Maximal Extractable Value (MEV) presents a significant challenge to the fairness and efficiency of decentralized finance (DeFi). This paper provides a game-theoretic analysis of the strategic interactions within the MEV supply chain, involving searchers, builders, and validators. A three-stage game of incomplete information is developed to model these interactions. The analysis derives the Perfect Bayesian Nash Equilibria for primary MEV attack vectors, such as sandwich attacks, and formally characterizes attacker behavior. The research demonstrates that the competitive dynamics of the current MEV market are best described as Bertrand-style competition, which compels rational actors to engage in aggressive extraction that reduces overall system welfare in a prisoner’s dilemma-like outcome. To address these issues, the paper proposes and evaluates mechanism design solutions, including commit–reveal schemes and threshold encryption. The potential of these solutions to mitigate harmful MEV is quantified. Theoretical models are validated against on-chain data from the Ethereum blockchain, showing a close alignment between theoretical predictions and empirically observed market behavior.
Appiah et al. (Mon,) studied this question.