DeFi Bot Investment Brief: MEV, Arbitrage, Liquidation

Frequently Asked Questions

01.What is MEV in DeFi and why does it matter for investors?

MEV (Maximal Extractable Value) refers to profit extracted by reordering, inserting, or censoring transactions within a block. Validators running Flashbots MEV-Boost report staking reward increases of over 60 percent, making MEV a structural yield layer on top of base Ethereum staking returns. For investors, MEV bots represent a programmatic yield source tied to on-chain transaction volume rather than token price speculation.

02.How do DeFi arbitrage bots differ from liquidation bots?

Arbitrage bots capture price discrepancies across DEX pools, typically executing within a single block using atomic flash loans. Liquidation bots monitor lending protocols like Aave and Compound for undercollateralized positions, triggering liquidations to claim a bonus. Arbitrage profit depends on price divergence; liquidation profit depends on collateral quality and bonus rates, which on Aave v3 range from 5 to 15 percent.

03.What capital allocation is required to operate a competitive MEV bot?

Competitive MEV bot operation requires capital for gas priority fees, bot infrastructure, and collateral buffers. Searcher teams have reported substantial priority gas fee spend during peak periods, with infrastructure costs covering managed RPC access at entry level and dedicated full nodes at scale. Capital allocators targeting this space should model a 12-month runway with clear performance benchmarks before committing resources.