Glossary
Blockchain Maximal Extractable Value (MEV)
Toxic Maximal Extractable Value (MEV) Bots
Toxic MEV bots are automated trading algorithms that observe the network pool for profitable transactions and front-run them. They exploit the time delay between a transaction being broadcast and finalized to execute trades that benefit them at the expense of other users.
If a validator colludes with the bot, they can ‘sandwich’ a transaction by inserting their own transaction before and after the target transaction. This causes a in the target transaction’s execution price, allowing the bot to profit at the user’s expense. This has become a significant issue in decentralized finance and has been responsible for over a billion dollars in losses.
Networks that need multiple confirmations to finalize a block are more susceptible to toxic MEV since blocks can be reorganized after they are confirmed. This allows bots to exploit the time delay between block confirmation and finality to execute their trades.
