DEX Manipulation: The Fight Against MEV
DEX manipulation remains one of the major problems in decentralized trading. Control over transaction ordering and access to pending orders allow certain participants to extract additional profits at traders’ expense.
Several scientific studies propose new approaches to transaction execution and protection. We examine four of the most promising.
FirstSwap: Limiting Validator Influence
Researchers have introduced FirstSwap, a new trading mechanism based on pre-consensus trade approvals.
Instead of waiting for a block to be finalized, traders receive approval from a required quorum of validators, with execution guaranteed within specified price limits.
The key difference is that transaction ordering is determined by limit prices rather than the arbitrary decisions of block producers.
The system also introduces distributed liquidity reservation, preventing the approval of trades that exceed available liquidity.
In the authors’ economic model, FirstSwap demonstrated advantages over certain alternative trading mechanisms, including stronger incentives for early order submission, improved market efficiency, and reduced losses for liquidity providers under specific conditions.
The approach does not eliminate MEV entirely, but it limits opportunities to manipulate transaction ordering.
New Cryptography Against MEV
In Adaptively Secure (Threshold) Batched IBE from Static Assumptions, researchers propose a new batch encryption scheme with potential applications in protecting blockchain transactions.
The central idea is to conceal transaction details until a predetermined stage of processing. While an order remains encrypted, exploiting its contents for front-running becomes significantly more difficult.
The proposed cryptographic construction supports batch encryption, compact decryption keys, and threshold-based decryption distributed among multiple participants.
Unlike certain earlier constructions, the scheme provides formally proven adaptive security under specified cryptographic assumptions.
It could serve as a building block for encrypted mempools, although the research does not present a ready-to-deploy DEX protection protocol.
Even Encrypted Transactions Can Be Attacked
The study How Much Must a Private Mempool Hide? identifies an important limitation of private mempools.
An attacker does not necessarily need to know the exact size of a trade to execute a profitable sandwich attack.
Using a mathematical model based on a fee-free version of Uniswap V2, the researchers demonstrate that, under certain conditions, knowing the lower bound of a trade’s size may be sufficient.
Concealing the direction of the swap, however, can make such attacks substantially more difficult.
The findings show that encryption effectiveness depends not only on the cryptographic mechanism itself but also on what information remains visible to network participants.
Even partial information leakage can preserve opportunities for MEV extraction.
MEV Protection Has Its Own Drawbacks
The study SoK: Encrypted Mempools Through the MEV Lens examines existing approaches to encrypted mempools, including Shutter and Ferveo.
The analysis highlights an important trade-off: concealing transactions can restrict harmful manipulation while also interfering with beneficial market mechanisms.
For example, hiding all transaction details before ordering can make certain auctions more difficult to operate, including mechanisms designed to return part of the extracted value to users.
Additional challenges involve performance, key management, and decentralization.
The research therefore explores programmable privacy, allowing protected transaction data to be processed according to predefined rules before being fully revealed.
What Does This Mean for DEXs?
These studies highlight three approaches to combating MEV: changing execution rules, encrypting transactions, and minimizing information leakage.
However, no universal solution exists. Even encrypted mempools can leave opportunities for attacks, while overly restrictive protections may disrupt useful trading mechanisms.
The real challenge is not simply hiding transactions, but preventing participants from abusing their privileged position during execution.
Scientific Sources
- FirstSwap: Pre-Consensus Trade Approvals for Decentralized Market Design
- Adaptively Secure (Threshold) Batched IBE from Static Assumptions
- How Much Must a Private Mempool Hide? Exact Leakage Thresholds for Sandwich Attacks
- SoK: Encrypted Mempools Through the MEV Lens