards,
abstract = {Maximal Extractable Value (MEV) represents excess value captured by miners
(or validators) from users in a cryptocurrency network. This excess value often
comes from reordering users transactions to maximize fees or inserting new
transactions that allow a miner to front-run users' transactions. The most
common type of MEV involves what is known as a sandwich attack against a user
trading on a popular class of automated market makers known as CFMMs. In this
first paper of a series on MEV, we analyze game theoretic properties of MEV in
CFMMs that we call \textit{reordering} and \textit{routing} MEV. In the case of
reordering, we show conditions when the maximum price impact caused by the
reordering of sandwich attacks in a sequence of trades relative to the average
price impact is $O(\log n)$ in the number of user trades. In the case of
routing, we present examples where the existence of MEV both degrades and
counterintuitively \emph{improves} the quality of routing. We construct an
analogue of the price of anarchy for this setting and demonstrate that if the
impact of a sandwich attack is localized in a suitable sense, then the price of
anarchy is constant. Combined, our results provide improvements that both MEV
searchers and CFMM designers can utilize for estimating costs and profits of
MEV.},
added-at = {2022-09-21T12:03:14.000+0200},
author = {Kulkarni, Kshitij and Diamandis, Theo and Chitra, Tarun},
biburl = {https://www.bibsonomy.org/bibtex/2d38d215c0e204991c7bb617a69f30cf5/jpbarrettel},
description = {Towards a Theory of Maximal Extractable Value I: Constant Function Market Makers},
interhash = {50120804740f44b9b9d9f33530019f69},
intrahash = {d38d215c0e204991c7bb617a69f30cf5},
keywords = {blockchain},
note = {cite arxiv:2207.11835},
timestamp = {2022-09-21T12:03:14.000+0200},
title = {Towards a Theory of Maximal Extractable Value I: Constant Function
Market Makers},
url = {http://arxiv.org/abs/2207.11835},
year = 2022
}