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MEV or “maximal extractable value” is a hidden tax on all types of Ethereum transactions. Any time you make a DeFi trade, buy or sell an NFT, or lend tokens to a liquidity pool, opportunistic users known as “searchers” may manipulate your trades, resulting in unfavorable prices, failed transactions, and missed opportunities.

To date, MEV has been responsible for more than $1.3 billion in lost value for Ethereum users.

![1-what-is-mev.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_what_is_mev_050181095d.png)

MEV is a complex phenomenon with multiple different causes. In this article we’ll take a deeper look at what causes MEV, how it affects traders, and how you can protect yourself.

## How Does MEV Work?

MEV is possible because validators are free to order blockchain transactions as they see fit in order to maximize their profits. Proof-of-stake (PoS) blockchains such as Ethereum use parties known as “validators” in order to ensure that the consensus rules of the blockchain are followed by all participants. Validators get randomly selected to add the next block to the blockchain. In this process, they determine what transactions are included in the block, and in what order.

![2-what-is-mev.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/2_what_is_mev_04f9643567.png)

When you submit a transaction on Ethereum, it does not immediately get added to the next block. Instead, it first goes into the “mempool” which is the collection of all pending transactions. Validators then pull transactions from the mempool and add them to the next block when it’s time for it to be built.

Here is where the opportunity to extract value through MEV comes in.

Validators are not required to add transactions to the block in the same order that they were submitted by users, so searchers can pay validators a fee to order transactions in a specific way. For example, they can pay to have their transactions come first if they want to frontrun someone else, or they can pay to have their transactions come right after a specific transaction if they want to perform a backrun — both are types of MEV.

## Understanding MEV Terms

In order to get a solid grasp of how the different types of MEV work, we must first familiarize ourselves with the function of on-chain trading through decentralized exchanges (DEXs) along with some terms.

**Automated Market Makers (AMM)**: Automated Market Makers are trading mechanisms that allow traders to buy and sell assets in real time. Unlike traditional “orderbook” trading, which relies on counterparties for every transaction (you need a seller in order to buy and a buyer in order to sell), AMMs work by maintaining a constant ratio between the prices of two assets. For example, ETH and COW. AMMs use the formula “x*y = k” to determine a fair price based on the ratio between two assets (x and y) in the liquidity pool.

Any time a trade alters this ratio by depleting the supply of one asset and increasing the other, the prices of the assets adjust in order to preserve the established ratio. For instance, if a trader buys COW and sells ETH, the COW price rises, and the ETH price falls. The opposite happens when traders sell COW and buy ETH.

**Slippage Tolerance**: When placing a trade, traders set a “slippage tolerance” for their transactions, which represents the maximum price difference they’re willing to accept for their trade. For example, if ETH is trading at $2,000 and you place an order to buy ETH with a 5% slippage tolerance, you’re willing to buy ETH at up to $2,100. If ETH goes above $2,100, however, your trade will fail, as it’s outside your slippage tolerance.

Some slippage tolerance is always necessary because the prices of crypto assets are constantly fluctuating, so by the time your trade executes, the price may have moved. Setting your slippage tolerance too high, however, leaves room for searchers to exploit your trades.

**Price Impact**: Crypto markets, like all markets, are based on supply and demand. AMMs maintain “liquidity pools” of assets that they use to fill trades. Each trade drains some amount of this liquidity, moving the price of the asset. This price movement is known as “price impact.” The larger the trade, the bigger the price impact.

A trade of $100 ETH will not move the price of ETH very noticeably, since it makes up a tiny fraction of the available liquidity. A trade of $1,000,000 ETH however, will noticeably move the price of ETH.

**Transaction Reordering**: Blockchain transactions do not always enter the block in the order that they were submitted. Searchers can “bribe” the validators responsible for creating the block to get them to arrange transactions in a specific sequence. This transaction reordering is what makes all of MEV possible.

## The Different Types of MEV

Now that we’re familiar with the core concepts at play in MEV attacks, let’s take a look at the different types of MEV.

### Frontrunning

Frontrunning is a particular type of MEV that affects all forms of Ethereum transactions including trades, NFT mints, and more. Users can sometimes receive messages like “your transaction may be frontrun” on decentralized exchanges and it’s important to understand what this means.

![3-what-is-mev.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/3_what_is_mev_fa9d5e5144.png)

Frontrunning occurs when a user makes a transaction but gets “front run” by an MEV bot who makes the same transactions ahead of them.

1.  **Monitoring Pending Transactions**: The first step involves monitoring the blockchain network’s mempool, a holding area for pending transactions. Here, frontrunners, who are often sophisticated bots, scan the mempool to identify transactions that can carry significant value that they want to snatch away or that could influence the price of a particular asset.
2.  **Selecting Profitable Transactions**: The frontrunner will analyze the potential market impact once such a transaction is identified. For instance, if a large buy order for a specific token is detected, the frontrunner knows that this transaction could increase the asset’s price once processed.
3.  **Placing a New Transaction**: The frontrunner will initiate their buy order for the same asset, intending to get their transaction processed before the initially detected transaction. They typically give the validators a higher “tip” to execute their transaction first in the block in comparison to the target transaction.

Frontrunning disrupts the fair operation of blockchain transactions, leading to distorted prices, value drain, and missed opportunities for everyday traders.

Read more about frontrunning in our article: “[What is Frontrunning](/learn/what-is-frontrunning)”

### Backrunning

Backrunning is another form of MEV that affects various Ethereum transactions, including trades, NFT mints, and more. Unlike frontrunning, backrunning takes advantage of transactions after they have been executed.

![4-what-is-mev.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/4_what_is_mev_ebc0972169.png)

Backrunning occurs when a user makes a transaction that gets followed by an MEV bot executing a strategic transaction right after theirs in order to capture a price movement.

1.  **Monitoring Pending Transactions**: Like frontrunning, backrunning attacks begin with searchers monitoring the mempool for profitable opportunities. In particular, they are looking for transactions that cause a large price impact, as the backrunning attack involves capturing the arbitrage opportunity left behind after a large trade.
2.  **Finding a Transaction with a Large Price Impact**: Once a valuable transaction is identified, the searcher analyzes its impact. For instance, if a large sell order for a specific token is detected, the backrunner knows that this transaction could decrease the asset’s price once processed.
3.  **Capturing the Price Impact**: By placing a transaction directly after a previous, large transaction, the MEV bot can capture the price movement that the transaction causes on the AMM. The backrunner makes a transaction correcting this price impact and collecting the arbitrage in the process.

Backrunning is considered the least harmful type of MEV. While it still captures value, it does not do it at the expense of the trader. When done in isolation, it only captures leftover arbitrage after a large transaction moves an asset’s price.

Read more about backrunning in our article: “[What is Backrunning](/learn/what-is-backrunning-mev-attacks-explained)”

### Sandwich Attacks

Sandwich attacks are considered the most dangerous type of MEV as they extract the most value from users. A sandwich attack is a combination of frontrunning and backrunning for maximum profit on the part of the searcher.

![5-what-is-mev.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/5_what_is_mev_f66a58a086.png)

Sandwich attacks occur when a user’s transaction gets trapped, or “sandwiched,” between two hostile transactions — one before and one after. As a result, the original transaction executes at a much higher price than necessary, leading to an inflated price for the original trader and a profit for the searcher placing the two extra trades.

1.  **Monitor Pending Transactions**: Like all other types of MEV, sandwich attacks begin with searchers monitoring the mempool for profitable opportunities. In this case, they’re looking for trades that will create a large price impact which they can frontrun, capturing the value of the asset before the large transaction, and then backrun after the victim transaction, capitalizing on the price impact.
2.  **Perform a Frontrunning Transaction**: When a large trade is identified, the searcher will duplicate it and place their own transaction right before the victim’s — in essence frontrunning. The searcher gauges the size of their transaction to cause just enough price impact to push the asset’s price up to the precise slippage tolerance the victim has set.
3.  **Execute the Victim Transaction**: Since a sandwich attack is a 2-part process, the searcher orders transactions so that the victim’s transaction executes right after the seracher’s frontrunning transaction, but just before their backrunning transaction.
4.  **Execute a Backrunning Transaction**: After the victim transaction executes, its price impact pushes the price of the asset even further (remember it was already raised as a result of the searcher’s frontrunning transaction). Once this takes place, the searcher executes a backrunning transaction, selling the asset and profiting from the arbitrage.

Sandwich attacks are the most common types of swap-related MEV, taking advantage of a user’s slippage tolerance to cause maximum pain for the trader and maximum profit for the searcher.

Read more about sandwich attacks in our article: “[What is a Sandwich Attack](/learn/what-is-a-sandwich-attack-and-how-can-you-protect-yourself)”

### Loss-Versus-Rebalancing (LVR)

Loss-versus-rebalancing (LVR) is a type of MEV that affects liquidity providers (LPs) and accounts for more value loss than all other types of MEV combined.

LVR is different from the swap-based versions of MEV we’ve covered so far. It occurs when liquidity providers lose out on potential profits due to stale prices. Many liquidity providers haven’t even heard of LVR, but it costs them 5–7% of their liquidity, resulting in hundreds of millions lost each year. In fact, when accounting for LVR, many of the largest liquidity pools are not profitable for LPs at all.

![6-what-is-mev.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/6_what_is_mev_39dc2a4798.png)

_(_[_Source: Delphi Digital_](https://members.delphidigital.io/learn/loss-versus-rebalancing-lvr)_)_

LVR is a form of arbitrage that occurs whenever an AMM has an outdated (stale) price in comparison to some other trading venue. Arbitrageurs exploit this price difference by trading from the AMM to the more liquid exchange (usually a centralized exchange like Binance), correcting the arbitrage and extracting value from LPs in the process.

Learn more about LVR in our article: “[What is Loss-Versus-Rebalancing (LVR)?](/learn/what-is-loss-versus-rebalancing-lvr)”

### Other MEV

Since the definition of MEV is broad enough to encompass all validator activities that maximize the profits of a given block, there are many other types of MEV that we haven’t covered here as well.

One such example is “Oracle Extractable Value” (OEV) which occurs whenever data from an oracle (such as pricing information) is outdated and searchers can capitalize on this arbitrage at the expense of regular users.

## An Example of an MEV Attack

Let’s take a look at a sample MEV attack through the example of the most common type of MEV — the sandwich attack. In this example, we’re going to be trading ETH and COW.

![7-what-is-mev.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/7_what_is_mev_d8784b4c5e.png)

**Step 1**: Bessie wants to buy COW using her ETH. She goes to a decentralized exchange (DEX) like Uniswap, and places an order for 4,000 COW. This should cost her around 1 ETH, but due to significant market volatility, Bessie decides to set a 10% slippage tolerance. This means she’s willing to pay up to 1.1 ETH for 4,000 COW.

**Step 2**: Bessie’s trade enters the Ethereum mempool (the pending order queue), and a lurking searcher spots an opportunity. Springing into action, the searcher places a trade just before Bessie’s trade that is large enough to push the COW price up to her slippage tolerance. In this case, the searcher buys 4,000 COW for exactly 1 ETH. As a result of this first trade’s price impact, Bessie’s 4,000 COW purchase now costs 1.1 ETH — the maximum she’s willing to pay.

