Application and Impact of MEV: Taking the Solana Ecosystem as an Example

Recently, meme tokens in the Solana ecosystem have become the market focus. Some tokens that feature misspellings or mimic famous personalities have attracted the enthusiasm of crypto users, with certain tokens even landing on mainstream trading platforms, achieving a market capitalization of over $3 billion. On March 15, a token initiated by a crypto artist surged over 47 times in just 24 hours, with trading volume exceeding $300 million.

However, this wave of enthusiasm has also brought about problems. Users often suffer from sandwich attacks when purchasing meme tokens on decentralized platforms on the Solana chain, resulting in higher buying prices and losses. This type of attack falls under the category of MEV (Maximum Extractable Value). So, what exactly is MEV? What impact does it have on the blockchain ecosystem? How does Solana address the issues arising from MEV?

Definition and Application of MEV

MEV initially referred to Miner Extractable Value, which is the extra profit miners can obtain by reordering transactions within a block. As the concept has expanded, MEV now stands for Maximum Extractable Value and applies to various public chain networks.

MEV can be seen as a "tax" charged to ordinary users by the maintainers of the blockchain network. Although it may seem like a burden, MEV plays an important role in maintaining network development and the stability of the ecological economy.

Common application strategies for MEV include:

1. Atomic arbitrage: Utilizing price differences between different liquidity pools for arbitrage, helping to balance asset prices.

2. Liquidation: In on-chain lending operations, liquidating unhealthy margin positions to maintain protocol stability.

3. Sandwich Attack: Profit by leveraging the price calculation mechanism of AMM to perform buy and sell operations before and after user transactions.

In addition, MEV can also be applied to profitable activities such as front-running the purchase of newly issued tokens and minting NFTs.

Solana's MEV Ecosystem

Solana adopts a PoS consensus mechanism, with its validator nodes primarily located in high-performance data centers. Validators are required to burn 50% of the transaction fees, a mechanism designed to encourage them to process as many transactions as possible during their allocated time slots.

Solana produces a block approximately every 400 milliseconds. Previously, due to its first-come-first-served transaction processing mechanism, MEV operations primarily relied on low latency rather than high fees. However, this approach demands a high requirement and is costly.

To address the MEV issue, Solana has adopted the following strategies:

1. Priority gas fees: As part of the new upgrade, aimed at reducing spam transactions by creating a new incentive mechanism for transaction prioritization.

2. Jito-Solana: Similar to Flashbot on Solana, it introduces a mempool and block space auction mechanism. Users can submit transaction bundles and bids to validators running Jito-Solana, and the winning transaction bundle will be submitted on-chain.

Currently, Jito-Solana has become the mainstream validation client for Solana, accounting for 66% of the validation node client market share. This indicates that an increasing number of Solana participants are exploring how to leverage MEV for profit.

Correct Understanding of MEV

MEV is not a phenomenon that can be completely eliminated. The focus of research should be on how to leverage MEV to benefit ordinary users and applications within the ecosystem. For example:

• Guide validators to select specific clients through MEV, increasing client diversity.
• Use MEV to protect user and protocol assets.
• Redistribute the profits generated by MEV to benefit the entire network ecosystem.

Despite the controversy surrounding MEV, if it can be utilized reasonably, it can become an important tool for promoting the development of blockchain networks and maintaining ecological stability.