INJECTIVE — The role of the MEV RESISTANT in the INJ ecosystem
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📌 The unique feature of the project: MEV Resistant.
In this place, I want to show the official comparison between the Injective and other well-known blockchains. As you can see we can find here, for example, the biggest one which is Bitcoin but also Ethereum and Polkadot.
I think everyone knows them and use them almost every day.
But now just stop for a while and take a look at the comparison! What you can see? Apart from “basic” advantages like speed and average fee per transaction, we can find one important difference.
The Injective blockchain is MEV Resistant and in this article, I will tell you what it means and why it’s so important for all users and developers as well.
📚 What is MEV?
Miner/Maximal Extractable Value (MEV) is a concept in decentralized finance (DeFi) that refers to the maximum amount of value that can be extracted from a blockchain network through a series of transactions. This value can come from a variety of sources, including arbitrage opportunities, liquidations, and other market inefficiencies.
MEV is a measure of the potential profit that can be earned by miners or other participants in the blockchain network who have the ability to order transactions and determine the order in which they are processed. By strategically ordering transactions, these participants can potentially earn additional profits by exploiting market inefficiencies and capturing value that would otherwise be lost.
While MEV can be seen as a form of rent extraction, it also has the potential to improve the efficiency and stability of DeFi markets by incentivizing market makers and other liquidity providers to keep prices in line with the broader market. Additionally, the ability to extract MEV can also help to offset the costs of transaction fees and other expenses associated with participating in DeFi markets.
However, MEV can also lead to negative outcomes such as front-running and other forms of market manipulation. To address these concerns, various protocols and tools have been developed to help mitigate the risks associated with MEV, such as MEV-protected transactions and MEV auctions.
📚 MEV extraction techniques.
There are a few well-documented examples of MEV.
We are going to focus on the two most common ones.
I. Front-running.
In the context of blockchain networks, front-running is a type of attack where a miner or other participant can exploit their knowledge of a pending transaction to execute another transaction that takes advantage of the price movements resulting from the pending transaction.
This can happen when a trader observes a pending transaction in the network’s mempool, and they execute a transaction of their own that is designed to profit from the pending transaction before it is confirmed on the network. For example, if a trader observes a large buy order in the mempool, they might execute a transaction to purchase the same asset before the buy order is confirmed, which could drive up the price and allow them to sell the asset at a profit.
Similarly, a miner might observe a pending transaction that includes a large gas fee, and they might prioritize their own transaction that includes a higher gas fee in order to profit from the higher fees.
Front-running attacks can be seen as a type of MEV extraction, where a participant in the network is able to profit from their knowledge of pending transactions. However, they can also be seen as an unethical practice, as they provide an unfair advantage to those with privileged information. As a result, there have been efforts to develop techniques to prevent front-running and reduce the impact of MEV on blockchain networks.
II. Sandwich Attack.
In a sandwich attack, an attacker places two transactions around a victim’s transaction in the same block. The first transaction is designed to take advantage of the victim’s transaction, while the second transaction is designed to take advantage of the price movements caused by the first transaction.
For example, suppose a victim places a large buy order for a particular token on a decentralized exchange. An attacker can place a sell order for the same token just before the victim’s buy order is executed, which can cause the price of the token to drop. The attacker can then place a second buy order for the token after the victim’s buy order is executed, which can allow them to purchase the token at a lower price and sell it back to the victim at a profit.
The sandwich attack can be seen as a type of MEV extraction, where the attacker is able to profit from their privileged position in the network by taking advantage of the victim’s transaction. However, like front-running attacks, sandwich attacks can be considered unethical, as they provide an unfair advantage to those with privileged information.
Efforts are being made to reduce the impact of sandwich attacks and other MEV extraction techniques on blockchain networks, including the use of transaction privacy techniques and the development of more efficient transaction ordering algorithms.
📌 How INJECTIVE deals with MEV?
Frequent Batch Auction (FBA) is a key feature of the Injective that aims to provide a fair and efficient trading mechanism for all users. One of the advantages of FBA is that it is resistant to MEV (Miner/Maximal Extractable Value), a phenomenon that occurs when miners or other actors extract value from a blockchain network by prioritizing their own transactions or manipulating the order in which transactions are included in the blocks.
FBA works by collecting and sorting orders submitted by users into batches, which are then executed at fixed intervals. During each batch, buy and sell orders are matched, and the clearing price for the batch is determined. Since all orders are processed at the same time, there is no advantage for miners to prioritize their own transactions or manipulate the order in which transactions are included in the blocks, which eliminates MEV opportunities.
Additionally, Injective has implemented a set of features that further enhance the MEV resistance of FBA. One such feature is the use of verifiable delay functions (VDFs), a cryptographic technique that introduces a delay in the block production process, making it difficult for miners to manipulate the order of transactions.
Another feature is the use of stake-based governance, where users who hold the native INJ token can vote on proposals that govern the platform’s operation. This helps to ensure that the platform operates in a fair and transparent manner, with no single party having undue influence over the network.
In summary, FBA on Injective is a MEV-resistant trading mechanism that offers a level playing field for all users. By eliminating the advantages that miners or other actors might have in traditional order book models, Injective is providing a fair and efficient platform that enables users to trade in a secure and transparent manner.
