ETH merge One Year Later: Evolution of the MEV Landscape

In the year following the ETH merge, the market share of MEV-Boost has remained around 90%. The complexity of MEV has now become very high, with non-user roles including Searcher, Builder, Relayer, Validator, and Proposer, among others. These roles engage in intricate games within a 12-second block time, each pursuing maximum profit.

This article will compare the changes in profit margins before and after MEV, outline the lifecycle of MEV after the merge, and share personal views on related frontier issues.

In the previous study "Interpretation of the UniswapX Protocol", the author summarized the operational process and profit sources of UniswapX, hoping to fully describe the specific yield of MEV. After all, this is essentially the source that UniswapX combats and shares with users (, which sacrifices transaction real-time for better exchange rates ).

Therefore, I recently conducted a detailed analysis of several types of MEV and compared multiple sources of data profits to calculate the MEV profit situation before and after the ETH merge.

1. MEV profits significantly declined after the merge

• The average profit calculated based on MEV-Explore data for the year before the merge was 22MU/M( from September 2021 to September 2022 before the merge, including arbitrage and liquidation models).
• One year after the merge, the average profit calculated based on Eigenphi data is 8.3MU/M( from December 2022 to the end of September 2023, including arbitrage and sandwich patterns ).

Final yield change conclusion:

According to the above data statistics, after excluding hacker incidents that should not be attributed to MEV, the overall return rate comparison decreased significantly, reaching 62%.

It is important to note that the statistics from MEV-Explore do not include data on sandwich attacks, but do include liquidation profits. Therefore, if you only look at pure arbitrage comparisons, the decline may be even larger.

Additional explanation: Due to differences in statistical methods across platforms ( and not including arbitrage from centralized exchanges as well as mixed models ), this can only serve as a macro verification, not an absolute precision. Additionally, research reports have also compared the returns before and after the merge using different data sources.

So, did the merge cause the on-chain MEV revenue to plummet? This needs to be analyzed from the perspective of the MEV process before and after the merge.

2. Traditional MEV Model

The term MEV can be misleading, leading people to mistakenly believe that miners are extracting this portion of value. In fact, the MEV on Ethereum is primarily captured by DeFi traders through various structural arbitrage trading strategies, while miners only profit indirectly from the transaction fees of these traders.

The core idea of the classic MEV introductory article "Escaping the Dark Forest" is that there are very smart hackers on-chain constantly digging for contract vulnerabilities, but after discovering these vulnerabilities, they fall into another paradox: how to profit without being outpaced by others.

After all, once a hacker's transaction signature is sent, it will enter the Ethereum memory pool and be publicly disseminated, and then miners will sort and create blocks. This process may take only 3 seconds or a few minutes. However, in this short span of a few seconds, the content of the signed transaction may be targeted and re-simulated by countless hunters.

If hackers take the approach of directly executing profits, they will be outbid by hunters at high prices.

If hackers are smart enough, they might adopt a contract-on-contract method (, similar to the article's author, to hide the logic of the final profit transaction through internal transactions ). However, the outcome may not be as successful as in "Escaping the Dark Forest," but instead they could still be outpaced.

This means that hunters not only analyze the parent transactions of on-chain trades but also analyze every child transaction and conduct profit simulation deductions. They even further examined the deployment logic of the gateway contract and reproduced it, which was surprisingly completed automatically within seconds.

The so-called dark forest is far more than this

During previous tests of BSC nodes, I found that a large number of free nodes only accept P2P connections but do not actively relay transaction pool data. From the exposed IP addresses of the nodes, it can even be inferred that these nodes surround the main core block-producing nodes of BSC.

Motivated by this, these nodes occupy P2P connections but do not provide data, only facilitating communication among whitelisted nodes, thus leveraging resource scale to enhance MEV profit margins. Since the BSC standard is one block every 3 seconds, ordinary players see transaction information later, making it increasingly difficult to develop suitable MEV schemes. Moreover, when ordinary players initiate MEV transactions that need to be packaged, due to the BSC's super node model, the latency will be lower than the top MEV players surrounded by BSC based on their geographical location.

In addition to being surrounded by supernodes, the exchange servers will also be surrounded, as the spread between centralized exchanges and decentralized exchanges is even greater, to the point that the exchange itself is the largest arbitrage bot. This is very similar to the early Web2 ticket snatching and purchasing scenarios, where the black and gray industries would ambush near the servers in advance and use DoS attacks to curb normal activities of ordinary users.

In summary, although traditional trading also has a lot of hidden competition in the dark forest, it is relatively a clear profit model. This was evident after the ETH merge, where the complex system architecture quickly broke the traditional MEV model, and the head effect became increasingly significant.

3. MEV Model After the Merge

The ETH merge refers to the upgrade of its consensus mechanism from PoW to PoS. The final merge plan is based on the lightweight reuse of the infrastructure of Ethereum before the merge, while separately detaching the consensus module for block decision-making.

For PoS, each block occurs every 12 seconds, instead of the previous fluctuating values. The block mining reward has decreased by about 90%, from 2 ETH to 0.22 ETH.

This is very important for MEV, mainly for the following two points:

1. Ethereum block intervals have become stable. It is no longer the previously relatively discrete and random situation of 3-30 seconds. This presents both advantages and disadvantages for MEV: Searchers no longer need to rush to send transactions that show slight profits; instead, they can continuously accumulate a better transaction sequence and submit it to validators before the block is produced. However, this also intensifies competition among Searchers.

2. The reduction in miner incentives encourages validators to be more willing to accept MEV transaction auctions, allowing MEV to reach a market share of 90% in just 2-3 months.