**Step 3**: Once the searcher’s transaction clears, Bessie’s transaction also goes through and she receives her 4,000 COW in exchange for 1.1 ETH. The searcher takes advantage of this price impact and sells his original COW at this new rate — 4,000 COW for 1.1 ETH.

In the end, the searcher buys 4,000 COW for 1 ETH and sells it for 1.1 ETH, earning a profit of 0.1 ETH (before gas and fees) for not much effort.

It’s easy to see how lucrative sandwich attacks are!

Bessie, on the other hand, ends up with a bad deal. She could have purchased 4,000 COW for just 1 ETH, but her slippage tolerance left room for a sandwich attack that forced her to pay an extra 10% for her trade.

## Why is MEV Bad?

MEV is a complex and often controversial topic in the Ethereum community.

Some say that MEV is a natural part of the Ethereum market mechanism and it helps to find the most efficient prices. Others believe that MEV can be harmful, but only if it’s concentrated in the hands of a few validators — therefore they work to “democratize” MEV and allow anyone to extract value from on-chain transactions.

However, MEV makes money for searchers, block builders, and Ethereum validators at the expense of regular users… especially beginners who don’t know how to protect themselves. As of the time of writing, sandwich attacks on AMMs and aggregators alike generate [almost $1 million in profit for searchers each week](https://eigenphi.io/mev/ethereum/sandwich).

![8-what-is-mev.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/8_what_is_mev_26ab0ff9ec.png)

Over time, persistent MEV erodes market confidence as traders realize they are at a constant disadvantage to more sophisticated actors. Ultimately, MEV may pose an existential threat to blockchain ecosystems like Ethereum so it’s imperative for solutions to emerge that protect everyday traders from price exploitation.

## How to Protect Yourself from MEV

There are multiple ways to avoid MEV as a trader. The most comprehensive solutions take place at the dApp level, but not all dApps provide MEV protection so there are more all-encompassing protection methods including RPC endpoints.

### Reduce Slippage

The most basic defense against MEV is setting a low slippage tolerance.

Since MEV relies on slippage for price manipulation, transactions with a lower slippage tolerance give searchers less room to exploit trades.

For users who aren’t utilizing any other MEV protection tools, setting a lower slippage tolerance can be a good first line of defense, however it’s by no means a complete solution. Setting the slippage tolerance too low often results in failed transactions. Even with optimal slippage, MEV bots may still be able to extract value from your trades.

### Use a Custom RPC Endpoint

![9-what-is-mev.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/9_what_is_mev_70787de2c8.png)

A better protection method is to install an MEV protection RPC endpoint.

A Remote Procedure Call (RPC) endpoint is an intermediate layer that routes transactions from a user’s wallet to the blockchain itself. Transactions pass through RPC endpoints before getting to the mempool, so RPCs can provide additional functionality across any blockchain application or protocol.

Normally, RPCs are a boring piece of blockchain infrastructure. Recently, however, specialized RPCs have begun incorporating extra security guarantees for transactions before they reach the blockchain.

One of the most popular specialized RPC endpoints is [MEV Blocker](https://cow.fi/mev-blocker). As the name suggests, MEV Blocker provides protection against MEV across all of Ethereum. The RPC works by managing a permissionless network of searchers and hiding transactions from the public mempool. These searchers cannot frontrun or sandwich user transactions. Instead, they capture value through backrunning. Anytime a searcher backruns a user’s transaction, the searcher keeps up to 10% of the value and sends the other 90% back to the user as a rebate.

Install MEV Blocker here: [https://cow.fi/mev-blocker](https://cow.fi/mev-blocker)

### Use an MEV-Protected DEX

![10-what-is-mev.png](https://celebrated-gift-f83e5c9419.media.strapiapp.com/10_what_is_mev_16deedca85.png)

As MEV has become more prevalent, decentralized applications (especially decentralized exchanges) have begun offering creative protection solutions to users. For example, many DEXs offer an “auto-slippage” feature which determines the optimal slippage for user trades, reducing the chances of price exploitation.

[CoW Swap](https://swap.cow.fi/#/) is a meta DEX aggregator that finds the best prices for trades and provides comprehensive MEV protection. The protocol uses a unique trading mechanism that relies on batch auctions and intents to achieve the best outcomes for users. Thanks to a powerful combination of delegated trade execution, batch auctions, and protected transaction flow through MEV Blocker, CoW Swap users benefit from thorough MEV protection on all trades.

Try CoW Swap here: [https://swap.cow.fi/#/](https://swap.cow.fi/#/)

## Maximal Extractable Value — Ethereum’s Existential Battle

MEV is a critical problem for the Ethereum ecosystem because it undermines the fundamental principles of fairness and transparency that blockchain technology aims to uphold. The ability of sophisticated actors to extract value from everyday traders pushes users away and discourages the broad adoption of decentralized technologies.

Addressing — and eventually solving — MEV is essential to keeping Ethereum a robust, innovative, and user-friendly platform for all participants. To this end, CoW DAO is working hard to secure a decentralized future by creating products that ensure a fair and protective decentralized financial system.

Learn more about CoW DAO, its mission, and its various products here: [https://cow.fi/](https://cow.fi/).

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MEV is a $1.3 billion problem for Ethereum, but what exactly is it?

What is MEV? — Maximal Extractable Value Explained

George Hristov


Maximal extractable value, or MEV, is a pernicious form of price exploitation that is responsible for over $1.3 billion in losses for everyday traders. Most MEV takes place on the Ethereum ecosystem and adversely affects transactions across decentralized exchanges, liquidity pools, NFT marketplaces, and more.

MEV is captured by MEV bots programmed  to seek out and exploit price differences. Since blockchain markets are built to be always-on, there are always arbitrage opportunities on networks like Ethereum. MEV bots exploit beginners and seasoned traders alike, so it’s important to understand how they work and how to avoid them.

## What is MEV?

Before diving into the specifics of how to avoid MEV bots, let’s first make sure we understand MEV conceptually.

Maximal Extractable Value is, as the name suggests, a measure of the maximum amount of value that can be extracted from the contents of a given Ethereum block. Ethereum transactions are not all equally valuable, and validators (the parties responsible for creating the blocks) can pick and choose how to order transactions in blocks to maximize their profits.

This means that transactions are not necessarily executed in the order they are received; instead, they are arranged in a way that maximizes the compensation for validators.

![1-how-to-avoid-mev-bots.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_how_to_avoid_mev_bots_ffb5692931.webp)

_How MEV occurs in an Ethereum block_

Upon order submission, Ethereum transactions get sent to a “mempool” where they wait to be added to a block. In this mempool, MEV bots (also known as “searchers”) can view pending transactions and bribe validators to reorder them, exploiting the little guy and profiting in the process.

## What is an MEV Bot?

An MEV bot is a program designed to monitor decentralized exchanges, NFT marketplaces, lending platforms, and other on-chain venues to spot profit opportunities. There are several distinct types of MEV bots, each targeting different kinds of transactions.

**Trading MEV bots**: The most common type of MEV bots exploit decentralized exchanges that users rely on to swap cryptocurrencies. They specifically take advantage of the mechanisms used by  [automated market makers (AMMs)](/learn/cow-protocol-glossary#:~:text=amm).

When users trade on decentralized exchanges, they set a slippage tolerance to manage the price difference between the time an order is submitted and when it actually executes. Normally, slippage tolerances range from around 0.1% for stable assets like stablecoins, to 1–2% for blue-chip cryptos like Ethereum, and sometimes upwards of 10% for highly volatile cryptocurrencies like memecoins.

![2-how-to-avoid-mev-bots.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/2_how_to_avoid_mev_bots_311ef2c62c.webp)

_How a sandwich attack occurs_

DEX MEV bots exploit the slippage tolerance set by users to manipulate trades through a technique called a “sandwich attack.” In a sandwich attack, MEV bots identify a target trade and execute a frontrunning trade just before it, driving up the asset’s price to the slippage tolerance limit. Once the victim’s transaction goes through and raises the price further, the bots dump the token, keeping the profits for themselves.

**LP MEV bots**: Liquidity providers (LPs) on decentralized exchanges can also fall prey to MEV bots. MEV for LPs is known as “[loss versus rebalancing” or LVR](/learn/what-is-loss-versus-rebalancing-lvr). This value extraction arises from the arbitrage between a given LP pool and a reference rebalancing pool that has more up-to-date pricing.

LVR is a problem on decentralized exchanges because price discovery for assets typically occurs off-chain. Centralized exchanges like Binance generally have more liquidity for tokens so they serve as the most accurate source of truth for up-to-the-minute prices.

MEV bots exploit this arbitrage opportunity by continuously trading against DEX pools, capturing upside for themselves at the expense of the LPs.

**NFT MEV bots**: MEV bots can also hijack NFT mints through a process called “frontrunning.” If an MEV bot detects a transaction in the mempool from a user attempting to purchase a valuable NFT, it can submit an order to buy the NFT for itself that executes before the user’s transaction. This is similar to frontrunning swaps on DEXs but applied to NFT mints instead.

## How to Avoid MEV Bots

While MEV is a pervasive problem across all of Ethereum, there are multiple ways to keep yourself safe.

### Use tight slippage when trading

The simplest way to defend against MEV is by setting a low slippage tolerance.

Since MEV exploits slippage for price manipulation, transactions with a lower slippage tolerance provide searchers with less opportunity to exploit trades.

For users not using any other MEV protection tools, setting a lower slippage tolerance can serve as an initial line of defense. However, it’s not a complete solution. Setting the slippage tolerance too low can often result in failed transactions. Even with optimal slippage, MEV bots may still manage to extract value from your trades.

### Trade on pools with large liquidity

Fundamentally, MEV relies on arbitrage opportunities. One way to reduce exposure to such arbitrage is to restrict your trading only to pools with large liquidity. On these pools, individual trades won’t have much  [price impact](/learn/cow-protocol-glossary#:~:text=Price%20impact), so it will be more difficult for MEV bots to extract value.

This strategy limits much of DeFi, of course, as there are constantly new coins launched, and even popular coins may suffer from low liquidity on certain exchanges or during certain times.

### Install an MEV protection RPC

An increasingly popular type of MEV protection that provides a comprehensive solution to the problem is the use of an MEV blocking RPC like  [MEV Blocker](https://mevblocker.io/).

An RPC (Remote procedure call) is a piece of software that sits between a user wallet and the blockchain, transmitting transactions. Normally, RPCs are a boring piece of blockchain infrastructure. Recently, however, specialized RPCs have begun incorporating extra security guarantees for transactions before they reach the blockchain.

The most popular specialized RPC endpoint is  [MEV Blocker](https://mevblocker.io/). As its name suggests, MEV Blocker provides protection against MEV across the entire Ethereum network. This RPC manages a permissionless network of searchers and conceals transactions from the public mempool. These searchers cannot frontrun or sandwich user transactions; instead, they capture value through backrunning. Whenever a searcher backruns a user’s transaction, they keep up to 10% of the value and return the remaining 90% to the user as a rebate. This means that even when a transaction leaves money on the table, MEV Blocker ensures users get most of that value back.

MEV Blocker protects all types of Ethereum transactions, not just swaps, and is compatible with all Ethereum wallets. You can install the MEV Blocker RPC endpoint by following the instructions  [here](https://mevblocker.io/).

