Crypto's Invisible Tax: The Rise of Maximal Extractable Value

Maximal Extractable Value (MEV) is an invisible tax on crypto that funds a hidden industry and quietly taxes ordinary users. It allows block producers to profit by controlling transaction order, creating opportunities such as arbitrage, liquidations, and sandwich attacks.

When you trade on-chain, an invisible competition decides the order of transactions in the next block, and whoever controls that order can extract value from yours. MEV is not a bug to be patched away but a permanent feature of public blockchains.

The main forms of MEV range from useful arbitrage to openly predatory sandwich attacks. Arbitrage involves buying on one exchange and selling on another at a higher price, while liquidations involve competing to repay loans and claim collateral at a discount. Sandwich attacks are the most notorious form, where a bot buys the asset before your trade, lets it execute at a worse price, and then sells immediately after.

MEV is often called crypto's invisible tax because users never see it even as they pay for it through worse prices and higher fees. The battle is not to eliminate MEV but to control who captures it and how.