Approaches to MEV in DAG-based DLTs

Abstract

Maximal extractable value (MEV) refers to value extracted from a decentralised ledger by manipulation of transaction ordering. Although MEV can be challenging to define consistently across contexts, it is widely recognised as a significant threat to the fairness and viability of decentralised ledger technologies (DLTs), as it enables the extraction of considerable value at the expense of regular users. MEV in traditional blockchains has been extensively studied, particularly in platforms like Ethereum. In these systems, MEV typically arises from the ability of miners, validators, or sequencers to reorder, insert, or censor transactions within a block, leading to well-known attack strategies such as front-running, back-running, and sandwich attacks. MEV in DAG-based DLTs presents both similarities and critical differences compared to traditional blockchain systems. While the incentive to manipulate transaction ordering persists, the underlying structure of DAG-based DLTs (where blocks, and transactions therein, have multiple predecessors rather than a single one) creates new opportunities and challenges for extraction. Here, MEV may rather act on reordering blocks than the single transactions enclosed in a block. Most extraction methods designed for linear blockchains are ineffective or inapplicable on DAGs. Our contribution is twofold: (i) we review and provide an organic accounting of MEV in blockchain to identify key attack vectors and mitigation strategies. Furthermore, we survey the emerging MEV attack opportunities in DAG-based DLT, a useful summary for such a recent and evolving DLT framework; and (ii) building on the insights gained in (i), we propose an original mitigation strategy, which leverages fully homomorphic encryption (FHE) to enhance MEV-resistance in the Hedera’s DAG-based DLT architecture.