### Use intent-based trading solutions

While RPC endpoints provide protection against MEV across many different types of trades, the most comprehensive solutions take place at the application level.

In recent years, there has been a surge in the popularity of intent-based trading solutions like CoW Swap, with leading exchanges like 1inch and Uniswap launching their own intent-based solutions in 1inch Fusion and Uniswap X. Unlike traditional decentralized exchanges, intent-based trading solutions rely on professional execution parties known as “solvers’’ to execute trades on behalf of users.

Delegating execution to professional third parties helps users get the best prices for their trades, as solvers can determine the optimal liquidity sources to tap into. It also means that the risk of MEV gets taken on by the solver themselves, and users are protected from direct price exploitation.

![3-how-to-avoid-mev-bots.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/3_how_to_avoid_mev_bots_523b1b6663.webp)

_The flow of a transaction on CoW Swap_

### (For LPs) Use an MEV-capturing AMM

Until recently, there wasn’t a great solution to MEV in the form of loss-versus-rebalancing (LVR). LPs basically had to accept that providing liquidity for tokens comes with a tax paid to the MEV bots that constantly rebalance the pools (at the expense of the liquidity providers themselves).

This all changed, however, with the launch of  [CoW AMM](https://cow.fi/cow-amm) — a first-of-its-kind MEV-capturing AMM that redirects profits from pool rebalancing to liquidity providers. CoW AMM works sort of like MEV Blocker in that it makes the MEV bots work FOR users rather than against them. To trade against the liquidity in CoW AMM pools, solvers must bid to provide the most surplus to the pool, thereby giving the majority of LVR profits to the LPs.

## Why MEV bots are bad for Ethereum

As a permissionless, public platform, Ethereum serves as a battleground of opinions on whether MEV is good, bad, or should even be allowed in the first place.

Those sympathetic to the practice argue that MEV is a natural market mechanism that enhances market efficiency and encourages price discovery. While litigating the specifics of the issue is beyond the scope of this article, there are important arguments to be made for why MEV bots are harmful to individual users.

![4-how-to-avoid-mev-bots.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/4_how_to_avoid_mev_bots_c7aafd4451.webp)

_A snapshot of total MEV value extraction_

### Reduce fairness

At its core, value extraction prioritizes sophisticated traders who have the means and know-how to exploit transactions and profit off minute arbitrage opportunities.

Users who may simply be making trades on exchanges or minting NFTs have no way to compete with these value extractors unless they themselves are capable of writing better bots to protect their transactions.

### Disproportionately target beginners

Those new to DeFi are particularly vulnerable to being exploited. The world of decentralized trading is complex for beginners, who may not even understand settings like slippage tolerance, making them easy prey for bots waiting to take advantage of inexperienced traders.

This creates a negative equilibrium for decentralized trading that may drive newcomers away, hurting the ecosystem as a whole.

### Engage in market manipulation

While there are arguments to be made for MEV encouraging market efficiency and price discovery, this is not the case with every type of MEV.

For example, trading MEV bots rely on exploiting slippage tolerances by raising prices up to a threshold and then selling immediately after in a sandwich attack. In this scenario, the AMM does not benefit from price discovery, but instead experiences an artificial pump-and-dump at the expense of a single trader. In traditional markets, such a move could be considered market manipulation as it adds nothing to the market and is designed solely to profit off a market participant.

## CoW DAO: Protecting Ethereum Users from Negative Outcomes

Ultimately, the goal of Ethereum is to serve as a public platform that enables innovation. MEV as a problem emerges from a largely unrestricted marketplace. This benefits innovation by encouraging novel market mechanisms, but it also poses risks to uninformed traders. For this reason, it’s important for users to be aware of the solutions available for protecting themselves.

Regardless of what side of the MEV debate you stand on, most of us agree that we don’t want our trades exploited. To this end, CoW DAO has your back with products that protect you from Ethereum’s dangers and work to ensure positive outcomes.

Install MEV Blocker here:  [www.mevblocker.io](http://www.mevblocker.io/)

LP on CoW AMM:  [https://cow.fi/cow-amm](https://cow.fi/cow-amm)

Swap on CoW Swap:  [www.swap.cow.fi](https://swap.cow.fi/#/swap?utm_source=medium&utm_campaign=protect-from-mev-bots-article)

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The nasty culprits of MEV lurk in every corner of Ethereum… Find out how to keep yourself safe


How to Avoid MEV Bots

Maximal extractable value (MEV) has become a controversial topic in the DeFi community over the last few years as the practice has gained wider adoption. Some blockchain projects take steps to protect their users from suffering MEV, but there are also advocates of the practice who argue that it contributes to market efficiency and validator compensation.

[CoW DAO](https://cow.fi/)  creates products that protect Ethereum users from negative outcomes, so it’s clear that participants in the DAO are no fans of MEV. The technical innovations that MEV searchers have pioneered in the pursuit of maximizing profits, however, are indeed impressive.

Thankfully, this tech can be put to good use in a way that benefits users and still makes money: Rather than being MEV searchers, these users should consider becoming CoW Protocol solvers.

## What is a Searcher?

Searchers are DeFi market participants, most often bots, that monitor pending Ethereum transactions for arbitrage opportunities.

Captured arbitrage is known as  [maximal extractable value (MEV)](/learn/understanding-mev-protection), and it’s a pernicious form of price exploitation that occurs across all types of transactions. To date, MEV has cost traders over $1.5 billion in losses. Most of these losses have been facilitated by searchers who pocket a large portion of the arbitrage for themselves.

## What is a Solver?

![1-switch-from-searcher-to-solver.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_switch_from_searcher_to_solver_7763c26103.webp)

CoW Protocol is a meta DEX aggregator that relies on bonded third parties known as “[solvers](https://docs.cow.fi/cow-protocol/concepts/introduction/solvers)” to execute user trades. The protocol uses an  [intents-based trading system](https://docs.cow.fi/cow-protocol/concepts/introduction/intents)  where user intents get grouped into  [batches](https://docs.cow.fi/cow-protocol/concepts/introduction/batch-auctions). The solver that can execute the orders at the best price wins the right to settle the batch (find out more about how CoW Protocol works  [here](https://docs.cow.fi/category/concepts).)

Solvers are compensated in COW tokens for settling batches, incentivizing them to compete to find better prices and win the right to execute user intents. In return for this compensation, solvers provide users with a number of benefits including:

-   Finding optimal prices for the trades in a batch
-   Protecting users from MEV by executing transactions on their behalf
-   Providing abstraction that allows for benefits like gasless trades, transaction bundles, directly tapping into LPs, and more

## Searchers vs. Solvers

Fundamentally, searchers and solvers optimize for the same thing: maximizing profits. However, they serve different purposes, so their incentives diverge.

Searchers make money by performing MEV attacks on vulnerable transactions — giving users worse prices and keeping the difference for themselves. Searchers are incentivized to maximize their profits while ensuring that they are bidding enough for their transactions to be included in the next block.

In Ethereum, searchers work to out-bid each other to have their transactions included and make money. This is similar to what solvers do on CoW Protocol. The difference, of course, is that  **searchers benefit validators while solvers benefit users.**

## Why Become a Solver?

The fundamental difference between searchers and solvers is that searchers extract value from user transactions while solvers add value to them.

MEV may be a profitable enterprise in the short-term, but it hurts users and makes for a more toxic ecosystem. This turns potential new entrants away, feeding a vicious cycle — after all if there are no users left, who will searchers make money off of?

Solvers are the opposite: they take the same tech but they leverage it for the benefit of users. This cycle is virtuous, rather than toxic. Users achieve better prices, so they’re incentivized to use the product more, which means more order flow and better compensation for solvers.

From a technical standpoint, the methods searchers use to find arbitrage opportunities can be used to instead find solutions to batches. Searchers can leverage their existing nodes, algorithms, servers, AMM-indexed liquidity, simulation services, and more to become a good solver. This means that the lift to turn a searcher into a solver is relatively minor, while the upside is significant.

## Who can be a Solver?

CoW Protocol was the first DEX to implement intent-based trading, a model that the entire DeFi industry is now moving towards. This means that  [opportunities for solvers](https://dune.com/cowprotocol/solver-info)  will only grow in the coming years.

Thanks to a permissionless structure, anyone can become a solver. The main requirement is to put up a bond which serves as a guarantee that the solver will follow the  [rules](https://docs.cow.fi/cow-protocol/reference/core/auctions/competition-rules)  or risk getting slashed.

Solvers that do well find good solutions to the  [batch auction problem](https://docs.cow.fi/cow-protocol/reference/core/auctions/the-problem). They also generally:

-   Develop an efficient optimization algorithm
-   Identify and solve special problem instances that are easy to solve
-   Consider diverse liquidity sources
-   Integrate external market makers

## How to Become a Solver

Transforming a searcher setup into a solver setup or writing a new solver takes some technical expertise. We won’t go into it in this article, but you can find the requirements and specifications for becoming a solver in the  [CoW Protocol solver documentation](https://docs.cow.fi/cow-protocol/tutorials/solvers).

We also answer questions and provide technical support through the CoW Protocol  [Discord](https://discord.gg/cowprotocol).

Happy solving!

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Searchers make Ethereum worse for everyone, but with just a few tweaks they could contribute to the ecosystem instead


MEV Bots: Switch From Searcher to Solver

An MEV blocker is a piece of blockchain infrastructure that protects orders from price exploitation resulting from MEV (Maximal extractable value).

Under the hood, it’s  [RPC endpoints](https://www.quicknode.com/docs/ethereum)  that function as MEV Blockers by routing transactions through specialized mempools which protect them from MEV and even send rebates back to traders when their trades leave money on the table.

There’s a lot of moving parts when it comes to MEV blockers, so let’s break the topic down one step at a time.

## What is MEV?

An MEV blocker is a piece of software that protects user transactions from suffering MEV exploitation… but what is MEV?

MEV (Maximal extractable value) is a hidden tax on all types of Ethereum transactions. Any time you make a large trade, mint a valuable NFT, or even provide liquidity to a liquidity pool, you are at risk of experiencing price exploitation through MEV. To date, MEV has caused over $1 billion in trading losses and continues to increase by the millions each day.

![1-what-does-an-mev-blocker-do.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_what_does_an_mev_blocker_do_80b9b36ca6.webp)

MEV is carried out by traders known as “searchers” who monitor pending Ethereum transactions and  bribe block builders  to order the transactions in a specific order, extracting profit in the process.

Find out more about the specifics of how MEV attacks work in our  [“Understanding MEV” series](/learn/understanding-mev-protection).

## How do MEV Blockers Work?

Since MEV relies on  [reordering transactions](/learn/understanding-mev-protection)  from the order in which they were submitted to a new, more profitable order, it’s possible to cut the process short by sending transactions to a specialized network of searchers bound by unique rules that ensure favorable execution for users.

These searchers cannot frontrun or sandwich transactions. Rather, they capture value by  [backrunning](/learn/what-is-backrunning-mev-attacks-explained)  large orders and sending a large portion of the backrunning profits back to the users as a rebate. So, as a user, you’re not only protecting yourself from harmful price exploitation in the form of frontrunning and sandwich attacks, you also have someone looking out for you any time you leave money on the table.

