Understanding the Impact of MEV (Miner Extractable Value) on DeFi

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As we continue to live in a very Decentralised world controlled by the digital space, the financial sector have been finding it's foot recently and one of the ways that has been made possible is through the establishment of Decentralised Finance which we popularly called the DeFi. The world of Decentralised Finance have been able to transform a whole lot of things around in the financial world most especially the way financial services are actually been rendered. It has really been a positive innovation for the financial world.

But even with the lot of advantages that the world of Decentralised Finance offers, it also comes with its own issue and one of it is the recent update about the MEV which is called the Miner Extractable Value. Mev is used to help serve as something called profit miners within the Blockchain space. But in what way have it affect the world of Decentralised Finance? Well, you are actually about to find out in today's post.

First let try to explain what we mean byEV. For so long, the major strength that lies in the Blockchain nature is in the aspect of it been Decentralised and also been transparent. This helps to make transactions to be highly visible and that is the power of MEV. It was innovated to streamline some certain kind of transactions that are carried out. Not only do MEV helps transactions to be visible but also to help to maximise the profit that is gotten from the process of mining. And of course we really need the use case of MEV in the world of DeFi because of some certain issues.

Decentralised finance even though have so much power that lies in the aspect of lending, the aspect of trading and many more and of course this is made possible by the use case of smart contracts. With MEV, it helps to address those complexity involved in trading carried out in Decentralised finance world. But even with the lot of use cases of MEV that it has on the Decentralised Finance, it also has some impact on it which I will talk about below.

When it comes to the impact that MEV have on Decentralised finance, it has both the positive impact and also the negative impact which I will also be talking about below. First in the aspect of the Positive Impact, with MEV, the market efficiency is increased. How this is possible is with the way MEV works, it helps to give access to arbitrage opportunities which can help to stabilise price movements in all of the Decentralised Finance platforms. That is not all, it also helps to make sure that there is high network security achieved whereby miners can get more profit from mining apart from the usual lending and staking aspect.

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In as much as the positive impact sounds so good right? But it also have it's own negative impacts which I will like to talk about. The negative impact is in the aspect of User exploitation. This has been a common challenges associated with Mev. Issues like sandwich attacks have become popular and that is due to MEV. This can at the end of the day can influence the profit making and in fact generally result to loss. Most times, when those exploitations happens, it also leads to gas fee to be increased making transactions to be difficult to be carried out also.

I believe even though there are challenges associated to MEV, there are some ways we can deal with those challenges that can help to increase the massive adoption of MEV because whether we like it or not, MEV have a very bright future. The first is we can make use of flashbots. Flashbots works in away whereby it helps to enhance the transparency of MEV extraction and transactions carried out. There can also be something called the Priority Gas Auctions put in place to help reduce the gas fees I talked about earlier.

That is not all, I believe there should also be transactions privacy. There are some transactions details I believe should not be made public because it can affect the efficiency. If that aspect can be handled also and the fact that there should be something called the Fair Sequencing. Overall, I believe if those little solutions I have mentioned can be put in place, it can definitely enhance the performance of MEV and increase the massive adoption of it.

If you will ask me, I will say I am really super optimistic about the future of MEV whether it has challenges or negatives impact right now. I believe it is just a matter of time, it will be dealt with certainly. The future is bright.