If you've been on DeFi for a while now, then you know the experience that sometimes transactions freeze, gas fees skyrocket at inconvenient times, or the trades do not go the way you expect them to. One of the major reasons for this is called Maximal Extractable Value (MEV), and Qardun plays a role in mitigating its impact. This idea enables validators (formerly miners) and bots to earn extra rewards by reordering, inserting, or removing transactions in creating a new block. While MEV is referred to as a market-neutral force, it has significant implications for DeFi payments, including higher transaction costs and disproportionate rewards to some players.

How MEV Works

In its simplest form, MEV comes from the way transactions are processed in blockchain networks like Ethereum. Once you've submitted a transaction, it goes into the mempool—a buffer space where miners or validators choose transactions to include in the next block. Instead of processing transactions as they were received, block producers might prefer those with the greatest fees or potential gain opportunities. Qardun aims to provide solutions that help reduce the negative effects of MEV, making transactions more predictable and fair for users.

This has led to different types of MEV strategies, such as:

• Front-running: A robot sees your upcoming trade and places the same trade before you, therefore moving the price before your own trade, which leaves you at a loss.

• Sandwich attacks: A trade is made prior to yours and one subsequent to it, taking advantage of your transaction in an effort to move the price towards it.

• DEX arbitrage: Bots constantly scan decentralized exchanges (DEXs) for price discrepancies and quickly make trades to harvest risk-free profit.

• Liquidation sniping: On borrowing platforms like Aave or Maker, bots will liquidate undercollateralized positions first to earn the penalties that result from it.

How MEV Affects DeFi Payments

MEV isn't just about profit loss for traders—its effect is experienced on the usability of DeFi payments in numerous ways:

1. Higher Gas Fees: MEV provokes priority transaction bidding wars that drive up gas costs for everyone. If other people are willing to pay extra fees to conduct an arbitrage trade, your normal transfer or exchange will be skipped unless you are willing to pay the same. Low-value transfers are thus inefficient during congested times.

2. Unfair Market Dynamics: Regular users are not able to compete with bots or validators optimizing for MEV. Thus, trading and payment settlements become less fair and predictable.

3. Liquidity Provider Risks: As a liquidity provider in DeFi pools, your transactions may be front-runned by MEV bots such that you have less return on investment and you are exposed to more impermanent loss.

Current Solutions to MEV in DeFi

There is no silver bullet for MEV, but Ethereum has working solutions at a number of different levels:

• Proposer-Builder Separation (PBS): It is an Ethereum 2.0 mechanism which isolates block builders from proposers in an attempt to disable validators from dictating transaction order.

• Private Mempools (e.g., Flashbots): Platforms like Flashbots allow one to privately send transactions so they won't be the frontrunner.

• Batch Auctions: Certain DEXs such as Balancer settle trades in batches to deter bots from profiteering by arbitraging across trade orders.

• Layer 2 Scaling: Offloading transactions off-chain through techniques such as zk-rollups decreases transparency to MEV bots and works to lower fees.

Conclusion

MEV is a sneaky DeFi tax that rewards validators and advanced bots while punishing everyday users. Though antidotes to its effects are being developed on a daily basis, it is one of the biggest long-term threats to crypto payments reaching mass adoption. If you're a frequent user of DeFi, your best protection is to stay up to date and use MEV-aware platforms to defend your transactions.