## What is an RPC endpoint?

We mentioned earlier that under the hood, MEV blockers run through RPC endpoints. An RPC endpoint is a communication layer between the blockchain and a user’s wallet. RPC endpoints relay messages from the wallet that  [RPC nodes](https://www.alchemy.com/overviews/rpc-node)  use to add orders to the blockchain.

RPC endpoints are the perfect place for MEV protection because they are an intermediary layer between the wallet and the blockchain, safely re-routing transactions towards the specialized network of searchers we mentioned earlier, rather than letting them end up in the public  [mempool](https://www.blocknative.com/blog/mempool-intro)  where malicious searchers lie in wait.

## Order Flow Auctions for MEV Blockers

![2-what-does-an-mev-blocker-do.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/2_what_does_an_mev_blocker_do_7de134111f.webp)

MEV Blocker RPCs rely on an emerging blockchain mechanism known as  [order flow auctions](/learn/understanding-order-flow-auctions). Order flow auctions are bidding mechanisms used at various levels of the Ethereum stack which pit multiple execution parties against each other to find the one that can provide users with the best value for their transaction.

Currently, block building incentivizes MEV extraction by awarding the privileges of creating the next block to the builder who can extract the most value from the trades. Order flow auctions invert this dynamic — incentivizing auction participants (in the case of MEV blockers, this is the specialized network of searchers) to instead find as large of a rebate as possible for the user submitting the transaction. The searcher who bids the most to backrun a trade wins the auction, capturing some small value of the proceeds for themselves and sending the rest back to the user as a rebate.

## Should you use an MEV Blocker?

While many people have yet to learn about MEV blockers, they’re quickly being adopted by some of the most savvy traders to protect their trades, NFT swaps, LP positions, and more. MEV is an increasingly significant problem for traders of all sizes and MEV blockers are designed to outsmart the searchers with the latest innovations in market mechanics.

You may have heard that MEV is only a problem for large trades, but as searchers get more and more sophisticated, this is becoming less true. Searchers can also extract value from small trades, especially in volatile markets, and beginner traders are especially susceptible to price exploitation as they may not yet know how to protect themselves.

MEV blockers provide robust protection without many downsides. As a user, you install the MEV blocker through your wallet and forget about it, meanwhile it’s quietly protecting you from price exploitation and even forwarding rebates from any money your trades leave on the table.

## MEVBlocker.io — CoW DAO’s Approach to MEV Blocking

![3-what-does-an-mev-blocker-do.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/3_what_does_an_mev_blocker_do_cc9833e466.webp)

[CoW DAO](https://cow.fi/)  became a first mover in the MEV blocker space when it introduced  [MEV Blocker](https://mevblocker.io/)  (yes, we coined the term) in April of 2023.

MEV Blocker (capital “B”) is an RPC endpoint developed by CoW DAO in collaboration with  [Beaver Build](https://beaverbuild.org/)  and  [Agnostic Relay](https://agnostic-relay.net/)  that’s built to protect Ethereum transactions from frontrunning and sandwich attacks. MEV Blocker sends transactions to a mempool of searchers who bid for the opportunity to backrun the trades, sharing any profits 90/10 with users (90% to users, 10% to searchers.)

To join  [over 600,000 Ethereum users receiving more than 1,000 ETH](https://dune.com/cowprotocol/mev-blocker)  in rebates, add MEV Blocker to your wallet by following the instructions  [here](https://mevblocker.io/).

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MEV blockers have made headlines in the blockchain space, but what are they and how do they work?


What does an MEV Blocker do?

MEV, or maximal extractable value, is a form of price exploitation that acts as a “hidden tax” on Ethereum transactions.

To date, MEV has caused over a billion dollars in losses for everyday traders, especially beginners who often don’t know how to protect themselves.

![1-understanding-mev-protection.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_understanding_mev_protection_5c36d92e50.webp)

In this article we’ll take a look at what MEV is and explore some of the popular protection solutions.

## What is MEV protection?

MEV protection refers to a broad set of strategies that keep users safe from price manipulation when trading, providing liquidity, minting NFTs, and more.

### What exactly are you protecting against?

To understand MEV, we must first understand how Ethereum transactions are processed.

![2-understanding-mev-protection.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/2_understanding_mev_protection_9bb7157306.webp)

When a user places an order, it initially gets submitted to a holding area for pending Ethereum transactions known as the “mempool.” Transactions in the mempool are public, meaning that MEV bots (known as “searchers”) can monitor them for exploitation opportunities. MEV relies on reordering transactions from the order in which they were submitted to a new, more profitable order.

To better understand this process, let’s trace the flow of a sandwich attack — the worst type of MEV.

![3-understanding-mev-protection.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/3_understanding_mev_protection_b1a61b2259.webp)

Essentially, traders place orders on  [AMMs](/learn/cow-protocol-glossary#:~:text=AMM)  by designating a  [slippage tolerance](/learn/cow-protocol-glossary#:~:text=Slippage%20Tolerance). Searchers can exploit these orders by placing similar trades before and after the user trade, manipulating the price of the assets on the AMM and forcing the victim trade to execute at a higher price.

Searchers pocket this difference in price for themselves. Their only cost is the amount of money they spend bribing the Ethereum block builders to order the transactions in a specific way.

To learn more about the different types of MEV, check out our articles on  [sandwich attacks](/learn/what-is-a-sandwich-attack-and-how-can-you-protect-yourself),  [frontrunning](/learn/what-is-frontrunning), and  [backrunning](/learn/what-is-backrunning-mev-attacks-explained).

Now let’s take a look at how you can protect yourself from MEV.

## Slippage tolerance and MEV protection

The most basic defense against MEV is setting a low slippage tolerance.

Since MEV relies on slippage for price manipulation, transactions with a lower slippage tolerance give searchers less room to exploit trades.

For users who aren’t utilizing any other MEV protection tools, setting a lower slippage tolerance can be a good first line of defense, however it’s by no means a complete solution. Setting the slippage tolerance too low often results in failed transactions. Even with optimal slippage, MEV bots may still be able to extract value from your trades.

## RPC endpoint tools for MEV protection

A better protection method is to install an MEV protection RPC endpoint.

A Remote Procedure Call (RPC) endpoint is an intermediate layer that routes transactions from a user’s wallet to the blockchain itself. Transactions pass through RPC endpoints before getting to the mempool, so RPCs can provide additional functionality across any blockchain application or protocol.

Normally, RPCs are a boring piece of blockchain infrastructure. Recently, however, specialized RPCs have begun incorporating extra security guarantees for transactions before they reach the blockchain.

### MEV Blocker

One of the most popular specialized RPC endpoints is  [MEV Blocker](https://mevblocker.io/).

As the name suggests, MEV Blocker provides protection against MEV across all of Ethereum. The RPC works by managing a permissionless network of searchers and hiding transactions from the public mempool. These searchers cannot frontrun or sandwich user transactions. Instead, they capture value through  [backrunning](/learn/what-is-backrunning-mev-attacks-explained).

Anytime a searcher backruns a user’s transaction, the searcher keeps up to 10% of the value and send the other 90% back to the user as a rebate. So even when a transaction leaves money on the table, MEV Blocker puts it back into the pockets of users.

MEV Blocker provides protection for any type of Ethereum transaction (not just swaps), and it works with all Ethereum wallets. Install the MEV Blocker RPC endpoint by following the instructions  [here](https://mevblocker.io/).

## Decentralized applications and MEV protection

While RPC endpoints provide significant MEV protection, the most complete protection comes at the application layer.

As MEV has become more prevalent, decentralized applications (especially decentralized exchanges — DEX’s) have begun offering creative protection solutions to users. For example, many DEXs offer an “auto-slippage” feature which determines the optimal slippage for user trades, reducing the chances of price exploitation.

### Native MEV protection on CoW Protocol

CoW Protocol is a meta DEX aggregator that finds the best prices for trades and provides comprehensive MEV protection. The protocol uses a unique trading mechanism that relies on batch auctions and  [intents](/learn/cow-protocol-glossary#:~:text=Intent%20to%20Trade)  to achieve the best outcomes for users.

![4-understanding-mev-protection.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/4_understanding_mev_protection_cf34f8959e.webp)

Starting at the application level, CoW Protocol provides end-to-end MEV protection through its unique protocol design:

**Delegated Trade Execution**: On CoW Protocol, bonded third parties known as “solvers” execute transactions on behalf of users. Solvers source liquidity across multiple DEX’s and even offchain liquidity sources to find the best prices for any given trade. Solvers also execute transactions on behalf of users, meaning they are never exposed to the blockchain directly.

**Coincidences of Wants**  **(CoWs)**: Thanks to CoW Protocol’s batching mechanism, trades may be matched using peer-to-peer liquidity in a  [Coincidence of Wants (CoW)](/learn/what-are-cows-on-cow-swap). This method of trading bypasses AMMs, reducing fees and preventing MEV.

**Uniform Clearing Prices**: Another benefit of batching is that duplicate trade pairs within a given batch clear for the same price. For example, if multiple users are trading ETH and USDC in the same batch, the assets will execute for the same price across the various trades. This makes transaction reordering useless, removing the opportunity for price exploitation.

Thanks to a powerful combination of delegated trade execution, batch auctions, and protected transaction flow through MEV Blocker, CoW Protocol users benefit from thorough MEV protection on all trades.

## CoW DAO protects you from MEV

MEV is a billion dollar problem for the Ethereum ecosystem. CoW DAO builds products to protect users from negative outcomes for transactions of all types and sizes.

DeFi traders can rely on  [CoW Swap](https://swap.cow.fi/#/swap?utm_source=medium&utm_campaign=understanding-mev-article)  as the most trusted decentralized exchange when it comes to MEV protection. For all other use-cases, including liquidity providing, NFT trading, and more,  [MEV Blocker](https://mevblocker.io/)  provides extensive MEV protection anywhere on Ethereum.

If you want to learn more about MEV, check out “[MEV Transparency: Ensuring Fairness In DeFi Markets](/learn/mev-transparency-ensuring-fairness-in-defi-markets)” and “[How CoW Swap solves the MEV problem](/learn/how-cow-swap-solves-the-mev-problem).”

Safe trading!

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MEV is a billion-dollar problem, but many Ethereum users still don’t know how to protect themselves.


Understanding MEV Protection

_Blockchains enable reliable, trustless transactions on a large scale, however the automated nature of the technology leaves room for price manipulation by bots and malicious actors. In this talk, Olga Fetisova of CoW Protocol takes a look at Maximal Extractable Value (MEV) and its impact on the Ethereum ecosystem._

_The first part of the talk focuses on defining MEV and considering metrics, while the second part covers transparency initiatives, challenges, and solutions._

<iframe width="560" height="315" src="https://www.youtube.com/embed/hbgJYZlSU1k?si=IXHbjvmu9cdhWKC4" title="YouTube video player" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" referrerpolicy="strict-origin-when-cross-origin" allowfullscreen></iframe>

_What follows is a transcript of Olga’s talk:_

## What is MEV?

![1-mev-transparency-a-dappcon-talk.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_mev_transparency_a_dappcon_talk_f6131f7a7a.webp)

Blockchain technology is great at ensuring the validity of all transactions and creating new blocks with no downtime, however not all transactions are ordered in the same manner that they are submitted.

