Unraveling the MEV Dilemma: A Serious Threat to Blockchain Scalability

The Maximum Extractable Value (MEV) has emerged as a «major constraint on blockchain scalability,» according to a report from the research group Flashbots.

Experts have discovered that spam transactions generated by arbitrage bots occupy block space more rapidly than even high-performance networks can expand it.

«This is not a theoretical or isolated issue; we can see it manifesting across the board, from Solana, where MEV bots consume 40% of block volume, to the Ethereum L2 ecosystem,» they emphasized.

The researchers provided some insights:

According to the Flashbots team, many projects focus on the technical aspects of scaling networks while overlooking the economic limitations imposed by market structures.

MEV bot operators take advantage of low transaction costs, sending a vast number of them. In one example of a successful arbitrage trade, a bot earned $0.12 after paying a $0.02 fee.

However, the true cost of such operations is staggering, experts noted. On average, for a single successful transaction, a bot sends around 350 million transactions and consumes roughly 132 million gas – equivalent to nearly four full Ethereum blocks.

The economy of this activity ensures that one successful operation easily compensates for the costs of failures in others. Essentially, the bots function as search engines with built-in logic for executing specific algorithms. They initiate transactions for block inclusion and dispatch numerous requests across decentralized exchanges in search of arbitrage opportunities, costing approximately 2.6 million gas. If no opportunities are found, the bot simply takes no action.

Furthermore, the shift of networks to private mempools has catalyzed spam activity. This solution was initially intended to protect users from front-running. However, in rollups, the primary profit-making method for MEV bots is arbitrage. To access closed information in the pools, the software must send transactions for every block, the experts noted.

In addition to low fees, they identified the absence of an effective transaction auction mechanism as another factor—the order of transactions being included in a block is largely dictated by gas consumption.

«The gap between the paid fees and the gas used illustrates that spam imposes significant external costs on networks while delivering disproportionately little value in return, indicating a systematically inefficient market,» the researchers concluded.

The activities of these bots lead to blockchain congestion, increasing hardware demands and raising fees for average users, they added.

Flashbots experts see the solution to this problem in the implementation of «programmable privacy.» This would allow users access to real-time transaction information while simultaneously employing software restrictions to prevent information misuse.

It’s worth noting that Ethereum co-founder Vitalik Buterin has identified MEV as one of the primary threats to the network’s decentralization, alongside liquid staking and the costs associated with running a full node.