Analysis of the MEV Issues Behind the Solana Ecosystem Meme Token Boom

Recently, meme tokens in the Solana ecosystem have become the focus of the market. Several meme tokens such as BONK and Dogewifhat have been favored by investors, with Dogewifhat even landing on multiple well-known trading platforms, surpassing a market capitalization of 3 billion USD. On March 15, a token named BOME saw its price skyrocket 47 times within just 24 hours, with a trading volume exceeding 300 million USD, sparking market discussions.

However, a prominent issue has arisen during the meme Token craze: users often encounter sandwich attacks when purchasing these Tokens on decentralized platforms on the Solana chain, leading to inflated actual purchase prices and losses. This type of attack falls under the category of MEV (Maximum Extractable Value). So, what exactly is MEV? What impact does it have on the blockchain ecosystem? How does Solana respond to the challenges posed by MEV? Let's delve into these questions.

MEV and its Applications

MEV stands for Maximal Extractable Value. Initially, MEV referred to the additional profits that miners could obtain by reordering transactions within a block. With the development of blockchain technology, the concept of MEV has expanded to various public chain networks.

MEV can be seen as a "tax" that blockchain network maintainers charge ordinary users. Although it seems like a burden, MEV plays an important role in maintaining the development of the blockchain network and the stability of the ecological economy.

Common application strategies of MEV include:

1. Atomic Arbitrage: Utilizing price differences between different liquidity pools for arbitrage, which helps to balance asset prices.

2. Liquidation: In on-chain lending operations, the liquidator maintains protocol stability by clearing unhealthy margin positions through MEV.

3. Sandwich Attack: Profiting by inserting buy and sell orders before and after a user's trade, utilizing the price calculation mechanism of AMM.

In addition, MEV can also be used for other potential profit activities such as IDO and NFT minting.

MEV Characteristics of Solana

Solana uses a PoS consensus mechanism, and its validator nodes are mostly located in large data centers, making it difficult for ordinary users to participate. Half of the transaction fees collected by the validators are burned, which incentivizes them to process more transactions.

Solana produces a block every 400 milliseconds and traditionally uses a first-come, first-served transaction processing mechanism. This means that MEV competition mainly focuses on reducing latency rather than increasing fees. However, this mechanism also brings some issues.

Solana's MEV Response Strategy

1. Priority gas fees: Solana introduces a priority gas fee mechanism aimed at reducing spam transactions by creating new transaction priority incentives. This allows users to increase the priority of their transactions by paying higher fees, similar to Ethereum's gas competition mechanism.

2. Jito-Solana: This is a solution similar to Flashbots that introduces a mempool and block space auction mechanism. Users can submit transaction bundles and bid to the validators running Jito-Solana, with the highest bidder's transactions being prioritized. This creates an additional source of income for validators and stakers.

Currently, Jito-Solana has become the mainstream validation client for Solana, accounting for 66% of the market share. However, during the recent meme Token craze, the sandwich attacks initiated through Jito have also caused considerable trouble for ordinary users.

The Future Development of MEV

MEV is not a phenomenon that can be completely eliminated. Future research on MEV should focus on how to leverage MEV to benefit all parties in the ecosystem. For example, guiding validators to select more diverse clients through MEV can increase the level of decentralization in the network; utilizing MEV to protect user and protocol assets; and redistributing the profits generated by MEV, among other things.

Overall, MEV is a double-edged sword. Proper use of MEV can promote the stability and development of blockchain networks, but excessive MEV activities may also harm user interests. In the future, finding a balance between protecting user rights and maintaining network stability will be an important issue facing the blockchain industry.