While block producers have full autonomy over selecting which transactions to include in each block, they usually opt to maximize profits by ordering transactions based on the highest gas price. This means that validators may censor or re-order transactions before creating the block. Re-ordering transactions with a profit motive is known as “maximal extractable value” (MEV).

In other words, MEV is the profit extracted by miners or other actors in the blockchain network who insert, remove, and re-order transactions.

According to  [Flashbots](https://www.flashbots.net/), a research and development organization focusing on MEV, over $500 million in MEV has been extracted just since The Merge. This value is only the recorded amount paid out to Ethereum validators; the attackers themselves have earned much more.

As we can see, MEV creates a set of skewed incentives. On certain days, Ethereum validators earn more ETH from extracting MEV than from network fees themselves.

Some MEV activities are indeed legitimate, as the practice makes sure that transactions are ordered in an optimal way. Overall, however, the practice creates unfair advantages for a small minority.

Today we will talk about the most common types of MEV.

**Frontrunning attacks**

Frontrunning is when a bot sees a profitable transaction in a public mempool, duplicates it, and places their own order in front of the victim transaction, extracting its value for themselves.

**Backrunning attacks**

Very similar to frontrunning, but in reverse. In backrunning, the attacker places a transaction after the victim transaction to capitalize on any arbitrage left by the victim’s order.

Frontrunning and backrunning transactions are not very common by themselves, but a combination of the two, known as a “sandwich attack,” accounts for most MEV.

**Sandwich attacks**

Sandwich attacks combine frontrunning and backrunning, placing a buy order before the victim transaction and a sell order directly after. This creates a “sandwich” of the victim transaction.

Let’s take a deeper look into sandwich attacks.

## Sandwich attacks on the blockchain

![2-mev-transparency-a-dappcon-talk.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/2_mev_transparency_a_dappcon_talk_8e1295469d.webp)

A sandwich attack begins after a user places a transaction in the mempool.

During order placement, the user indicates a slippage tolerance. Slippage is the necessary deviation in price that a trader is willing to accept for their transaction. Since the user indicates that they are willing to accept a particular sub-optimal price, MEV bots take this opportunity to exploit the price of the asset and capture the value for themselves.

The bot frontruns the user by placing a transaction directly in front of the victim’s trade. This strategically raises the price of the token by the exact amount necessary to make the victim transaction clear at its maximum slippage tolerance.

After the user’s transaction goes through (at the max slippage), it pushes the price of the asset up even further. The bot places a sell transaction (backrunning) directly after, benefiting from this artificial price arbitrage.

In essence, the bot places a transaction at a low price, rides the user’s slippage and price impact up, and sells at a higher price.

The user loses out, as they have to pay more than they would have otherwise and they receive fewer tokens for their trade. This is not fair.

## MEV Attacks in Practice

We can look at the chain to examine sandwich attacks directly. If we see the same token trading multiple times in one block, this may be an indicator that MEV attacks are occurring.

![3-mev-transparency-a-dappcon-talk.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/3_mev_transparency_a_dappcon_talk_0bf4aae45b.webp)

In a block analyzed by the research organization  [ZeroMEV](https://zeromev.org/block?num=15956603), we can see that the DAI token was traded multiple times, suggesting actions by MEV bots.

The ZeroMEV analysis indicates that this block contains nearly $40 of lost value. The last transaction in the block was a payment to the miner in the form of 0.41 ETH, meaning that the attacker themselves earned an even higher amount.

![4-mev-transparency-a-dappcon-talk.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/4_mev_transparency_a_dappcon_talk_6d599f75e5.webp)

To put this into perspective, the average MEV payout per block is about $100. On certain days of volatile market activity, however, this value can be much higher.

![5-mev-transparency-a-dappcon-talk.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/5_mev_transparency_a_dappcon_talk_f76cf0cd60.webp)

![6-mev-transparency-a-dappcon-talk.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/6_mev_transparency_a_dappcon_talk_aa4faee6ce.webp)

Looking at  [a block from November 2022](https://zeromev.org/block?num=15957277)  around the time of the FTX crash, we can see a completely different set of numbers.

In just one block, a bot caused over $5,000 in user losses and the validator received a kickback of over 3.5 ETH, suggesting, once again, that the gains for the MEV bot were significantly higher.

One notorious MEV searcher is known as “jaredfromsubway.” In a report by  [The Block](https://www.theblock.co/post/230218/jaredfromsubway-mev-bot), this searcher earned $34 million through MEV extraction in just the span of 3 months.

Using  [on-chain data](https://transparency.flashbots.net/), we can break down MEV price exploits by DEX. In the below image, we can see that Uniswap V2 and V3 account for over 90% of all MEV attacks on Ethereum.

![7-mev-transparency-a-dappcon-talk.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/7_mev_transparency_a_dappcon_talk_d48aacf263.webp)

This, of course, is primarily as a result of Uniswap capturing the majority of trading liquidity — the more trades, the more potential MEV.

Thankfully, it’s quite simple to check if you have been MEV attacked. One of the easiest methods is by entering your Ethereum address on  [ZeroMEV’s website](https://zeromev.org/). You can also use a transaction hash or a particular block number.

![8-mev-transparency-a-dappcon-talk.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/8_mev_transparency_a_dappcon_talk_60f3ba93f7.webp)

## Transparency Initiatives

Several organizations specialize in tracking MEV. These include Flashbots, Eigenphi, and ZeroMEV, among others. There are, however, practical ways that you can protect yourself from MEV exploits.

One of the most effective methods involves using a specialized RPC (remote procedure call) endpoint. RPC endpoints send calls to the blockchain for data and stand as an intermediary between your wallet and the blockchain itself.

RPC endpoints can be swapped out by the user depending on their needs. Most wallet applications such as MetaMask make it relatively straightforward to add custom RPC endpoints. Some well-known examples of specialized RPC endpoints include  [MEV Blocker](https://mevblocker.io/),  [MEV-Share](https://docs.flashbots.net/flashbots-protect/mev-share), and  [BackRunMe](https://backrunme.com/).

## MEV Blocker

![9-mev-transparency-a-dappcon-talk.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/9_mev_transparency_a_dappcon_talk_08bc87a2fd.webp)

[MEV Blocker](https://mevblocker.io/)  was developed by CoW DAO and, as the name suggests, it provides MEV protection for users.

When a user submits a transaction using MEV Blocker, rather than sending it to the public Ethereum mempool, the RPC sends the transaction to a specialized private pool. This conceals the transaction from public exposure, protecting it from exploitation by MEV searchers.

As an extra layer of security, MEV Blocker generates fake transactions that prevent probabilistic exploitation by advanced searchers. In addition, MEV Blocker offers rebates on trades by capturing value from potential backrunning opportunities. If a user transaction creates a backrunning opportunity, MEV Blocker guarantees that at least 90% of the backrunning value will be forwarded back to the user in the form of a rebate.

While it’s relatively new, MEV Blocker has already enjoyed a meteoric rise. So far, the RPC endpoint accounts for $16 billion in protected volume and 370 ETH in user savings.

To add MEV Blocker to your wallet, check out the MEV Blocker website:  [https://mevblocker.io/](https://mevblocker.io/)

## Dedicated dApps

While RPC endpoints protect against price exploitation, the most extensive MEV protection comes at the application layer.

One dApp that provides comprehensive MEV protection is  [CoW Swap](https://swap.cow.fi/). CoW Swap is a meta-DEX aggregator that matches orders with the best liquidity available on-chain and protects trades from MEV exploitation.

CoW Swap actually sends all transactions through MEV Blocker by default, but the dApp also uses some extra techniques to combat MEV.

1.  **Delegated Trade Execution**: On CoW Swap, dedicated parties known as “[solvers](https://docs.cow.fi/solvers/solvers)” execute transactions on behalf of the users. This means that users are never directly exposed to the chain, as they only sign an “intent to trade” message which the solvers execute as a blockchain order.
2.  **Coincidence of Wants (CoW)**: CoW Swap enables users to trade off-chain with each other through a peer-to-peer trading mechanism. These trades don’t have to go through the public mempool, so they avoid the dangers lurking there.
3.  **Uniform Clearing Prices**: Transactions on CoW Swap get grouped together into “batches.” Each time a particular asset (such as WETH) trades in a batch, it trades for a constant price. This mechanism obviates the price advantages of reordering transactions, preventing MEV exploits.

These two categories of protection — RPC endpoints and dedicated dApps — are the current ways that we can protect ourselves from MEV attacks. It’s important to remember, however, that MEV is a broader problem that evolves quickly, with bots constantly finding new ways to attack us and steal our precious ETH.

## Conclusion

There are many challenges in combating MEV.

For one, there is a lack of data availability. Centralized exchanges, for example, don’t share their data so it’s difficult to understand the full scale of the MEV problem and come up with a complete solution.

While lots of organizations focus on combating MEV, the issue continues to pose a significant challenge. This also creates opportunities, however, for the community to come together, innovate, and ensure that Ethereum remains the gold standard in the blockchain world.


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A DappCon Talk by Olga Fetisova of CoW DAO


MEV Transparency: Ensuring Fairness In DeFi Markets

## Overview

-   Backrunning is one of the three main types of MEV, but it’s the least harmful as it only involves capturing arbitrage left over after a large trade
-   When a trader places a large trade that artificially inflates the price of an asset on an AMM, an MEV bot can backrun the trade and profit from the arbitrage
-   CoW Swap eliminates backrunning opportunities through its delegated trading mechanism, while MEV Blocker pays out rebates for any backrunning opportunities user trades create when transacting anywhere on Ethereum

![what-is-backrunning-mev-attacks-explained-cover-photo.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/what_is_backrunning_mev_attacks_explained_cover_photo_7573e1bea9.webp)

Backrunning is a specific type of MEV (Maximal Extractable Value) which causes some traders to miss out on potential profit opportunities from their trades.

In practice, backrunning involves strategically executing a transaction immediately after another, high-value transaction. By doing this, the backrunning transaction capitalizes on the arbitrage opportunity left over from the  [price impact](/learn/cow-protocol-glossary#:~:text=Price%20impact) of the initial transaction.

Backrunning involves the tactical use of the information contained within the Ethereum mempool — a holding area for all pending transactions — to place transactions immediately after high-value trades in order to profit.

Out of the three types of MEV ([frontrunning](/learn/what-is-frontrunning),  [sandwich attacks](/learn/what-is-a-sandwich-attack-and-how-can-you-protect-yourself), and backrunning) backrunning is considered the least harmful. In fact, if performed by itself, this method simply captures the arbitrage opportunity left over by a large trade without affecting the initial trade itself. Backrunning is only harmful to the user when combined with a  [frontrunning attack](/learn/what-is-frontrunning), which results in the worst kind of MEV —  [the sandwich attack](/learn/what-is-a-sandwich-attack-and-how-can-you-protect-yourself).

For advanced traders who are capable of capturing the leftover arbitrage from their trades, backrunning may be considered a missed opportunity since it’s technically money left on the table.

Thankfully, not everyone has to be an experienced trader to capture the backrunning profits from their trades. Retail traders can automatically benefit from backrunning opportunities through specialized RPC endpoints such as  [MEV Blocker](https://mevblocker.io/).

## How backrunning works

The most common perpetrators of backrunning are MEV bots programmed to monitor pending Ethereum transactions. These bots place strategic trades directly after existing trades in order to capture the arbitrage left over from their price impact.

