MEV and Arbitrage Extraction

MEV, or Maximal Extractable Value, and arbitrage extraction refer to the profits captured by participants who identify and exploit price inefficiencies in blockchain markets. Arbitrageurs constantly monitor decentralized exchanges to find opportunities where the price of an asset differs between venues or deviates from its peg.

They execute transactions that capture these differences, simultaneously correcting the price and earning a profit. In the context of stablecoins, this activity is beneficial because it helps maintain the peg.

However, MEV can also be harmful if it involves front-running or sandwich attacks that disadvantage other users. Understanding the balance between beneficial arbitrage and harmful MEV is a key challenge for protocol designers who want to incentivize stability without enabling exploitation.