Paper: arXiv 2309.14201

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.

Complexity vs Empirical Score

  • Math Complexity: 8.5/10
  • Empirical Rigor: 2.0/10
  • Quadrant: Lab Rats — theoretically deep, empirically untested

Why this score: 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.

Research Flowchart

  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