The process takes advantage of the mechanisms of  [automated market makers (AMMs)](/learn/cow-protocol-glossary#:~:text=amm). Whenever a large trade goes through, it imbalances the liquidity pools of the AMM, causing the price of the asset being sold to go down, and the price of the asset being bought to go up. This price imbalance leaves an arbitrage that MEV bots correct by placing a follow-up trade, earning a profit in the process.

## Backrunning example

To better understand the concept of backrunning, let’s consider an example scenario. In this example, a user named Alex initiates a substantial trade, selling $10,000 of ETH to buy COW on Uniswap. Due to the nature of AMMs, this swap leads to a jump in the value of COW and a drop in the value of ETH on this particular exchange (Uniswap).

At the same time, an MEV bot notices Alex’s large transaction and springs into action. The MEV bot acquires Alex’s sell token (ETH) at this lower price and immediately turns around and sells it for a higher price on a different exchange where this price arbitrage has not yet been reflected. The bot profits from the price difference between the assets on these two exchanges.

From a technical perspective, Alex’s transaction doesn’t result in any realized loss for him, since he still got the price he was quoted for his trade. However, his trade created an arbitrage opportunity that he didn’t capture, leaving money on the table.

The actions of the MEV bot have broader implications for the DeFi ecosystem. Bots monopolize arbitrage opportunities between exchanges and deny regular users the chance to benefit from the price impact their trades create.

## Related MEV tactics

[**Frontrunning**](/learn/what-is-frontrunning)**:** In a frontrunning attack, an MEV bot spots a profitable transaction, duplicates it, and offers a higher gas fee so that validators execute the duplicate transaction before the original one. In effect, the MEV bot hijacks the profits of the original transaction and keeps them for itself.

[**Sandwich Attacks**](/learn/what-is-a-sandwich-attack-and-how-can-you-protect-yourself)**:**  This tactic combines frontrunning and backrunning. An attacker first executes a frontrunning transaction before a valuable trade, pushing the price of the asset up to the slippage tolerance set by the victim trade. This increases the price of the purchased asset. The victim trade then goes through at this new higher price and its price impact raises the price of the asset even more. Finally, the attacker performs a backrunning attack which captures the newly-created arbitrage, generating a profit in the process.

## How harmful is backrunning?

Backrunning is not as harmful as the other types of MEV attacks since it doesn’t result in traders receiving a worse price for their trades. Rather, it simply means that traders leave money on the table by not capturing the arbitrage opportunities from their large trades.

This opportunity cost primarily affects advanced traders who would otherwise be able to capture this arbitrage for themselves. Everyday traders are usually not sophisticated enough to backrun their own trades, so backrunning does not really result in measurably worse outcomes for them.

However,  [MEV Blocker](https://mevblocker.io/)  can help anyone trading on Ethereum automatically capture any backrunning opportunities that their trades create.

## How CoW Swap protects against backrunning

CoW Swap has developed an innovative set of mechanisms for mitigating harm from all types of MEV, including backrunning. The system relies on  [Order Flow Auctions](/learn/understanding-order-flow-auctions)  that gather and consolidate user orders into a batch before execution. Specialized parties known as “[solvers](https://docs.cow.fi/cow-protocol/tutorials/solvers)’’ compete to find the most optimal execution path and provide the best settlement solution.

The design of CoW Swap helps protect against MEV attacks in several ways:

1.  **Delegated trade execution**: When users submit orders on CoW Swap, they are not directly initiating a blockchain transaction, like they would on Uniswap for example. Instead, users submit orders as signed “[intent to trade](/learn/cow-protocol-glossary#:~:text=Intent%20to%20Trade)” messages which include the details of the intended trade, but don’t actually get submitted to the blockchain. The solvers then find the best execution path for the specified trade and execute the trade on-chain on behalf of the user.
2.  **Uniform clearing prices:**  The batch auction system ensures that each asset in the batch only executes for a single price, even if there are multiple trades using that asset. This negates the price variations inherent to AMMs that result in different prices for trades within the same block due to sequential transaction processing. Uniform clearing prices nullify the strategy of transaction re-ordering, thereby mitigating the impact of MEV.
3.  **Liquidity:**  CoW Swap’s unique solver design executes trades optimally without leaving room for arbitrage opportunities. Thanks to Uniform Clearing Prices, all token pairs traded in the same batch will clear at the same price, leaving liquidity pools balanced with no opportunity for arbitrage.

In addition, CoW Swap leverages off-chain interactions known as “[Coincidences of Wants](/learn/what-are-cows-on-cow-swap)” (CoWs) to swap user assets peer-to-peer, leaving zero room for MEV. Furthermore, the protocol’s Order Flow Auction mechanism ensures that user trades are maximally protected from all types of MEV.

Backrunning is prevalent in the DeFi space, leaving everyday traders with suboptimal outcomes at the expense of searchers & MEV bots. However, innovative solutions like CoW Swap are combating the issue of backrunning and MEV as a whole through innovative Order Flow Auction design.

## MEV Blocker — Profit from backrunning

On  [CoW Swap](https://swap.cow.fi/#/swap?utm_source=medium&utm_campaign=backrunning-article), your orders are protected from all types of MEV, including backrunning, sandwich attacks, and frontrunning.

CoW DAO has taken MEV protection a step further, however, with  [MEV Blocker](https://mevblocker.io/). MEV Blocker is a custom RPC endpoint that you add to your crypto wallet which routes all of your transactions through a trusted network of searchers that scan for backrunning opportunities, but cannot frontrun or sandwich your trades. The best part? The RPC passes the profits from backrunning opportunities back to you in the form of rebates. This means you can make money from any backrunning opportunity you create just by routing your transactions through MEV Blocker.

MEV Blocker works on all types of transactions across all of DeFi. Just  [add the RPC endpoint to your wallet](https://mevblocker.io/#rpc)  and start trading.

While MEV Blocker should be part of every Ethereum user’s arsenal, it’s still optimal to use CoW Swap when doing swaps. CoW Swap is specifically engineered to give traders the best prices and protect against all types of MEV without leaving backrunning opportunities.

Remember: if you’re swapping, use CoW Swap. For everything else, rely on MEV Blocker.

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What is Backrunning? — MEV Attacks Explained


[MEV bots](https://www.blocknative.com/blog/mev-and-creating-a-basic-arbitrage-bot-on-ethereum-mainnet)  monitor pending transactions in the mempool and place their transaction ahead of others, capitalizing on the order of transactions within a block. This approach allows them to gain a significant edge, profiting from traders placing transactions. Frontrunning occurs when an MEV bot monitors the mempool for a trader’s pending transaction. Spotting a potential trade, the bot quickly duplicates the users transaction so that they can be the one to get the tokens or the opportunity that the user detected.

This issue permeates various blockchain ecosystems — from decentralized exchanges to non-fungible token (NFT) marketplaces.

According to recent  [data](https://dune.com/jhackworth/mevmevmev), over 2.7 million MEV transactions have been processed on Uniswap alone. This alarming statistic underscores the widespread and high-stakes nature of MEV exploitation.

## How frontrunning works

Frontrunning takes advantage of the open nature of the blockchain mempool, as anyone can view transactions. MEV Bots exploit this transparency to hijack trades. Here’s a basic rundown of the process:

1.  **Monitoring Pending Transactions:**  The first step involves monitoring the blockchain network’s mempool, a holding area for pending transactions. Here, frontrunners, who are often sophisticated bots, scan the mempool to identify transactions that can carry significant value that they want to snatch away or that could influence the price of a particular asset
2.  **Selecting Profitable Transactions:**  The frontrunner will analyze the potential market impact once such a transaction is identified. For instance, if a large buy order for a specific token is detected, the frontrunner knows that this transaction could increase the asset’s price once processed
3.  **Placing a New Transaction:** The frontrunner will initiate their buy order for the same asset, intending to get their transaction processed before the initially detected transaction. They typically give the validators a higher “tip” to execute their transaction first in the block in comparison to the target transaction

### Frontrunning examples

A notable example of DeFi frontrunning involves the notorious MEV bot named “[jaredfromsubway.eth](https://www.theblock.co/post/230218/jaredfromsubway-mev-bot).” In one case, a user,  [0x3a7822](https://zeromev.org/block?num=17508508), intended to trade 2 ETH for another token, $BOB. This trade was noticed by the bot jaredfromsubway.eth, which continuously monitors the mempool for transactions it could take advantage of.

Once the transaction entered the mempool, Jaredfromsubway.eth quickly executed its own transaction to buy $BOB with ETH, strategically placing it as the first in the block, and knowing that he would get the assets at a discount as the transactions behind will pamp the pricer. MEV allows validators to prioritize transactions that are of the most value to them. Consequently, the bot’s transaction, being the first one in the block, was confirmed ahead of the user’s transaction.

![1-frontrunning.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_frontrunning_6077287d3c.webp)

The frontrunning attack triggered an increase in the price of $BOB tokens due to the additional demand created before the user’s transaction was processed. When the user’s original order of 145M $BOB was executed, it was conducted at this now-inflated price, leading to user 0x3a7822 receiving way fewer $BOB tokens, hence losing out on the value they could have otherwise captured.

Jaredfromsubway.eth completed its MEV attack by  [selling](https://etherscan.io/tx/0xff31ba1a8a61933e0093bc4afba95018929e9e1599fec204a3f503c6b7851cb1)  its $BOB tokens at an increased price, resulting in a profit, a second move that made this MEV attack a  [sandwich attack](/learn/what-is-a-sandwich-attack-and-how-can-you-protect-yourself). In this scenario, the price slippage triggered by the frontrunning bot meant that user 0x3a7822 encountered a worse trade-off, ultimately making a loss while the MEV bot profited — an estimated gain of 0.1 ETH.

Another form of frontrunning would have been for example, if user, 0x3a7822 identified an liquidation opportunity faster than anyone else and sent its transaction to the mempool to get the discounted assets from the liquidation in the first place, then Jaredfromsubway.eth would have seen this and would have replaced the users transactions with the transaction of its own, but with a higher gas fee, and thus more likelyhood to get processed faster, and effectively stealing the opportunity of capturing value away from the user.

### How Harmful is Frontrunning?

While frontrunning may seem harmless or even clever to some, it can adversely affect individual traders and compromise the overall integrity of the Ethereum network. Here’s how:

1.  **Impact on Traders**: Frontrunning disrupts the fair operation of financial markets. By exploiting pending transactions, frontrunners manipulate market conditions to their benefit. This can lead to distorted prices, impacting regular traders who abide by market rules. What’s more, these traders miss out on the value they would have otherwise derived from their trades. But most importantly, frontrunning attacks prevent users from receiving the value of the trading opportunity they identified
2.  **Long-term Market Consequences**: Over time, persistent frontrunning can erode market confidence. As traders realize they are consistently at a disadvantage due to frontrunning, they may lose faith in the integrity of the market and choose to leave. This could result in diminished market participation and liquidity, both of which are critical for overall market health and efficiency
3.  **Network Effects**: Frontrunning can also have wider implications for the underlying network. It can cause network congestion, since unnecessary transactions in a block slow down transaction processing times

CoW Swap takes a firm stance against all forms of Maximal Extractable Value (MEV), including frontrunning, as they are detrimental to traders and the wider Ethereum ecosystem. CoW Swap was built to cultivate a fair and transparent trading environment that best serves the interests of all market participants.

