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MEV Sharing with Dynamic Extraction Rates

Author

Listed:
  • Pedro Braga
  • Georgios Chionas
  • Piotr Krysta
  • Stefanos Leonardos
  • Georgios Piliouras
  • Carmine Ventre

Abstract

Maximal Extractable Value (MEV) has emerged as a new frontier in the design of blockchain systems. In this paper, we propose making the MEV extraction rate as part of the protocol design space. Our aim is to leverage this parameter to maintain a healthy balance between block producers (who need to be compensated) and users (who need to feel encouraged to transact). We follow the approach introduced by EIP-1559 and design a similar mechanism to dynamically update the MEV extraction rate with the goal of stabilizing it at a target value. We study the properties of this dynamic mechanism and show that, while convergence to the target can be guaranteed for certain parameters, instability, and even chaos, can occur in other cases. Despite these complexities, under general conditions, the system concentrates in a neighborhood of the target equilibrium implying high long-term performance. Our work establishes, the first to our knowledge, dynamic framework for the integral problem of MEV sharing between extractors and users.

Suggested Citation

  • Pedro Braga & Georgios Chionas & Piotr Krysta & Stefanos Leonardos & Georgios Piliouras & Carmine Ventre, 2024. "MEV Sharing with Dynamic Extraction Rates," Papers 2402.15849, arXiv.org, revised Sep 2024.
    • Handle: RePEc:arx:papers:2402.15849
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    References listed on IDEAS

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    1. Tim Roughgarden, 2020. "Transaction Fee Mechanism Design for the Ethereum Blockchain: An Economic Analysis of EIP-1559," Papers 2012.00854, arXiv.org.
    2. Andrew Ang & Allan Timmermann, 2012. "Regime Changes and Financial Markets," Annual Review of Financial Economics, Annual Reviews, vol. 4(1), pages 313-337, October.
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