Briefing
This paper rigorously analyzes the pervasive problem of Maximal Extractable Value (MEV) on fast-finality Layer-2 (L2) blockchains, revealing that arbitrageurs strategically split large MEV opportunities into numerous smaller transactions to maximize profit and mitigate failure risk. The core breakthrough lies in demonstrating that this “spam-based” arbitrage is an optimal strategy, especially following the Dencun upgrade which significantly lowered L2 gas costs, rendering traditional priority fee mechanisms ineffective in sub-second block time environments. This new understanding fundamentally shifts the perspective on blockchain architecture, underscoring an urgent need for protocol-level changes to transaction ordering and MEV handling to foster more equitable and efficient decentralized systems.
Context
Before this research, the prevailing theoretical limitation in blockchain transaction ordering involved the assumption that economic mechanisms, such as Priority Fee Auctions (PFAs), would effectively manage transaction inclusion and prioritize valuable operations. While MEV was a recognized challenge, its specific dynamics on fast-finality Layer-2 rollups, particularly the interplay between low latency, gas costs, and transaction reversion, remained underexplored. The Dencun upgrade, by drastically reducing L2 gas fees, inadvertently exacerbated this problem, making spam-based arbitrage economically viable and exposing the fragility of existing fee-based ordering in high-speed environments.
Analysis
The paper’s core mechanism revolves around the theoretical and empirical validation of “trade splitting” as the optimal MEV extraction strategy for CEX-DEX arbitrageurs on fast-finality blockchains. Conceptually, arbitrageurs divide a single profitable MEV opportunity into multiple smaller transactions. This approach increases the overall probability of at least some transactions succeeding while minimizing the risk associated with a single large transaction failing.
The paper formally derives an optimal chunk size for these split trades, demonstrating its superiority over single-shot execution under realistic assumptions where swap failure probability increases with trade size. Empirically, this strategy is evidenced by the high volume of reverted swap transactions on major Ethereum rollups, particularly after the Dencun upgrade made such spamming economically rational due to negligible gas costs.
Parameters
- Core Concept ∞ Spam-based MEV extraction
- Optimal Strategy ∞ Trade splitting for arbitrageurs
- Targeted Blockchains ∞ Fast-finality Ethereum rollups (Arbitrum, Base, Optimism, Unichain, ZKsync)
- Key Event ∞ Dencun upgrade (March 2024)
- Observed Behavior ∞ High revert rates (10-20% post-Dencun), underutilization of Priority Fee Auctions, clustering of reverted transactions at block start
- Primary MEV Activity ∞ Arbitrage on USDC-WETH pools (Uniswap v3/v4)
- Authors ∞ Krzysztof M. Gogol, Manvir Schneider, Claudio J. Tessone
Outlook
This research opens critical avenues for future blockchain architecture and mechanism design. The findings suggest an immediate need for new economic mechanisms that internalize the externalities of spam, potentially through more robust transaction ordering protocols or revert protection mechanisms. In the next 3-5 years, this theory could unlock the development of rollup sequencers that prioritize fairness and efficiency over raw latency, potentially leading to more stable and predictable on-chain environments. Furthermore, it highlights the importance of re-evaluating the role and design of priority fees in high-throughput, low-latency blockchain systems, potentially inspiring novel approaches to transaction prioritization that are resilient to spam-based exploitation.