### How to protect against frontrunning?

Mitigating frontrunning and other forms of MEV can pose a challenge, given the transparent and permissionless nature of the Ethereum blockchain. However, CoW Swap gives traders the necessary tools to outsmart the MEV bots:

1.  **Batch Auctions**: Instead of executing orders immediately, CoW Swap orders are gathered and grouped into collections known as “batches.”  [Solvers](https://docs.cow.fi/cow-protocol/tutorials/solvers), or the algorithms that provide an order settlement solution for a batch, compete to deliver optimized solutions. This batch auction method ensures all trades within a batch share the same uniform clearing price, preventing MEV Bots from reordering trades. Through batch auctions, CoW Swap affords traders the opportunity to pool liquidity among their orders, enabling users to trade directly with each other or access specialized markets to complete transactions that would otherwise be impossible to do in a peer-to-peer manner — this is known as  [Coincidence of Wants](/learn/what-are-cows-on-cow-swap)  (CoW)
2.  **MEV Blocker**:  [MEV Blocker](https://mevblocker.io/)  is a straightforward solution to the MEV problem. It is an RPC endpoint that protects all types of transactions from MEV. MEV Blocker organizes an auction among searchers, who are given the chance to backrun your transactions and forward up to 90% of the backrun value to the user. In exchange, they protect you from both frontrunning and sandwich attacks
3.  [**Use CoW Swap**](https://swap.cow.fi/#/swap?utm_source=medium&utm_campaign=frontrunning-article)**:** CoW Swap is a meta DEX aggregator that uses batch auctions and facilitates an efficient trading process, preventing all forms of MEV, including frontrunning

### The CoW approach to frontrunning

CoW Swap distinguishes itself in the trading ecosystem with its innovative and comprehensive approach to combating frontrunning and other MEV tactics, thereby creating a safer trading environment for users. The platform has meticulously crafted multiple layers of protection, each targeting a distinct aspect of the MEV issue.

The initial line of defense is  **Delegated Trade Execution**. In conventional DeFi platforms, every transaction a user initiates is instantaneously visible in the public mempool, providing an opportunity for searchers to exploit it. As opposed to other exchanges, on CoW Swap, users sign an “intent to trade” which protects them from directly interacting with the mempool. CoW Swap directs all intents through a network of decentralized ‘[solvers](https://docs.cow.fi/cow-protocol/tutorials/solvers).’ These solvers are responsible for securing the best execution price for your trades, while also shielding you from direct exposure to the public mempool, effectively making you undetectable to MEV bots. Moreover, CoW Swap harnesses the power of  [‘Coincidence of Wants](/learn/what-are-cows-on-cow-swap)’ (CoW). This allows the platform to match orders off-chain, fostering peer-to-peer trades that not only save on gas and liquidity provider fees but also substantially reduce the risk of MEV attacks by circumventing public liquidity pools. CoWs that don’t rely on on-chain liquidity pools eliminate a key opportunity for MEV exploits.

The platform also introduces a  **Uniform Clearing Price**  for all orders in a batch. In a typical decentralized exchange, simultaneous trades clear at marginally different prices in the same block due to sequential transaction processing. This provides an opening for MEV attacks. CoW Swap counters this by ensuring all orders within the same batch auction are settled at the same clearing price within a block. As a result, the order of transactions within a batch becomes irrelevant, effectively preventing MEV attacks and giving users in the batch a fair price.

CoW Swap’s strategy to tackle frontrunning hinges on eliminating opportunities for searchers to exploit trades. This helps maintain the integrity of user transactions and safeguards user value. By leveraging its unique batching technology, CoW Swap remains resilient against frontrunning and other MEV attacks.

### Trade safe from MEV on CoW Swap

Given the severity and frequency of MEV attacks, protecting your trades from MEV should be a top priority. CoW Swap offers unparalleled protection with its pioneering anti-MEV features, making it an invaluable tool for every trader.

Get started with CoW Swap by  [placing your first trade](https://swap.cow.fi/#/swap?utm_source=medium&utm_campaign=frontrunning-article)  and enjoy the freedom and peace of mind of the best prices and the best MEV protection!

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Frontrunning is a crypto strategy exploiting blockchain’s transparency to extract value from a transaction.


What is Frontrunning

Maximal Extractable Value (MEV) is a serious problem in the Ethereum ecosystem that accounts for more than $1.3 billion in lost value for traders just over the last few years. While there are different types of MEV, most extracted value comes from the dreaded sandwich attack.

![1-mev-cumulative.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_mev_cumulative_5be731696a.webp)

[_MEV Cumulative Gross Profit_](https://dune.com/queries/2259793/3703605)

Sandwich attacks occur when a user’s transaction gets trapped, or “sandwiched,” between two hostile transactions — one before and one after. As a result, the original transaction executes at a much higher price than necessary, leading to an inflated price for the original trader and a profit for the malicious trader placing the two extra trades (known as a “searcher”).

## How a sandwich attack works

When a searcher spots an opportunity to sandwich a transaction, they place a trade before (known as “frontrunning”) and a trade after (known as “backrunning”) the transaction in order to manipulate the price of the trade.

Due to the design of Automated Market Makers (AMM) such as Uniswap, these trades strategically manipulate the price of the assets, leaving room for profit. To really understand how sandwich attacks work, though, we first need to understand some core concepts.

<blockquote class="twitter-tweet"><p lang="en" dir="ltr">If you don&#39;t know what <a href="https://twitter.com/hashtag/MEV?src=hash&amp;ref_src=twsrc%5Etfw">#MEV</a> (Miner/Maximal Extractable Value) is and how it can hurt your swaps, make sure to watch this video! 🐮<a href="https://twitter.com/hashtag/CoWGMI?src=hash&amp;ref_src=twsrc%5Etfw">#CoWGMI</a> 🐄 <a href="https://t.co/2g1cFLYvAL">https://t.co/2g1cFLYvAL</a></p>&mdash; CoW DAO | CoW Swap &amp; MEV Blocker (@CoWSwap) <a href="https://twitter.com/CoWSwap/status/1498678005777973249?ref_src=twsrc%5Etfw">March 1, 2022</a></blockquote> <script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>

### Core concepts at play

**Automated Market Makers (AMM)**: Automated Market Makers are trading mechanisms that allow traders to buy and sell assets in real time. Unlike traditional “orderbook” trading, which relies on counterparties for every transaction (you need a seller in order to buy and a buyer in order to sell), AMMs work by maintaining a constant ratio between the prices of two assets. For example, ETH and COW. AMMs use the formula “x*y = k” to determine a fair price based on the ratio between two assets (x and y) in the liquidity pool.

Any time a trade alters this ratio by depleting the supply of one asset and increasing the other, the prices of the assets adjust in order to preserve the established ratio. For instance, if a trader buys COW and sells ETH, the COW price rises, and the ETH price falls. The opposite happens when traders sell COW and buy ETH.

**Slippage Tolerance**: When placing a trade, traders set a “slippage tolerance” for their transactions, which represents the maximum price difference they’re willing to accept for their trade. For example, if ETH is trading at $2,000 and you place an order to buy ETH with a 5% slippage tolerance, you’re willing to buy ETH at up to $2,100. If ETH goes above $2,100, however, your trade will fail, as it’s outside your slippage tolerance.

Some slippage tolerance is always necessary because the prices of crypto assets are constantly fluctuating, so by the time your trade executes, the price may have moved. Setting your slippage tolerance too high, however, leaves room for searchers to sandwich your trades.

**Price Impact**: Crypto markets, like all markets, are based on supply and demand. AMMs maintain “liquidity pools” of assets that they use to fill trades. Each trade drains some amount of this liquidity, moving the price of the asset. This price movement is known as “price impact.”

The larger the trade, the bigger the price impact. A trade of $100 ETH will not move the price of ETH very noticeably, since it makes up a tiny fraction of the available liquidity. A trade of $1,000,000 ETH however, will noticeably move the price of ETH.

**Transaction Reordering:** Blockchain transactions do not always enter the block in the order that they were submitted. Searchers can “bribe” the validators responsible for creating the block to get them to arrange transactions in a specific sequence. This transaction reordering is what makes all of MEV, including sandwich attacks, possible.

## The sandwich attack: Step by step

Let’s examine a sandwich attack through a step-by-step example. In this example, we’re trading ETH and COW.

![2-the-sandwich-attack-step-by-step.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/2_the_sandwich_attack_step_by_step_3a443571e9.webp)

**Step 1**: Bessie wants to buy COW using her ETH. She goes to a decentralized exchange (DEX) like Uniswap, and places an order for 4,000 COW. This should cost her around 1 ETH, but due to significant market volatility, Bessie decides to set a 10% slippage tolerance. This means she’s willing to pay up to 1.1 ETH for 4,000 COW.

**Step 2**: Bessie’s trade enters the Ethereum mempool (the pending order queue), and a lurking searcher spots an opportunity. Springing into action, the searcher places a trade just before Bessie’s large enough to push the COW price up to her slippage tolerance. In this case, the searcher buys 4,000 COW for exactly 1 ETH. As a result of this first trade’s price impact, Bessie’s 4,000 COW purchase now costs 1.1 ETH — the maximum she’s willing to pay.

**Step 3**: Once the searcher’s transaction clears, Bessie’s transaction also goes through and she receives her 4,000 COW in exchange for 1.1 ETH. The searcher takes advantage of this price impact and sells his original COW at this new rate — 4,000 COW for 1.1 ETH.

In the end, the searcher buys 4,000 COW for 1 ETH and sells it for 1.1 ETH, earning a profit of 0.1 ETH (before gas and fees) for not much effort.

It’s easy to see how lucrative sandwich attacks are!

Bessie, on the other hand, ends up with a bad deal. She could have purchased 4,000 COW for just 1 ETH, but her slippage tolerance left room for a sandwich attack that forced her to pay an extra 10% for her trade.

## The consequences of sandwich attacks

Sandwich attacks siphon millions of dollars from everyday Ethereum traders. Every dollar captured by searchers is a dollar stolen from the pockets of traders.

![3-consequences-of-sandwich.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/3_consequences_of_sandwich_bda8ad0cdd.webp)

[_EigenPhi_](https://eigenphi.io/)_, a website tracking on-chain data, offers a dashboard displaying the latest sandwich attacks._

At the time of writing, sandwich attacks on AMMs and aggregators alike generate over $1 million in profit for searchers  **each week**.

## How can you protect against sandwich attacks?

There are several steps traders can take to protect themselves from sandwich attacks.

### Reduce Slippage

A simple way to reduce your exposure to sandwich attacks is to decrease your slippage tolerance. Sandwich attacks rely on a high slippage tolerance that leaves arbitrage for searchers to exploit.

Lowering your slippage tolerance decreases the chance of falling victim to a sandwich attack, but, on the other hand, it means there’s a greater chance that your transaction will fail. Failed transactions can be frustrating and costly, since you still have to pay a gas fee even for failed transactions.

It can be difficult to know exactly what slippage to use. This is why using a trading mechanism solution that optimizes slippage tolerance on your behalf and doesn’t make you pay for failed transactions, such as CoW Protocol, can be useful.

