Blaine
@blainemalone
1/8) 've officially been priority ordering pilled. Why? Two words: MEV Taxes. What the hell are MEV taxes, and why should you care? After reading through @paradigm's 'Priority Is All You Need' article by @danrobinson and @davewhite it’s clear: - MEV taxes capture a cut of extracted MEV and redirect it to the app layer. - Protocols can start leveraging this today. Especially with @unichain's launch. To understand MEV taxes, we first need to look at how MEV is extracted when priority ordering isn’t enforced. Here’s a classic example: An MEV searcher sandwiches a victim’s trade by placing a buy order before and a sell order after their transaction. Notice how the block isn’t ordered by priority fees. Instead, the block builder reorders transactions to maximize MEV profits. ref: https://paradigm.xyz/2024/06/priority-is-all-you-need
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Blaine
@blainemalone
2/8) For those who need a refresher, here’s a quick recap of the key players: Searchers find MEV opportunities and compete to extract them. Block builders control transaction ordering, deciding who actually profits. Since searchers must bid high fees to win, builders prioritize the highest bidders, and those fees ultimately go to the block proposer.
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Blaine
@blainemalone
3/8) How do MEV searchers compete when priority ordering isn’t enforced? They bid priority fees, but not too much. They bid just below the break-even point, where the MEV extracted is still greater than the fee paid. MEV extracted > priority fee paid = profit ✅ MEV extracted ≤ priority fee paid = no profit ❌ More bidding = higher priority fees, which flow to the block proposer, while builders profit by selling the most valuable block.
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Blaine
@blainemalone
4/8) What happens when priority ordering is enforced? Right now, block builders freely reorder transactions to extract MEV. With strict priority ordering, transactions are always sorted by priority fees. This changes everything: 1. MEV searchers must bid honestly. They can no longer rely on custom transaction ordering to extract MEV. 2. Searchers must bid priority fees fairly, instead of paying builders off-chain. 3. Priority fees act as a price tag on MEV. The higher the fee, the more MEV is being extracted, making it the perfect target for taxation. Now, instead of MEV quietly flowing to searchers and builders, a portion can be captured at the app layer. Read on to see how this works in practice...
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