MEV Issues on Solana: Analyzing the Trading Mechanism Behind the Meme Token Craze

Recently, meme tokens in the Solana ecosystem have become the market focus. From BONK to Dogewifhat, and even to some deliberately misspelled celebrity meme tokens, they have sparked a frenzy among crypto users. Among them, Dogewifhat has even landed on mainstream trading platforms, with a market cap exceeding $3 billion. On March 15, the BOME token initiated by crypto artist Darkfarms surged over 47 times within 24 hours, with trading volume exceeding $300 million.

However, with the rise of the meme craze, some problems have also emerged. Users often encounter sandwich attacks when purchasing meme tokens on decentralized platforms on the Solana chain, resulting in higher purchase prices and losses. This type of attack falls under the category of MEV (Maximum Extractable Value). So, what exactly is MEV? What impact does it have on the blockchain ecosystem? How does Solana address the issues caused by MEV? Let’s explore these questions together.

MEV and Trading Opportunities

MEV stands for Maximal Extractable Value. This concept originally originated from the Miner Extractable Value in the Bitcoin network, which refers to the behavior of miners obtaining additional rewards by reordering transactions in a block. With the development of blockchain technology, the concept of MEV has expanded to various public chain networks.

MEV can be seen as a "tax" that blockchain network maintainers charge ordinary users. Although this seems like a burden, MEV plays an important role in the development of blockchain networks and the stability of the ecological economy.

Common MEV strategies include:

1. Atomic Arbitrage: Utilizing price differences between different liquidity pools for arbitrage, which helps to balance asset prices.

2. Liquidation: In on-chain lending operations, liquidation of unhealthy margin positions is performed to maintain the stable operation of the protocol.

3. Sandwich Attack: Profit by front-running ordinary users' transactions, buying first and then selling within the same block.

In addition, early purchase behaviors in activities such as IDO and INO also fall under the category of MEV.

Solana's MEV Mechanism

Solana uses a PoS consensus mechanism, but due to its high requirements for node operation, most validator nodes are located in large data centers. These nodes can leverage network advantages and parallel design to process more transactions, thus earning more block rewards.

In the Solana network, 50% of the transaction fees collected by validators are burned, which is done to incentivize validators to process as many transactions as possible within a specified time. The block time of Solana is about 400 milliseconds, which means that to take advantage of MEV, one must compete for low latency rather than high fees.

MEV Strategies on Solana

1. Garbage trading: This was a common early method for front-running, but it can lead to network congestion or even interruptions.

2. Priority gas fee: A new mechanism introduced by Solana that aims to reduce junk transactions by increasing gas fees to gain transaction priority.

3. Jito-Solana: Similar to Ethereum's Flashbot, it introduces a mempool and block space auction mechanism. Users can submit transaction bundles to validators running Jito-Solana and bid, with the highest bidder's transaction being prioritized.

Currently, the Jito-Solana client has captured 66% of the market share for validator node clients, becoming the mainstream validator client for Solana. However, during the recent meme token craze, sandwich attacks initiated through Jito have caused considerable distress for ordinary users.

Correct Understanding of MEV

MEV is not a phenomenon that can be completely eliminated. The focus of research should be on how to leverage MEV to benefit regular users and applications within the ecosystem. For example, Jito guides Solana validators to choose its client through MEV, increasing the diversity of clients; MEV can also be used to rescue assets of users and protocols, as well as to redistribute the profits generated by the network.

Overall, MEV is a double-edged sword. It can bring negative impacts, but it can also provide impetus for the development of blockchain networks. The key is to balance the interests of all parties, making MEV a positive factor in promoting the healthy development of the blockchain ecosystem.