### Use a DEX Aggregator

Decentralized exchange aggregators scan multiple on-chain liquidity sources to offer you better prices for your trades. Spreading out a single trade across multiple liquidity pools means a reduced price impact, and thus less room for searchers to profit.

In addition, DEX aggregators often provide an “auto-slippage” option to algorithmically determine the appropriate slippage for your trade, reducing the chances of sandwich attacks.

### Use a Custom RPC Endpoint

For advanced MEV protection, consider using a custom RPC (remote procedure call) endpoint for your wallet.

RPC endpoints act as intermediaries between your wallet and on-chain transactions. Most RPC endpoints (such as the default ones on your wallet) simply do the technical work of routing your trades to the chain. Others, however, will also provide protection from MEV.

A notable RPC endpoint that provides MEV protection is  [MEV Blocker](https://mevblocker.io/). When using RPC’s like this, users are protected from MEV for a wide range of transactions including DeFi trading, NFT minting, liquidity providing, and more.

Changing your wallet’s RPC endpoint in order to take advantage of these benefits is relatively straightforward. For Metamask users, instructions can be found  [here](https://support.metamask.io/hc/en-us/articles/360043227612-How-to-add-a-custom-network-RPC).

### Use CoW Swap

For the most comprehensive MEV protection, it’s a good idea to use dApps that are specifically optimized to protect you from MEV.

CoW Swap is a meta-DEX Aggregator that combines all of the benefits of price-optimized trading with the safety features of an MEV-resistant protocol. Cow Swap matches your order against the best prices for on-chain liquidity, and protects your trades from MEV.

For a comprehensive dive into how CoW Swap protects traders from MEV, check out “[_How CoW Swap solves the MEV problem_](/learn/how-cow-swap-solves-the-mev-problem).”

## CoW Swap’s approach to sandwich attacks

Trading on CoW Swap is similar to using a platform like 1inch or Uniswap. You simply navigate to the swap interface, select the tokens you want to trade, specify your trade amount, and click “Swap.”

![4-cow-swap-approach-to-sandwich-attacks.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/4_cow_swap_approach_to_sandwich_attacks_701174b9d6.webp)

Behind the scenes, however, CoW Swap is quite different.

First, your order submission is no order at all, it’s actually a signed “intent to trade” message. This message gets sent to a network of “solvers” who find the best route for your trade, optimizing price and slippage tolerance in the process.

This delegated trading model means that your transaction is protected from MEV. If there is a sandwich attack that takes place, it will be the solvers getting sandwiched, not you. And the CoW Swap solver are some of the toughest bulls in the pasture, so they’re not easy to sandwich!

But there’s more: CoW Swap also utilizes Uniform Clearing Prices (UCP) to protect you from MEV.

CoW Swap groups orders into batches and executes them all at the same clearing price per asset. This approach makes transaction reordering ineffective as an MEV strategy since all orders in a CoW Swap batch trade for the same price.

## Don’t end up lunch meat

Sandwich attacks pose a constant threat to Ethereum AMM (DEX) users who may fall victim to searchers looking to make a quick buck. Trades with high slippage tolerances are most susceptible to sandwich attacks and other types of MEV. The bigger the trade, and the bigger the slippage tolerance, the higher the chance that you’ll end up as lunch meat.

Thankfully, innovations such as DEX aggregators and custom RPC endpoints have made it much easier to protect yourself from all types of MEV.

For the most comprehensive MEV protection, however, whales, DAOs, and traders of all sizes turn to CoW Swap. Built from the ground up with MEV protection in mind, CoW Swap puts users first and protects every transaction from searchers… And  [we’ve got the data to back it up](https://drive.google.com/file/d/1zNGPeYx9sDVBiuSjCyYtkCjPt3VLZ6Vb/view?usp=sharing).

So try  [CoW Swap](https://swap.cow.fi/#/swap)  for yourself and leave MEV in the past.


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Sandwich attacks make up the majority of harmful MEV extraction


What is a sandwich attack and how can you protect yourself?

MEV or “maximal extractable value” is a hidden tax on all types of Ethereum transactions. Any time you make a DeFi trade, buy or sell an NFT, or lend tokens to a liquidity pool, opportunistic users known as “searchers” may manipulate your trades, resulting in unfavorable prices, failed transactions, and missed opportunities.

To date, MEV has been responsible for more than $1.3 billion in lost value for Ethereum users.

![1-mev-cumulative-gross-profit.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/1_mev_cumulative_gross_profit_cdc8935d2a.webp)

[_MEV Cumulative Gross Profit_](https://dune.com/queries/2259793/3703605)

In this article, we will take a deep dive into the problem of MEV and explore some potential solutions, including those offered by CoW Swap.

## Understanding MEV

When it comes to DEX trading, there are three main types of MEV attacks that searchers use to take advantage of your trading orders:

-   **Frontrunning**: Searchers submit a transaction similar to yours and place it before you in the block. Their transaction then executes first and they get to keep your profits for themselves, while your transaction fails
-   **Backrunning**: Any time you make a large trade, it leaves behind a price impact. If your trade is large enough, this price impact may move the market enough to open an arbitrage opportunity. Searchers can “backrun” your trades by placing their own trades directly after yours and profiting from this leftover arbitrage. Backrunning is generally viewed as a less-harmful type of MEV since it doesn’t affect the main transaction, it simply captures leftover arbitrage
-   **Sandwich attacks**: Sandwich attacks combine both frontrunning and backrunning into the worst kind of MEV attack. In a sandwich attack, searchers first ratchet up the price for your trade up to your slippage tolerance by frontrunning your transaction. Once your transaction clears, searches make a second trade in the opposite direction that cleans up any profits from the price change your trade causes

MEV is possible because validators are free to order blockchain transactions as they see fit in order to maximize their profits. Proof-of-stake (PoS) blockchains such as Ethereum use parties known as “validators” in order to ensure that the consensus rules of the blockchain are followed by all participants. Validators get randomly selected to add the next block to the blockchain. In this process, they determine what transactions are included in the block, and in what order.

When you submit a transaction on Ethereum, it does not immediately get added to the next block. Instead, it first goes into the “mempool” which is the collection of all pending transactions. Validators then pull transactions from the mempool and add them to the next block when it’s time for it to be built.

Here is where the opportunity to extract value through MEV comes in.

Validators are not required to add transactions to the block in the same order that they were submitted by users, so searchers can pay validators a fee to order transactions in a specific way. For example, they can pay to have their transactions come first if they want to frontrun someone else, or they can pay to have their transactions come right after a specific transaction if they want to perform a backrun.

![2-flow-of-an-Ethereum-transaction.webp](https://celebrated-gift-f83e5c9419.media.strapiapp.com/2_flow_of_an_Ethereum_transaction_3ac014b14d.webp)

_The flow of an Ethereum transaction_

## Is MEV inevitable?

MEV is a complex and controversial topic in the Ethereum community.

Some say that MEV is a natural part of the Ethereum market mechanism and it helps to find the most efficient prices. Others believe that MEV can be harmful, but only if it’s concentrated in the hands of a few validators — therefore they work to “democratize” MEV and allow anyone to extract value from on-chain transactions.

At CoW Swap, we believe that all MEV is harmful to all traders, especially beginners who may not even be aware that they are getting shortchanged on their trades. This is why the protocol is designed to protect user trades from all types of MEV attacks.

## Strategies for Protecting Against MEV

CoW Swap gives traders the tools they need to protect themselves from MEV, so when you’re trading through  [https://swap.cow.fi/](https://swap.cow.fi/)  you’re protected from the majority of opportunistic searchers, regardless of the size or type of trade.

CoW Swap relies on 3 main features to keep you safe from MEV:

1.  Delegated Trade Execution
2.  Coincidence of Wants
3.  Uniform Clearing Prices

Let’s dive in!

### Delegated Trade Execution

On CoW Swap, all transactions are routed through a decentralized network of “solvers” — independent algorithms that are responsible for finding the best execution price for your trades.

When you submit a trade on CoW Swap, rather than initiating a blockchain transaction like you would on a platform like Uniswap, you instead submit a signed “intent to trade” message. This means that CoW Swap can perform optimizations on your trade that would not be possible if you submitted the transaction directly to the blockchain. These optimizations include finding Coincidences of Wants, adjusting the slippage tolerance dynamically, and completing your trade at an optimal price during the time of execution.

Since it is the solvers who execute your trade on your behalf, you are never directly exposed to the public mempool, meaning that you are protected from MEV at all times.

Whatever price solvers quote you at the time you place your order is actually the worst price that your order will be executed at (it may complete at a better price if solvers find a better execution path). All risk of MEV is taken on by the solver itself.

### Coincidence of Wants

CoW Swap’s delegated trade execution mechanism has another major advantage — it can match your orders off-chain.

Any time you submit a trade on CoW Swap, solvers start looking for the best way to execute it. Before checking on-chain liquidity, solvers check other incoming orders on CoW Swap’s current batch auction to see if your trades can be matched peer-to-peer.

Here’s how it works:

Let’s say you’re looking to trade ETH for USDC. You submit your order and solvers see that someone else in that batch is actually looking to trade USDC for ETH — the opposite of your trade — at the same time. These two trades will be matched with each other in a “Coincidence of Wants” (CoW) which allows traders to swap their assets with each other directly (one to one or many to many), thereby saving on gas fees, liquidity provider fees, price impact, and also bypassing MEV risks.

CoW Swap’s founders were inspired by the potential for Coincidence of Wants to provide lower prices for everyday Ethereum users (it’s in the name!). This mechanism is one of the cheapest and most secure ways to make a DeFi trade, and since you’re not using on-chain liquidity pools, your Coincidence of Wants trade cannot be subject to MEV attacks.

### Uniform Clearing Prices

As a third line of defense against MEV, CoW Swap ensures all orders complete under a “Uniform Clearing Price” (UCP).

Upon submitting your trade, your order gets included in a batch auction alongside other pending orders in the queue. All of the orders within a batch trade for the same price on the blockchain, a phenomenon referred to as “Uniform Clearing Price” (UCP).

To understand how UCP works on CoW Swap, we first have to consider how DeFi trading works on traditional DEXs. On a normal decentralized exchange, if 8 people want to trade ETH for USDC, each of their trades clears at a slightly different price since DEXs process trades in a sequential manner even though they might be happening concurrently (within the same Ethereum block). This leaves room for MEV because the order in which transactions are processed heavily impacts the prices that users get. Searchers are constantly monitoring DEX trades, looking for opportunities like these where they can reorder transactions to their advantage.

On CoW Swap, if the same 8 people are making that trade, as long as they are in the same batch auction, each order will be settled for the same clearing price when it goes on-chain. This leaves no room for MEV attacks since all prices are the same, meaning that transaction ordering becomes irrelevant.

## Getting Started with CoW Swap

CoW Swap was built from the ground up with MEV protection in mind.

Whether you’re a beginner or a seasoned trader, CoW Swap ensures a fair trading experience that protects you from price exploitation. Give it a shot for your next trade at  [https://swap.cow.fi/#/swap](https://swap.cow.fi/#/swap)


CoW Swap is a meta-DEX aggregator that provides users with the best trading prices out of all AMMs and DEX aggregators. An important part of guaranteeing these prices is CoW Swap’s MEV protection, which we explore in this article.
