IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2403.19077.html
   My bibliography  Save this paper

Blockchains, MEV and the knapsack problem: a primer

Author

Listed:
  • Vijay Mohan
  • Peyman Khezr

Abstract

In this paper, we take a close look at a problem labeled maximal extractable value (MEV), which arises in a blockchain due to the ability of a block producer to manipulate the order of transactions within a block. Indeed, blockchains such as Ethereum have spent considerable resources addressing this issue and have redesigned the block production process to account for MEV. This paper provides an overview of the MEV problem and tracks how Ethereum has adapted to its presence. A vital aspect of the block building exercise is that it is a variant of the knapsack problem. Consequently, this paper highlights the role of designing auctions to fill a knapsack--or knapsack auctions--in alleviating the MEV problem. Overall, this paper presents a survey of the main issues and an accessible primer for researchers and students wishing to explore the economics of block building and MEV further.

Suggested Citation

  • Vijay Mohan & Peyman Khezr, 2024. "Blockchains, MEV and the knapsack problem: a primer," Papers 2403.19077, arXiv.org.
  • Handle: RePEc:arx:papers:2403.19077
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2403.19077
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mark Armstrong, 2006. "Competition in two‐sided markets," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 668-691, September.
    2. Stanisław Gawiejnowicz & Nir Halman & Hans Kellerer, 2023. "Knapsack problems with position-dependent item weights or profits," Annals of Operations Research, Springer, vol. 326(1), pages 137-156, July.
    3. Benjamin Edelman & Michael Ostrovsky & Michael Schwarz, 2007. "Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth of Keywords," American Economic Review, American Economic Association, vol. 97(1), pages 242-259, March.
    4. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, June.
    5. George B. Dantzig, 1957. "Discrete-Variable Extremum Problems," Operations Research, INFORMS, vol. 5(2), pages 266-288, April.
    6. Mu'alem, Ahuva & Nisan, Noam, 2008. "Truthful approximation mechanisms for restricted combinatorial auctions," Games and Economic Behavior, Elsevier, vol. 64(2), pages 612-631, November.
    7. Vijay Mohan, 2022. "Automated market makers and decentralized exchanges: a DeFi primer," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-48, December.
    8. repec:cup:cbooks:9781316779309 is not listed on IDEAS
    9. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    10. Roughgarden,Tim, 2016. "Twenty Lectures on Algorithmic Game Theory," Cambridge Books, Cambridge University Press, number 9781316624791.
    11. Roughgarden,Tim, 2016. "Twenty Lectures on Algorithmic Game Theory," Cambridge Books, Cambridge University Press, number 9781107172661.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Peyman Khezr & Vijay Mohan & Lionel Page, 2024. "Strategic Bidding in Knapsack Auctions," Papers 2403.07928, arXiv.org, revised Apr 2024.
    2. Scott Duke Kominers & Alexander Teytelboym & Vincent P Crawford, 2017. "An invitation to market design," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 33(4), pages 541-571.
    3. Alexander Matros, 2006. "Optimal Mechanisms for an Auction Mediator," Working Paper 202, Department of Economics, University of Pittsburgh, revised Jan 2006.
    4. Alexander Matros & Andriy Zapechelnyuk, 2008. "Optimal fees in internet auctions," Review of Economic Design, Springer;Society for Economic Design, vol. 12(3), pages 155-163, September.
    5. Jonathan Levin, 2011. "The Economics of Internet Markets," Discussion Papers 10-018, Stanford Institute for Economic Policy Research.
    6. Heidrun Hoppe & Benny Moldovanu & Emre Ozdenoren, 2011. "Coarse matching with incomplete information," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 47(1), pages 75-104, May.
    7. Tim Roughgarden, 2018. "Complexity Theory, Game Theory, and Economics: The Barbados Lectures," Papers 1801.00734, arXiv.org, revised Feb 2020.
    8. Matros, Alexander & Zapechelnyuk, Andriy, 2011. "Optimal mechanisms for an auction mediator," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 426-431, July.
    9. Jullien, Bruno & Pavan, Alessandro & Rysman, Marc, 2021. "Two-sided Markets, Pricing, and Network Effects," TSE Working Papers 21-1238, Toulouse School of Economics (TSE).
    10. Shunta Akiyama & Mitsuaki Obara & Yasushi Kawase, 2022. "Optimal design of lottery with cumulative prospect theory," Papers 2209.00822, arXiv.org.
    11. Chaturvedi, Rakesh, 2020. "Fairness and partial coercion in land assembly," Games and Economic Behavior, Elsevier, vol. 120(C), pages 325-335.
    12. Pollock, Rufus, 2008. "Is Google the next Microsoft? Competition, Welfare and Regulation in Internet Search," MPRA Paper 8885, University Library of Munich, Germany.
    13. Quitz'e Valenzuela-Stookey, 2020. "Platform-Mediated Competition," Papers 2011.03879, arXiv.org.
    14. Tim Roughgarden & Inbal Talgam-Cohen, 2018. "Approximately Optimal Mechanism Design," Papers 1812.11896, arXiv.org, revised Aug 2020.
    15. Mu'alem, Ahuva & Schapira, Michael, 2018. "Setting lower bounds on truthfulness," Games and Economic Behavior, Elsevier, vol. 110(C), pages 174-193.
    16. Zemin (Zachary) Zhong, 2023. "Platform Search Design: The Roles of Precision and Price," Marketing Science, INFORMS, vol. 42(2), pages 293-313, March.
    17. Krzysztof R. Apt & Jan Heering, 2022. "Characterization of incentive compatible single-parameter mechanisms revisited," The Journal of Mechanism and Institution Design, Society for the Promotion of Mechanism and Institution Design, University of York, vol. 7(1), pages 113-129, December.
    18. Benjamin Heymann & Alejandro Jofr'e, 2019. "Optimal auctions for networked markets with externalities," Papers 1907.10080, arXiv.org.
    19. Tom Johnston & Michael Savery & Alex Scott & Bassel Tarbush, 2023. "Game Connectivity and Adaptive Dynamics," Papers 2309.10609, arXiv.org, revised Oct 2024.
    20. Nagler Matthew G., 2007. "Understanding the Internet's Relevance to Media Ownership Policy: A Model of Too Many Choices," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-28, June.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2403.19077. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.