MEV & Priority Gas Auctions
Foundational studies on transaction reordering, PGA bidding dynamics, and the quantification of extractable value
This section reviews the seminal literature establishing Maximal Extractable Value (MEV) as a fundamental property of transparent blockchain mempools and examining how Priority Gas Auctions (PGAs) distort transaction execution.
1. Flash Boys 2.0: Frontrunning, Transaction Reordering, and Consensus Instability
Citation: Philip Daian, Steven Goldfeder, Tyler Kell, Tingwei Li, Yikai Zhao, Iddo Bentov, Lorenz Breidenbach, Ari Juels. IEEE Symposium on Security and Privacy (S&P), 2019.
Read Paper (PDF)
Core Takeaway (TL;DR)
Pending transactions in public mempools create arbitrage opportunities that automated bots exploit through Priority Gas Auctions (PGAs). When extractable value is large enough, it threatens the consensus security of the blockchain itself.
Key Insights & Findings
- Priority Gas Auctions (PGAs): When multiple bots spot the same opportunity, they engage in continuous, high-frequency bidding wars—escalating gas prices in fractions of a second to win top block inclusion.
- Block Positioning as Profit: Proves that transaction ordering within a single block is not neutral; position itself carries substantial monetary value.
- Time-Bandit Attacks: Demonstrates that if MEV rewards exceed standard block subsidies, rational miners/validators are incentivized to reorganize recent blocks (forking history) to steal historical MEV opportunities.
Relevance to Reforge
Establishes that a liquidation transaction cannot be treated as a simple atomic action: who gets included first and where it is ordered relative to competitors is an extractable rent. Reforge removes this rent by settling liquidations in discrete batch rounds.
2. Quantifying Blockchain Extractable Value: How Dark is the Forest?
Citation: Kaihua Qin, Liyi Zhou, Arthur Gervais. IEEE S&P, 2022.
Read Paper (PDF)
Core Takeaway (TL;DR)
Measures over $540.54 million in extracted value across 32 months of Ethereum mainnet data, proving that liquidations represent one of the three primary systemic MEV pillars alongside DEX arbitrage and sandwich attacks.
Key Empirical Metrics
- Total Extracted Profit: $540.54M captured across 11,000+ unique searcher addresses.
- Largest Single Extraction: A single liquidation opportunity yielded $4.1 million in profit.
- Generalized Frontrunning & Transaction Replay: Shows that sophisticated searchers monitor mempools to replay, duplicate, and outbid victim transactions without understanding their internal business logic.
Relevance to Reforge
Provides empirical proof that liquidations are high-value systemic MEV targets. Bidding wars around liquidations are not edge cases—they represent hundreds of millions of dollars in extracted economic rent.
3. Ethereum Official MEV Documentation & Architecture
Source: Ethereum Foundation Developer Documentation.
Read Official Docs
Core Takeaway (TL;DR)
The official architectural specification of the modern MEV supply chain, formalizing the roles of Searchers, Block Builders, Relays, and Proposers (Validators).
The Modern MEV Supply Chain
- Searchers: Run complex algorithms to spot arbitrage, liquidations, and transaction-ordering opportunities.
- Gas Golfing: Searchers optimize contract bytecode and storage layout down to single gas units to minimize overhead and outbid rivals.
- Value Leakage: Confirms that competitive searchers surrender the vast majority of their margins to block proposers via direct builder payments (coinbase transfers).