In the vast and evolving landscape of blockchain technology, we encounter a plethora of terms and concepts. Today, let’s uncover one of the crucial terms in the crypto ecosystem – Maximal Extractable Value (MEV). As a notable player in this space, InsurAce is introducing innovative solutions to address the challenges associated with MEV.
What Is MEV?
MEV is akin to an “invisible tax” levied by miners and trading bots from users. It encapsulates the maximum value a miner or validator can extract by modifying the order of transactions while crafting a block on a blockchain network. The key players in extracting MEV are not only the miners but also the “searchers,” savvy operators who deploy algorithms to identify profitable trades and automate the process.
Diving Into Different Types of MEV
The tactics used to extract MEV range from front running to back running, sandwich attacks, DEX arbitrage, and liquidation. In front running, bots scan for profitable transactions and duplicate them, offering a higher gas price to ensure their transaction gets picked by validators first. Back running happens when a transaction is placed immediately after an unconfirmed target transaction, a strategy often employed around new token listings.
A sandwich attack is a more complicated scheme that combines front-running and back running, enabling the bots to profit from the price difference. Meanwhile, DEX arbitrage capitalizes on price discrepancies between two DEXs. Lastly, in liquidation, the searchers identify which borrowers can be liquidated and race to submit a liquidation transaction to grab the liquidation fee.
The Positive and Negative Sides of MEV
While MEV is often seen in a negative light, it’s important to understand that it can have positive implications. MEV can help maintain accurate prices through DEX arbitrage and ensure fast and efficient liquidations on lending protocols. However, some aspects of MEV, such as sandwich attacks, lead to increased slippage and worse execution, creating an array of challenges for users and the network.
InsurAce’s Potential Solutions: Sandwich Cover and Liquidation Cover
To combat these challenges, the InsurAce team proposes two groundbreaking insurance products: Sandwich Cover and Liquidation Cover. The Sandwich Cover would compensate users for losses incurred from slippage due to sandwich attacks. The Liquidation Cover would cater to users who are unable to top up their collateral due to MEV, resulting in a failed transaction.
Risk Containment & Transfer
Addressing MEV’s risks involves constructing a capital pool, a robust strategy that aligns the interests of bots, InsurAce, and users. This collaborative model allows for sharing premiums and MEV rewards, ensuring stable revenue for bots and building a mutual pool for future payout.
Of course, creating such innovative solutions involves tackling technical and product design challenges. But with collaboration and smart strategies, such as partnerships with companies like EigenPhi, InsurAce aims to continually refine these solutions for maximum user benefit.
To learn more about how MEV and our innovative insurance products can enhance your crypto experience, we encourage you to read “Flash Boys 2.0: Frontrunning, Transaction Reordering, and Consensus Instability in Decentralized Exchanges“.
Join us on our journey to create a safer, more secure blockchain world. Visit our website, explore our suite of products, and let InsurAce help safeguard your digital assets!
InsurAce, a decentralized global risk cover protocol, offers mutual protection for digital assets against risks such as hacking, smart contract bugs, and stablecoin de-pegging. The platform features two membership-governed mutual pools and uses the $INSUR token for membership rights. With smart contracts issuing covers and a seamless user experience, the need for intermediaries is eliminated. The platform’s unique selling points include Low Fee Portfolio Cover, a Wide Product Range, SCR Mining, and Reliable Transparent Payouts.
InsurAce ‘s innovative approach includes portfolio-based coverage for a diversified risk management tool, support for DeFi protocols across multiple blockchains, and permissionless access for users. InsurAce is committed to continuous evolution, working on fair claims handling, adaptable coverage options, and collaboration with other DeFi protocols.