3.1 The lifecycle of transactions after the merge

After the merge, it will involve roles such as Searcher, Builder, Relay, Proposer, and Validator, where the latter two belong to the system roles in PoS, while the first three belong to MEV-boost, achieving the separation of block responsibilities and block ordering.

• Searcher: A seeker who looks for profitable transactions in the memory pool and delivers a local sequence Bundle composed of orchestrated transaction sequences to the Builder.
• Builder: Collects various Bundle transaction sequences sent by Searchers, selects more profitable transaction sequences, which can be a combination of multiple bundles or can be rebuilt by themselves.
• Relay: A relay is a neutral facility responsible for verifying the validity of the transaction sequence itself and recalculating the profits, providing several block sequence packages, which are ultimately selected for packaging by the validators.
• Proposers and Validators: are the "miners" of Ethereum after the merge, who will select the maximum profit transaction sequence combination provided by the Relay to complete the block production work, and can obtain consensus rewards ( block rewards ), as well as execution rewards ( MEV+Tips ).

Considering these roles, the current lifecycle of each block is:

1. Builders create a block by receiving transactions from users, searchers, or other private or public ( order flows.
2. The builder submits the block to the relay ) which has multiple builders (.
3. Relay the validity of the verification block and calculate the amount it should pay to the block producer.
4. The relay sends the transaction sequence package and the revenue price ) to the block producer of the current time slot, which is the auction bid (.
5. The block proposer evaluates all received bids and selects the sequence package that maximizes their own profit.
6. The block producer sends this signed header back to the relay ) to complete this round of auction (.
7. After the block is published, the rewards will be distributed to builders and proposers through the transactions in the block and the block reward.

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4. Summary

) What is the ecological impact of the merge on MEV?

This article organizes the comparison of profit data before and after the merge, as well as the MEV mining process for on-chain transactions before and after the merge. It can be said that the rise of MEV-Boost fundamentally reshapes the model of the transaction lifecycle, breaking it down into more refined segments that create competition among various participants. If searchers cannot study the latest strategies well, they will gain no profit; if they do well, they can gradually expand their profits and become builders.

Apart from the shrinking on-chain trading volume, there is a high level of internal competition between Searchers and Builders, as they can replace each other structurally in the system, but ultimately, order flow reigns supreme. Searchers hope to gradually expand their profit margins, which requires their private order volume to be sufficiently large ### so that the profits from the blocks they ultimately build are high enough ), thus gradually becoming the role of Builders.

Although MEV is not a problem that the ETH merge itself aims to solve, the improvement of system game theory combined with various environmental factors has ultimately led to a decrease in the overall profitability of MEV. This does not mean that the amount involved in MEV has decreased, but rather that a lower profit margin means more revenue is flowing to the validators. For users, this is actually a good thing, as the reduction in profit margins will decrease some of the motivations for on-chain transaction attacks.

( 2) What are the most cutting-edge exploration points currently surrounding MEV?

• Starting from privacy transactions: there are threshold encryption, delayed encryption, and SGX encryption, which are basically based on encrypting transaction information and imposing requirements on decryption conditions, which may include time locks, multi-signatures, or trusted hardware models.
• Starting from fair trading: there are Fair Sequencing Service (FSS), Order Flow Auction (MEV Auction), MEV-Share, MEV-Blocker, etc. The difference lies in the spectrum from completely no profit to profit sharing to profit balancing, meaning that users decide what cost to incur to achieve relative fairness in trading.
• The protocol-level improvement of PBS, currently PBS is actually a proposal from the Ethereum Foundation, but its implementation has been separated through MEV-boost. In the future, such core mechanisms will be transformed into Ethereum's own protocol mechanisms.

3) Does Ethereum have resistance against OFAC scrutiny?

As the cryptocurrency industry matures, regulation is inevitable. All entities registered in the United States and their institutions operating Ethereum PoS validators should comply with OFAC requirements, but the system mechanism of blockchain determines that it will not exist only in the United States; as long as there are other relays that comply with local policies, it can ensure that it can be propagated on-chain at some point.

Even if over 90% of Validators review relay routing transactions through MEV, those anti-censorship transactions can still be on-chain within an hour, so as long as it's not 100%, it equals 0%.

4) Do relays lacking incentives have sustainability?

This currently seems to be an invisible issue. Without profit, the maintenance of complex relay services will ultimately lead to a shift towards strong centralization. Recently, Blocknative also stopped its MEV-boost relay service, and over 90% of Ethereum's future block settlements will be controlled by four companies. The current MEV-Boost relay carries 100% risk with 0% return. Since the relay aggregates transactions reported by various Builders, as a data aggregation hub, it may gradually earn income through systems like MEV-share and MEV Auction, such as directly receiving users' privacy transaction requests.

Map software apps used to be troubled by similar services, as public goods cannot charge a membership fee. However, they still thrived under the pilot model of integrating exposure ranking ads and various ride-hailing services. In short, as long as there is traffic, users, and fairness, there will be no lack of revenue.

How will ERC4337 bundled transactions impact MEV?

Currently, there are over 687,000 accounts abstracting )AA### wallets, and more than 2 million user operations )UserOps(. The overall trend can be considered explosive growth compared to the slow growth of CA wallets in the past. ERC-4337 has a complex operating mechanism, especially since the propagation of transaction signatures does not share Ethereum's memory pool itself. Although it will increase the difficulty of MEV in the early stages, it is unstoppable in the long run.

) 6( Can DeFi catch up with CeFi in the face of the threat of MEV?

Although many solutions currently focus on the experience