Study Examines Maximal Extractable Value in Ethereum and Rollups
/ 4 min read
Quick take - A recent study examined Maximal Extractable Value (MEV) in Ethereum and rollup-based Layer-2 solutions, revealing that while rollups offer lower transaction fees, they complicate MEV extraction due to the absence of a public mempool, and identified potential risks and vulnerabilities associated with centralized sequencers and cross-layer attacks.
Fast Facts
- A study on Maximal Extractable Value (MEV) reveals significant activity on Ethereum and Layer-2 rollups (Arbitrum, Optimism, zkSync), with Ethereum being the dominant platform for MEV profits due to higher transaction volume and liquidity.
- Layer-2 rollups offer lower fees but lack a public mempool, complicating MEV extraction; no sandwich attacks were recorded on popular rollups, although cross-layer sandwich attacks could yield profits of around $2 million.
- Rollup sequencers, which are typically centralized, manage transaction ordering and enable higher throughput, but their centralized nature raises security concerns if compromised.
- The study highlights the need for improved blockchain security measures to address vulnerabilities across layers, as MEV extraction can manipulate transaction order and adversely affect DeFi users.
- Current defenses against MEV and related attacks are deemed insufficient, necessitating enhanced strategies to protect decentralized systems from potential risks.
Insights into Maximal Extractable Value (MEV) in Ethereum and Layer-2 Solutions
A recent study has provided significant insights into Maximal Extractable Value (MEV) within Ethereum and rollup-based Layer-2 solutions, such as Arbitrum, Optimism, and zkSync.
Understanding MEV and Rollups
MEV refers to profits derived from strategically ordering transactions using techniques like arbitrage, liquidation, and sandwich attacks. The study indicates that while Layer-2 rollups offer lower transaction fees compared to Ethereum’s Layer-1, they lack a public mempool, complicating MEV extraction.
Over nearly three years, the research found prevalent MEV activity on rollups, with trading volumes comparable to Ethereum. However, profits derived from rollups were generally lower, and no sandwich attacks were recorded on popular rollups. The potential for cross-layer sandwich attacks, exploiting both Layer-1 and Layer-2 transactions, was identified as feasible, with estimated profits for attackers in such attacks potentially reaching around $2 million.
The Role of Ethereum and Rollup Sequencers
Ethereum emerged as the dominant platform for MEV extraction profits, attributed to its higher transaction volume and liquidity. The study highlights the role of rollup sequencers, typically centralized entities managing transaction ordering. Sequencers enable higher throughput by batching transactions. Rollups are classified into optimistic and zero-knowledge types, with optimistic rollups depending on trust and dispute periods, while zero-knowledge rollups leverage cryptographic proofs.
Transactions on rollups are ultimately recorded on Ethereum as state checkpoints, which help reduce fees by consolidating multiple transactions. In terms of transaction dynamics, flash loans for liquidation purposes are more prevalent on rollups than on Ethereum. Unlike Ethereum, where transaction ordering can be influenced by gas price bidding, rollups generally operate on a first-come, first-served basis managed by sequencers.
Security Concerns and Recommendations
The study confirmed that cross-layer sandwich attacks could exploit the visibility of Layer-2 transactions in Ethereum’s mempool before execution on rollups. Various strategies for cross-layer sandwiching were tested to validate the potential for profit extraction. The competitive landscape for MEV is notably more intense on Ethereum, which experiences fewer transaction reversals due to proposer-builder separation.
Transaction fees on rollups are significantly lower than those on Ethereum, resulting in enhanced cost efficiency for strategies involving arbitrage and liquidation. However, MEV transactions on Ethereum typically occur within the same block as their opportunity, while rollups may face delays of up to 100 blocks, indicating a different operational rhythm.
The findings raise critical concerns regarding the financial security of decentralized systems, as MEV extraction can adversely impact DeFi users by manipulating transaction order. This necessitates comprehensive blockchain security measures to address vulnerabilities across multiple layers. Privacy concerns are also noteworthy, as Ethereum’s public mempool allows potential attackers to predict transactions. The absence of a mempool in Layer-2 rollups introduces a centralized control point that could pose security risks.
The trust placed in rollup sequencers is crucial, given their centralized nature, which may lead to potential risks if sequencers are compromised or maliciously operated. MEV strategies can inflate transaction fees and foster resource competition, potentially degrading network performance and affecting all users. The methodologies developed for detecting MEV could be adapted for identifying other malicious activities in decentralized networks. The findings advocate for improved security mechanisms, as current defenses are suggested to be insufficient to address all potential attacks, particularly those involving cross-layer vulnerabilities.
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