Solving the MEV Problem: A Look at Different Chains

Ever feel like you’re getting a raw deal in crypto? You place a trade on a decentralized exchange (DEX), set your slippage, and hit ‘confirm’. But when the dust settles, you’ve paid a slightly worse price than you expected. You shrug it off. Gas fees, network congestion, whatever. But what if it wasn’t random? What if an invisible hand reached into the network, saw your transaction coming, and strategically placed its own trades around yours to profit from your move? That, in a nutshell, is the reality of the multi-billion dollar MEV problem, and it’s one of the most complex and fascinating challenges in the entire blockchain space.

Maximal Extractable Value (or Miner Extractable Value, its original name) refers to the maximum value that can be extracted from block production in excess of the standard block reward and gas fees. It’s profit made by reordering, inserting, or censoring transactions within a block. Think of it as the ultimate insider trading, but it’s all happening in the open, dictated by code and economic incentives. And every major blockchain is scrambling to figure out how to manage it, tame it, or at least democratize it. The approaches are wildly different, reflecting the core philosophies of each ecosystem.

Key Takeaways

• MEV is Unavoidable: The ability to reorder transactions creates an inherent opportunity for profit. The goal isn’t to eliminate MEV, but to mitigate its negative effects on users.
• Ethereum’s Approach (PBS): Ethereum has embraced a market-based solution with Proposer-Builder Separation (PBS), creating a specialized auction system to make MEV extraction more transparent and fair.
• Solana’s Solution (Bundles): Solana, with its high-speed architecture, relies on third-party solutions like Jito Labs, which uses transaction ‘bundles’ to reduce network spam and create an off-chain auction for MEV.
• Cosmos’s Strategy (App-Specific): The Cosmos ecosystem allows individual blockchains (app-chains) to implement custom solutions, such as encrypted mempools and threshold decryption, to prevent front-running at the source.
• The Battle Continues: The search for the perfect MEV solution is an ongoing arms race, driving innovation in transaction ordering, privacy, and blockchain architecture.

What Exactly is the MEV Problem? A Deeper Dive

Before we can compare how chains are fighting this beast, we need to understand what it looks like in the wild. Forget complex code for a second. Imagine you’re at a crowded auction. You’ve decided you’re willing to bid up to $100 for a painting. The auctioneer is about to call your bid. But someone standing right next to the auctioneer sees you raise your hand, quickly outbids you by a dollar, and then immediately offers to sell you the painting for your original max price of $100. They just made a risk-free dollar because they had privileged access. That’s MEV.

In the blockchain world, the ‘mempool’ is this chaotic auction house. It’s a public waiting room where all pending transactions sit before a validator (the auctioneer) picks them up and includes them in the next block. Sophisticated bots, known as ‘searchers’, are constantly watching this mempool for profitable opportunities. They exploit this system in several key ways:

• Front-running: This is the classic example. A searcher bot sees a user is about to make a large purchase of a token on a DEX, which will drive the price up. The bot quickly submits its own buy order with a higher gas fee to get included first. It buys the token cheap, the user’s large purchase goes through and pushes the price up, and then the bot immediately sells its tokens to the user or on the open market for a profit.
• Sandwich Attacks: This is a more vicious form of front-running. The bot places a buy order directly before the user’s transaction (the first slice of bread) and a sell order directly after it (the second slice). The user’s trade is the ‘meat’ in the middle, and the bot profits from the price impact of their trade in both directions. It’s a guaranteed way to give the user the worst possible execution price.
• Back-running: This is less harmful to the user but still a form of MEV. A bot might see a transaction that will create an arbitrage opportunity (e.g., a large trade that unbalances a liquidity pool). It will then place its own transaction immediately after, with a high gas fee, to capture that arbitrage profit before anyone else can.
• Liquidations: In DeFi lending protocols, when a borrower’s collateral value drops below a certain threshold, their position can be liquidated. Searchers race to be the first to trigger this liquidation and claim the associated reward. This is often considered a ‘good’ or ‘benign’ form of MEV, as it helps keep the lending protocols solvent.

The core issue here is that the power to order transactions is incredibly valuable. In a simple system, the validator could just do all this themselves and pocket the profits. But that would lead to massive centralization and instability. So, how do we solve this?

Ethereum’s Approach: Embracing the Chaos with PBS

Ethereum, being the first major smart contract platform, was also the first to feel the full force of the MEV crisis. The public mempool became known as the ‘dark forest’—a treacherous place where any profitable transaction would be instantly spotted and exploited by predatory bots. It was a mess.

The Rise of Flashbots and the First Attempt at Order

The first real breakthrough came from a research and development organization called Flashbots. They didn’t try to eliminate MEV. Instead, they tried to make the process more efficient and less harmful to the network. They created a private communication channel for searchers to send ‘bundles’ of transactions directly to miners (this was pre-Merge). Searchers would say, “Here’s a bundle of transactions. If you include it exactly like this, I’ll give you a big tip.”

This had two immediate benefits:

1. It moved the bidding war off-chain, so instead of spamming the network with high-gas transactions, searchers competed through private bids. This reduced network congestion.
2. It made the process more transparent. Failed bids didn’t cost the searcher anything, encouraging more competition.

This system, eventually formalized through a piece of software called MEV-Boost, became the industry standard. But it was just the beginning.

