MEV: Crypto vs TradFi

MEV: Crypto vs TradFi

I have been reading Flash Boys by Michael Lewis and find the similarities to MEV (miner/maximally extractable value) in crypto very fascinating. In both cases, there is a gap between someone sending a transaction and it being finalized. And there is value in that information that can be exploited.

But even though, there are similarities, the differences between the crypto and the traditional financial world are also huge. In TradFi, it's all about opacity. It's hard to know what is going on. How do these exchanges work? How do dark pools work? The banks, brokerages, high frequency trading firms and regulators collude to keep investors in the dark. A lot of money is extracted, but people don't know. And the system is so oligopolistic and shielded that making a change is very difficult.

The differences to crypto are stark. There may be similar problems, but the number of possible solutions are far larger. You have a system like Flashbots on Ethereum that is trying to create an open market around transaction ordering. You have protocols like Cowswap that build on top of Ethereum to provide a MEV-minimized environment for trading. You have other blockchains like Osmosis and Anoma that plan on using tools like encrypted mem pools to remove the issue. And this is just the beginning.

Besides the modularity and flexibility of blockchain applications, the transparency of crypto are a huge difference. Anyone can try to understand what is going and share their insights. And the barrier to creating solutions is far lower.

I think the MEV topic will be with us for a long time and have a profound impact on crypto. But in the end, I am confident that we will not just replicate the dysfunctions of Wall Street but create a financial system that is more efficient and fair.


Brian Crain

View Comments
Next Post

Generosity and Kindness

Previous Post