Deep Impacts of MEV on DeFi, Liquidations & User Experience

MEV’s Impact on DeFi: Efficiency Gains vs Structural Distortion

MEV plays a double-edged role in DeFi.

On one hand—it drives price convergence on-chain; improves AMM/cross-market arbitrage efficiency.

On the other—it can lead ordinary users into worse slippage/unfair execution due to front-running behaviors.

Positively—arbitrageurs fill market gaps between DEX prices so AMMs don’t drift too far off fair value.

Negatively—lending protocols/DEXs may have states “reverse optimized” due to competitive ordering; e.g., large user trades get sandwiched or liquidations monopolized by select participants—creating bad incentives.

On-chain User Experience: From Attacked to Protected

Ordering competition most directly impacts user experience through uncertain trade execution.

Common pain points include:

• Trades being front-run—worse execution prices result
• Orders sandwiched—extra slippage incurred
• Gas fees spike due to bidding wars

Yet—with Flashbots/MEV-share/protective RPCs emerging—user experience is improving.

Some wallets auto-route trades through protected channels—avoiding public mempool exposure as infrastructure filters malicious MEV for users.

Thus—user experience is evolving from passive victimhood toward system-level protection.

On-chain Liquidations: More Efficient Yet Prone to Monopolistic Overcompetition

Liquidation is central for DeFi lending—and one of the most stable sources of MEV value.

Positively—liquidators’ precise monitoring lets protocols quickly remove risk—maintaining overall capital health.

Negatively—a few high-frequency actors can monopolize liquidation rights using faster networks/superior simulations—gaining structural advantages.

In some protocols this overcompetition leads to liquidation bidding wars—spiking gas fees; protocol-side revenue grows but user-side losses also escalate.

MEV & On-chain Security’s Complex Relationship

MEV’s impact on security is also two-sided.

Arbitrageurs/liquidators uphold economic order—syncing prices/making lending systems more stable.

But excessive MEV incentives can tempt validators into collusion/reorgs—or even trigger severe chain attacks.

Security has become a research focus—with PBS/EIP-1559/decentralized builders/trusted relayers all aiming to reduce security risks arising from ordering power struggles.