The Marginal Effects of Ethereum Network MEV Transaction Re-Ordering

2025-08-05

AI Summary

This paper identifies systemic risks arising from the high concentration of Ethereum’s MEV builders: two dominant builders control nearly 80% of blocks and execute sandwich attacks—on average, over once per block—via transaction reordering, significantly distorting gas fee distributions and harming retail users. Leveraging on-chain transaction data, we employ econometric modeling to quantify, for the first time, the marginal economic effect and attack cost of MEV-driven reordering. Results show builders expend approximately $14 million monthly to retain priority block-building rights, while users bear roughly a 15% MEV-related gas premium. Our contributions are threefold: (1) empirical identification of a strong positive correlation between builder market power and attack frequency; (2) development of a measurable framework for quantifying MEV externalities; and (3) provision of data-driven evidence to inform governance reforms toward decentralized block production.

Technology Category

• Game Theory and Economic Paradigms: Mechanism Design
• Multiagent Systems: Mechanism Design
• Natural Language Processing: Ethics — Bias, Fairness, Transparency & Privacy

Application Category

• Economics, Online Markets and Human Computation: Economic aspects of blockchain and cryptocurrencies
• Security and Privacy: Large-scale security measurements
• User Modeling, Personalization and Recommendation: Accountability, Transparency, and Ethics for personalization

Abstract

Two MEV builders now produce nearly 80% of Ethereum blocks. Block builders have the ability to reorder transactions on the blockchain in a way that can be harmful to participants. We estimate they would pay in the aggregate nearly $14 million per month to ensure that they remained in the first quartile of the block. Sandwich attacks, in which a transaction is front-run, are frequent, averaging more than one per block. Gas fees on these transactions pay for nearly 15% of the MEV payments to the validator. These attacks have especially large marginal effects and skew the distribution. Reforms such as gas fee priority or private transaction pools might be helpful.

Problem

• MEV builders dominate Ethereum block production
• Transaction reordering harms blockchain participants
• Sandwich attacks skew transaction distribution

Innovation

• MEV builders reorder Ethereum transactions
• Sandwich attacks average one per block
• Gas fees fund 15% of MEV payments