Develop an MEV Taxonomy

[CarboClanC]

Defining a taxonomy for MEV is important at this stage of our research, in particular a systematic framework, and consistent language and definitions for the sake of clarity and rigor.
Related FRP: FRP-1

We adopted the following definition for MEV in our blog post:
Miner extractable value (MEV) is a measure devised to study consensus security by modeling the profit a miner (or validator, sequencer, or other privileged protocol actor) can make through their ability to arbitrarily include, exclude, or re-order transactions from the blocks they produce. MEV includes both ‘conventional’ profits from transaction fees and block rewards, and ‘unconventional’ profits from transaction reordering, transaction insertion, and transaction censorship within the block a miner is producing.

A formal definition of Miner Extractable Value in the context of Extractable Value in the soon to be published paper by Daian et. al "Clockwork Finance" is as follows:

Please post your questions you would like to address in our discussion of MEV taxonomy, or your suggested approach in defining MEV taxonomy, as comments under this issue.

[obadiaa]

Thank you @CarboClanC for putting this issue up! Here are questions I'd like to address in our discussion on MEV taxonomy today:

1. MEV is currently used interchangeably to both denote the upper bound (extractable) and the value taken (extracted). How do we better differentiate between the two concepts?

Suggestion: We stop calling value extracted MEV extracted but simply keep to value extracted from transaction prioritisation/ordering?

2. Many individuals read MEV as value extracted by miners which is misleading yet accurate since the upper bound that is MEV is bounded by the rights that miners have on transaction ordering. How do we make it clearer that this value is not exclusively extracted by miners?

3. Should we replace the term MEV with a term that includes validators and other network actors with such rights in other smart-contract blockchains?

4. Can we differentiate different kinds of extracted value?

• Good or bad extracted value? (ie. one that has a clear negative social impact)
• Extracted value that is more desirable than others? (eg. the Uniswap arb value created is desirable in order for the pool to be rebalanced, in that case it is part of a mechanism)
• Is extracted value only coming from meddling with transaction ordering?

[arthurgervais]

I like the taxonomy of sticking with extractable and extracted MEV. Not sure I understand your suggestion @obadiaa.

[srya-b]

In the same direction as @obadiaa can extraction strategies be defined in terms of their external effects? Think of price slippage, liquidation of user funds, some other subversion of protocols (governance? staking?).

The problem with such an approach is that there may be lots of overlap where extraction can actually do several of them at once.

[gakonst]

Summary: I am supportive of extractable/extracted at a high level. Then, identify if it's a trade, an arb, or a liquidation in the single transaction context. Finally, in the multi-transaction context, identify if it's good MEV or bad MEV.

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Re-writing the definitions:

• extractable value: The value which can be extracted in block N as a result of transactions in block N-1 before applying block N's transactions. Finding this means you need to look at the blockchain's state and enumerate all the arb, liquidation etc. opportunities.
• extracted: The value which got extracted in block N, after applying block N's transactions. Finding this means you need to look only at the block's transactions and enumerate all the arb, liquidation etc. opportunities that got taken.

For example, we'd say that a block was 75% extracted if there were 10 ETH worth of arbs, but only 7.5 ETH was arbed. Finding a number for the "extractable value" of a block seems difficult to me, as it is effectively equivalent to writing a searcher that can discover every opportunity given the blockchain's current state (and optionally a list of pending mempool txs).

As for "labelling", the current labels are in terms of the action being done: trade, arb and liquidation @sbaks0820. These labels are quite simplistic, because they only inspect 1 transaction which does 1 or more things (e.g. a tx may be tagged as both a liquidation and an arb).

I can see us generating additional labels over multi-transaction contexts.

• "bad MEV": e.g. sandwich Uniswap trades with large slippage, oracle manipulation triggering a liquidation, censoring L2 disputes, ...
• "good MEV": e.g. arbitrage causing tighter spreads, saving a CDP

Subversion of protocol attacks may matter in the case of a governance vote, where the deadline to reach quorum is in T and the miner is bribed to censor all transactions voting towards the quorum for T+1. Observing censorship-related MEV generation seems hard to me. Maybe we could call that dark MEV, in the sense that the miner makes money but nobody can detect it since a censored transaction is indistinguishable from a normal pending transaction or one that was dropped due to network conditions? cc @pdaian

@obadiaa I do not think we should exchange the MEV term for more granular terms. Insertion and ordering-related MEV looks the same on-chain, and as I wrote above we wouldn't be able to meaningfully detect censorship-related MEV.

[tomhschmidt]

I like the distinguishing between extracted and extractable. Not to bikeshed too much, but maybe worth picking a different word for either so we don't have ambiguity when using "MEV"?

One thing I've been wondering about it is like x-block re-ordering or censoring (e.g. instead of just re-ordering your liquidation so mine lands first, I simply leave it sitting the mempool for another block) as well as L2 extraction (e.g. if you're on a zk-rollup AMM and your proof generator sandwiches you)

[epheph]

The mev-inspect system has not yet implemented a distinction between "good" and "bad MEV. After working with the mev-inspect data, it also seems like there is another bucket of data i'm not sure what to call:

• ExtractABLE - The theoretical maximum available to extract in a single block
• ExtractED - How much the miner ACTUALLY extracted (mostly, this is 0 at the moment)
• ??? - How much the various bots and other users were able to walk away with, due to the miner allowing them to do so

Because this ??? term is not the delta between extractable and extracted. We are outsourcing the searching for extractable to bots and assuming they are perfect at what they do.

And while we're bike-shedding: it is kind of unfortunate to distinguish subtly different concepts via a suffix to "extract". It has already confused conversion in discord.

[lsankar4033]

2. Should we replace the term MEV with a term that includes validators and other network actors with such rights in other smart-contract blockchains?

The meme of 'MEV' in my head mostly corresponds to single-block extractions (and I wonder if that's true of others who haven't generalized to multi-block), in which case 'mempool' extractable value could be a consideration.

Obviously doesn't cover multi-block, re-org oriented extractions as phil pointed out.