Towards a Theory of Maximal Extractable Value II: Uncertainty

ArXiv ID: 2309.14201 “View on arXiv”

Authors: Unknown

Abstract

Maximal Extractable Value (MEV) is value extractable by temporary monopoly power commonly found in decentralized systems. This extraction stems from a lack of user privacy upon transaction submission and the ability of a monopolist validator to reorder, add, and/or censor transactions. There are two main directions to reduce MEV: reduce the flexibility of the miner to reorder transactions by enforcing ordering rules and/or introduce a competitive market for the right to reorder, add, and/or censor transactions. In this work, we unify these approaches via \emph{“uncertainty principles”}, akin to those found in harmonic analysis and physics. This provides a quantitative trade-off between the freedom to reorder transactions and the complexity of an economic payoff to a user in a decentralized network. This trade off is analogous to the Nyquist-Shannon sampling theorem and demonstrates that sequencing rules in blockchains need to be application specific. Our results suggest that neither so-called fair ordering techniques nor economic mechanisms can individually mitigate MEV for arbitrary payoff functions.

Keywords: Maximal Extractable Value (MEV), Blockchain Sequencing, Uncertainty Principles, Decentralized Finance (DeFi), Transaction Ordering, Cryptocurrencies

Complexity vs Empirical Score

• Math Complexity: 8.5/10
• Empirical Rigor: 2.0/10
• Quadrant: Lab Rats
• Why: The paper introduces abstract mathematical tools like uncertainty principles and discrete harmonic analysis to formalize the trade-offs in MEV, indicating high mathematical complexity. However, it lacks any empirical backtesting or dataset implementation, focusing solely on theoretical proofs and analogies without practical validation.

  flowchart TD
    A["Research Goal<br>Quantify the fundamental trade-off<br>between ordering flexibility and user payoff complexity<br>to mitigate Maximal Extractable Value"] --> B{"Methodology"}
    
    B --> C["Unify Ordering & Economic Approaches<br>via Uncertainty Principles"]
    B --> D["Model Monopolist Validator<br>with Reorder/Censorship Power"]
    
    C --> E
    D --> E
    
    subgraph E ["Computational Process"]
        E1["Define User Privacy<br>as System State Uncertainty"]
        E2["Formulate Trade-off<br>Freedom to Reorder vs<br>Economic Payoff Complexity"]
        E3["Apply Harmonic Analysis<br>Similar to Nyquist-Shannon Theorem"]
    end
    
    E --> F["Key Findings & Outcomes"]
    
    F --> G["MEV Mitigation requires<br>Application-Specific Sequencing Rules"]
    F --> H["Economic mechanisms alone<br>cannot mitigate MEV for arbitrary payoffs"]
    F --> I["Fair ordering techniques alone<br>cannot mitigate MEV for arbitrary payoffs"]
    
    G --> J((End: Unified Theory<br>of MEV via Uncertainty))
    H --> J
    I --> J