Quantifying MEV On Layer 2 Networks

Paper: arXiv 2309.00629

Authors: Arthur Bagourd, Luca Georges Francois

Abstract

This paper addresses the lack of research on quantifying Maximal Extractable Value (MEV) on Ethereum Layer 2 networks (L2s). Our findings reveal a substantial amount of MEV to be extracted on L2s, particularly on Polygon, with a lower bound of $213 million surpassing previous estimates. We observe that the majority of detected MEV on L2s consists of arbitrage opportunities, as liquidations are rare. These results emphasize the need for continuous monitoring and analysis of MEV on L2s, promoting informed decision-making for network selection and highlighting the associated risks.

Complexity vs Empirical Score

• Math Complexity: 3.0/10
• Empirical Rigor: 7.5/10
• Quadrant: Street Traders — practical and empirical, lighter on theory

Why this score: The paper provides a strong empirical analysis of Maximal Extractable Value (MEV) on Ethereum Layer 2 networks with significant practical findings, notably revealing lower-bound estimates well above prior assumptions. While it relies primarily on data extraction algorithms rather than advanced theoretical mathematics, its empirical methodology and timely focus make it a highly valuable contribution to DeFi research.

Research Flowchart

  flowchart TD
    A[Goal: Quantify MEV on Ethereum Layer 2 Networks] --> B[Input: L2 On-Chain Transaction Data e.g., Polygon]
    B --> C[Analyze Arbitrage & Liquidation Patterns]
    C --> D[Calculate MEV Lower Bounds]
    D --> E[Outcome: $213M+ MEV Detected, Mostly Arbitrage]
    E --> F[Implication: Need L2 MEV Monitoring & Risk Assessment]