Flash Loans, Sandwich Attacks, and the Reshaping of DEX Behavior
As decentralized finance evolved, Maximal Extractable Value (MEV) shifted from a niche concept into a structural force shaping how on-chain markets operate. What was once an abstract idea about transaction ordering has become a defining feature of DeFi execution, influencing liquidity, pricing, and user experience across decentralized exchanges (DEXs).
One major catalyst in MEV’s rise was the introduction of flash loans. Flash loans allow users to borrow large amounts of capital without collateral, provided the loan is repaid within a single transaction. This innovation dramatically lowered the barrier to sophisticated strategies. Capital was no longer the primary constraint—timing, logic, and execution precision became the new competitive edge.
With this shift, transaction ordering strategies became more visible. Among them, sandwich attacks emerged as one of the most well-known patterns. By placing transactions immediately before and after a user’s trade, an executor can profit from predictable price movement caused by that trade. These strategies do not exploit bugs or break rules; they operate entirely within the protocol’s design, using public information and deterministic execution.
As MEV activity increased, DEX behavior began to change. Trading environments that were once designed for simple peer-to-peer exchange became arenas of execution competition. Price impact, slippage, and timing were no longer driven solely by supply and demand, but also by the presence of actors optimizing for transaction position within blocks.
From a technical standpoint, MEV is not a malfunction—it is a consequence of transparency. Blockchains expose pending transactions and enforce predictable rules. When execution order carries economic significance, rational participants will compete to optimize it. DeFi’s openness amplifies this dynamic, making execution a shared battleground rather than a neutral process.
MEV’s mainstream adoption also highlighted trade-offs in decentralized design. On one hand, MEV-driven arbitrage can improve price efficiency and accelerate market convergence. On the other, it introduces hidden costs for ordinary users, who may experience worse execution without fully understanding why.
The rise of MEV reframed how decentralized markets are understood. DEXs are no longer just liquidity venues—they are execution layers where competition unfolds in real time. Recognizing this reality is essential for anyone engaging with or building DeFi systems, as MEV reflects the deeper truth that economic incentives shape behavior long before transactions ever reach the chain.
