Formalizing MEV Theory for Blockchain Security and Mechanism Design ∞ Research

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Briefing

The proliferation of Maximal Extractable Value (MEV) presents a critical, unaddressed economic attack vector within public blockchains, eroding user trust and network stability. This research introduces a formal theory of MEV, grounded in an abstract model of smart contracts and blockchain operation, providing the foundational tools necessary for rigorous analysis and the development of provably secure mechanisms. This theoretical framework enables a systemic understanding of value extraction, paving the way for architectural innovations that mitigate adversarial manipulation and foster more equitable decentralized environments.

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Context

Prior to this work, MEV was primarily understood through empirical observations of its detrimental effects on DeFi protocols, lacking a unified theoretical foundation. The absence of a formal, abstract model hindered comprehensive analysis of MEV’s origins, its systemic implications, and the development of universally applicable countermeasures. This left blockchain architectures vulnerable to a class of economic attacks that exploit transaction ordering.

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Analysis

The paper’s core contribution is a formal, game-theoretic model that defines MEV through the axiomatization of adversarial knowledge and capabilities. It conceptualizes MEV as the maximum gain an adversary can achieve by strategically reordering, dropping, or inserting transactions within a block, leveraging their private information and mempool visibility. This framework allows for the rigorous study of MEV’s properties, such as monotonicity and finiteness, and enables the assessment of “MEV-freedom” for various smart contract designs. The approach fundamentally differs by providing a formal language to reason about MEV, moving beyond ad-hoc mitigations to foundational security proofs.

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Parameters

Core Concept ∞ Maximal Extractable Value Formalization
New Model ∞ Abstract Blockchain Transaction Model
Primary Application ∞ MEV-Freedom Proofs
Key Property Analysis ∞ Monotonicity, Finiteness
Real-world Assessment ∞ Crowdfunding, AMMs, Lending Pools

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Outlook

This formal theory lays crucial groundwork for a new generation of blockchain architectures inherently resilient to MEV. Future research can leverage this framework to design and formally verify MEV-resistant consensus protocols and smart contract designs, fostering more robust and fair decentralized applications. The insights gained will enable the development of predictive models for MEV, allowing protocols to anticipate and counteract adversarial strategies proactively.

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Verdict

This research provides the indispensable theoretical bedrock required to understand, quantify, and ultimately mitigate the systemic economic vulnerabilities introduced by Maximal Extractable Value in decentralized systems.

Signal Acquired from ∞ arxiv.org