Solutions

There are two main directions to reduce MEV:

• Reduce the flexibility of the miner to reorder transactions by enforcing ordering rules and/or

• Introduce a competitive market for the right to reorder, add, and/or censor transactions.

Recent work has focused on reducing strategy profitability via more complex ordering consensus mechanisms (for example, approximate first-in-first-out sequencing and other sequencing rules with execution price guarantees. Fair sequencing forces validators to come to consensus on relative transaction orderings, i.e., validators vote on whether transaction A came before transaction B as part of the consensus protocol rules. Such systems cannot be deterministically secure due to the Condorcet paradox and Arrow’s impossibility theorem.

This is one of the strategies designed to mitigate MEV. Numerous other strategies and protocols also aim to reduce MEV by leveraging various mechanism design techniques and protocol-level interventions. The following list provides more details of these approaches:

1. Batch Auctions: CoWSwap leverages batch auctions to provide MEV protection, plus integrate with liquidity sources across DEXs to offer traders the best prices.When two traders each hold an asset the other wants, an order can be settled directly between them without an external market maker or liquidity provider. Any excess is settled in the same transaction with the best available AMM. The transaction is sent by “solvers” which set tight slippage bounds. Solvers compete with each other to achieve best prices for the user.

2. Fair Sequencing Service: The idea behind FSS is to have an oracle network order the transactions sent to a particular contract SC, including both user transactions and oracle reports. Oracle nodes ingest transactions and then reach consensus on their ordering, rather than allowing a single leader to dictate it. FSS is a framework for implementing ordering policies, of which Aequitas (protocol for order-fairness in addition to consistency and liveness) is one example. It can alternatively support simpler approaches, such as straightforward encryption of transactions, which can then be decrypted in a threshold manner by oracle nodes after ordering. It will also support various policies for inserting oracle reports into a stream of transactions. (It can even support MEV auctions, if desired.)

3. Shutter Network: Shutter Network is an open-source initiative designed to mitigate frontrunning and malicious MEV on Ethereum through the implementation of a threshold cryptography-based Distributed Key Generation (DKG) protocol. A Shutter transaction ensures protection from frontrunning within the target smart contract system, navigating through a series of stages before execution: Creation and Encryption: The user’s wallet creates and encrypts the transaction. Batching: The encrypted transaction is sent to the batcher contract as a standard Ethereum transaction. Decryption: Keypers (designated decryption agents) pick up and decrypt the transaction. Execution: The decrypted transaction is sent to the executor contract. Finalization: The executor contract forwards the transaction to the target smart contract for execution.

This multi-step process ensures that transactions remain shielded from frontrunning until they are securely executed on the blockchain.