MEV Costs DeFi Users Billions Through Slippage and Liquidation

Transaction ordering costs DeFi users billions each year. The mechanism behind it, Maximal Extractable Value (MEV), extracts value through worse prices and liquidation losses, a detailed guide from Crypto Daily says. A 10,000 USDC market buy on a mid-cap token can cost 0.4% more in slippage, or about 40 dollars, when a sandwich attack brackets the trade. A liquidation of a 20,000 dollar position triggers a 7.5% bonus, or 1,500 dollars, extracted by the searcher who wins the race.

The sandwich attack is the most common MEV tactic. A searcher sees a pending swap in the public mempool, buys the token ahead of the user to push the price up, then sells after the user's trade executes at the inflated price. The user gets fewer tokens than the quote. The bot locks in the spread.

Liquidation is another big source of MEV. When a collateralized loan falls below the threshold, the first searcher to submit the liquidation earns the bonus. The borrower pays that bonus. The race is largely private, run through bundles sent directly to block builders, so the borrower cannot see it or front-run it.

Arbitrage also falls under MEV. Bots keep prices aligned across pools. The user's market order often creates the mispricing the bot fixes. The profit from that fix goes to the bot, the block builder, and the validator, not back to the user.

On Ethereum after the Merge, most blocks are built by specialized builders rather than the proposing validator. The coordination layer is MEV-Boost, an open-source sidecar that lets validators source blocks from builders without trusting them. Builders compete to assemble the most valuable block, often by including private bundles from searchers. That improves validator revenue. Transaction ordering becomes a market where the user's trade is the raw material.