Briefing
The research addresses the systemic problem of Maximal Extractable Value (MEV) creating an adversarial, prisoner’s dilemma-like environment that degrades system welfare. It introduces a foundational breakthrough ∞ a dynamic MEV extraction rate, which functions as an endogenous protocol parameter analogous to EIP-1559’s base fee. This mechanism actively manages the balance between compensating block producers and incentivizing users. The most important implication is the establishment of a formal, dynamic framework that shifts control over MEV’s negative externalities from unregulated market forces to a protocol-controlled, self-stabilizing economic model for transaction ordering.
Context
The prevailing challenge in blockchain architecture centers on managing the complex strategic interactions within the MEV supply chain, which involves searchers, builders, and validators operating under a three-stage game of incomplete information. This adversarial environment, often characterized by Bertrand-style competition, drives rational actors toward aggressive extraction methods like sandwich attacks, fundamentally threatening the fairness and efficiency of decentralized transaction execution.
Analysis
The core mechanism models the MEV extraction rate as a dynamically adjusting parameter within the protocol’s design space. The system aims to stabilize this rate at a predetermined target value by algorithmically increasing or decreasing the portion of MEV that is effectively “burned” or redistributed to users versus the portion paid to the block producer. This dynamic adjustment creates a feedback loop that dampens the volatility of MEV extraction, guiding the competitive market toward a neighborhood of the target equilibrium and ensuring long-term system performance.
Parameters
- Theoretical Model Validation ∞ Theoretical models are validated against on-chain data from the Ethereum blockchain.
- Market Equilibrium Characterization ∞ Bertrand-style competition creates a prisoner’s dilemma-like outcome.
- System Performance Goal ∞ The dynamic mechanism ensures the system concentrates in a neighborhood of the target equilibrium.
Outlook
This dynamic mechanism opens new research avenues in endogenous protocol regulation, moving beyond static auction design to self-regulating economic systems. In the next three to five years, this theory could be implemented in Layer 1 or Layer 2 protocols to stabilize transaction fees, mitigate harmful frontrunning, and unlock a more predictable and equitable blockspace market, thereby improving the overall user experience and long-term network stability.
Verdict
The introduction of a dynamic MEV extraction rate fundamentally redefines Maximal Extractable Value as a mechanism design parameter subject to protocol-level economic control.
