Towards Optimal Prior-Free Permissionless Rebate Mechanisms, with applications to Automated Market Makers & Combinatorial Orderflow Auctions

Abstract: Maximal Extractable Value (MEV) has become a critical issue for blockchain ecosystems, as it enables validators or block proposers to extract value by ordering, including or censoring users' transactions. This paper aims to present a formal approach for determining the appropriate compensation for users whose transactions are executed in bundles, as opposed to individually. We explore the impact of MEV on users, discuss the Shapley value as a solution for fair compensation, and delve into the mechanisms of MEV rebates and auctions as a means to undermine the power of the block producer.