Proposer-Builder Separation (PBS): Tackling the MEV Problem Head-On

The long-term vision for Ethereum is something called Proposer-Builder Separation (PBS). This is a brilliant concept that formally separates the two key roles in creating a block:

• The Builder: A highly specialized, sophisticated entity that invests massive resources into watching the mempool, running complex algorithms, and assembling the most profitable block possible. They take all the transactions from users and searchers and arrange them perfectly to maximize MEV.
• The Proposer: This is the validator chosen to propose the next block. In the PBS world, their job is much simpler. They don’t have to worry about complex transaction ordering. They just listen for bids from many different builders and accept the most profitable block header offered to them. They don’t even see the contents of the block until after they’ve committed to it, which prevents them from stealing the MEV opportunities for themselves.

By creating a competitive market for ‘blockspace’, Ethereum aims to ensure that the profits from MEV are distributed more fairly and don’t create incentives for validators to centralize or attack the network.

This creates a healthy, competitive auction for the right to build a block. It democratizes access to MEV revenue and reduces the intense computational burden on individual validators, which helps keep the network decentralized. It’s a market-based solution that accepts MEV as a fact of life and tries to channel it into a productive, transparent system.

Solana’s High-Speed Solution: Jito and the StakeNet

If Ethereum’s mempool is a dark forest, Solana’s is a hurricane. With its sub-second block times and massive throughput, the sheer volume and speed of transactions make MEV extraction a totally different beast. Traditional front-running is harder because the time between seeing a transaction and it being included is so small. However, the primary negative effect was network spam.

Searchers would see an opportunity and fire off thousands of transactions at the network, hoping one would land in the right spot. This created massive instability and was a major contributor to several network outages. The solution couldn’t be the same as Ethereum’s.

How Jito Bundles Tame the Mempool Beast

Enter Jito Labs, a project that took inspiration from Flashbots but adapted it for Solana’s unique architecture. Jito introduced its own validator client that allows validators to connect to a third-party block engine. This engine runs an off-chain auction for MEV opportunities every 200 milliseconds.

Here’s how it works:

1. Searchers identify an MEV opportunity.
2. They create a ‘bundle’ of transactions—a list that must be executed sequentially and all at once.
3. They submit this bundle, along with a ‘tip’, to the Jito block engine.
4. The block engine simulates all the submitted bundles and auctions off the top-of-block position to the highest bidder.
5. The winning bundle is sent to the Jito validator to be included in the next block.

This is genius because it contains the chaos. Instead of spamming the main network, the bidding war happens off-chain in a dedicated, high-speed auction. It makes MEV extraction more efficient and dramatically reduces the load on the network, improving stability for everyone.

The Good, The Bad, and The Spam

The Jito model has been incredibly successful, with a huge portion of Solana’s stake weight now running its client. It has undeniably made the network more stable. However, it’s not without its critics. Relying on a third-party, closed-source block engine introduces a potential point of centralization and censorship. While Jito has been a benevolent force so far, the architecture places a lot of trust in a single entity. It’s a trade-off: short-term stability for potential long-term centralization risks.

Cosmos and the App-Chain Thesis: A Different Ballgame

The Cosmos ecosystem takes a completely different philosophical approach. Instead of having one massive, general-purpose blockchain like Ethereum or Solana, Cosmos is a network of many independent, application-specific blockchains (‘app-chains’). Each chain can set its own rules. This means there’s no one-size-fits-all solution to the MEV problem; instead, each app-chain can build a bespoke solution that makes the most sense for its specific use case.

Encrypted Mempools and Threshold Decryption

One of the most powerful tools being developed in the Cosmos ecosystem is the concept of encrypted mempools. Blockchains like Penumbra and projects on Osmosis are pioneering this. The idea is simple but profound: what if no one could see the contents of a transaction until after it was already finalized and included in a block?

Using advanced cryptography (like Threshold Decryption), user transactions are encrypted when they are submitted. Validators agree on an order for these encrypted ‘blobs’ without knowing what’s inside them. Only after the order is set in stone do they collectively decrypt the transactions and execute them. This completely neutralizes traditional front-running and sandwich attacks. You can’t front-run what you can’t see.

Skip Protocol and Block-Space Auctions

For app-chains that still want to allow for certain types of MEV (like arbitrage, which is healthy for DEXs), there are solutions like Skip Protocol. Skip builds an on-chain, app-specific MEV auction marketplace. It allows each chain to decide exactly how it wants to handle MEV. Some might want to return the profits to the users, some to the token holders, and others to the community pool.

This a-la-carte approach is the core strength of Cosmos. It trades the network effects of a single, monolithic chain for the flexibility and sovereignty of custom-built solutions. It’s a bet that for DeFi, preventing MEV at the protocol level is a better approach than managing it via a third-party auction.

Conclusion: The Never-Ending Arms Race

There is no silver bullet for solving the MEV problem. It’s a fundamental property of systems where anyone has the power to order transactions. The battle we’re witnessing is not about elimination, but about mitigation and management. Ethereum is building a sophisticated, open-market auction house. Solana is using a high-speed, off-chain sorting facility to handle its massive flow. Cosmos is letting a thousand flowers bloom, allowing each application to build its own fortress.

Each approach has its own set of trade-offs—between decentralization and efficiency, between fairness and complexity, between privacy and transparency. As users, understanding these dynamics is crucial. The solutions being built today are not just technical patches; they are fundamental pieces of economic and governance infrastructure that will decide what the future of decentralized finance looks like. The MEV arms race is far from over; in fact, it’s just getting started.