Briefing
The foundational problem of Maximal Extractable Value (MEV) lies in the adversarial economic tension between users, who generate the value, and block producers, who extract it, a conflict that threatens system security and user participation. This research introduces a dynamic sharing mechanism that formally integrates the MEV extraction rate into the protocol design space, treating it as a variable parameter that is continuously adjusted based on a predetermined target ratio of user-to-producer participation. By adopting an EIP-1559-like update rule, the mechanism achieves a provable balance between compensating block producers and encouraging user activity, ensuring the system maintains long-term liveness and robustness even under chaotic, out-of-equilibrium market conditions.
Context
The prevailing challenge in blockchain economics is the zero-sum perception of MEV, where the value extracted by block producers (miners or validators) comes at the direct expense of users, who are the source of the value. Prior solutions have often trended toward two extremes ∞ either complete mitigation (anti-MEV) or full extraction (pro-MEV), both of which are shown to compromise system stability by discouraging participation from one of the two essential market sides. This theoretical limitation ∞ the inability to find an equilibrium that simultaneously satisfies the economic incentives of both users and block producers ∞ is the core problem this mechanism design paper addresses.
Analysis
The core breakthrough is the formalization of the MEV Extraction Rate (λ) as a dynamically controlled, protocol-enshrined variable, analogous to the base fee in EIP-1559. This rate, λ in, determines the fraction of MEV retained by the block producer, with the remainder, 1-λ, being returned to the users. The mechanism operates by continuously monitoring the participation ratio of block producers to users, expressed in monetary terms, and then applying a dynamic update rule to λ after every block.
If the observed participation ratio deviates from a pre-set target ratio, the extraction rate λ is adjusted ∞ increasing if producer participation is too low and decreasing if user participation is too low. This constant, controlled feedback loop ensures the system is driven toward a stable, near-optimal state that balances the incentives of the two-sided market, fundamentally shifting the MEV problem from an adversarial zero-sum game to a managed economic externality.
Parameters
- MEV Extraction Rate (λ) ∞ The fraction of Maximal Extractable Value (MEV) that is retained by the block producer, dynamically updated after every block.
- Target Participation Ratio ∞ The predetermined, protocol-set ratio of block producer participation to user participation that the dynamic mechanism aims to stabilize.
- Adjustment Parameter ∞ A design parameter that regulates the intensity and speed of the dynamic updates to the MEV extraction rate (λ).
- Liveness Guarantee ∞ A formal proof that the system will maintain its functionality and not collapse, even when operating in chaotic, non-equilibrium market conditions.
Outlook
This dynamic mechanism design opens a new avenue for protocol-level MEV management, moving beyond simple mitigation or auction-based solutions toward a sustainable economic equilibrium. In the next three to five years, this framework can be integrated into the core consensus layer of major Proof-of-Stake blockchains, or adopted by Layer 2 sequencers, to create a more equitable fee and value distribution model. The ability to formally guarantee system robustness and liveness under chaotic market dynamics unlocks the design of next-generation decentralized finance (DeFi) primitives that are inherently fair and less susceptible to the negative externalities of transaction ordering.
