The hidden tax costing DeFi traders billions

Nearly $2 billion has been extracted from traders on Ethereum since 2020. Most people trading crypto have no idea it is happening.

The culprit is MEV, or Maximal Extractable Value. Here is how it works: You submit a trade on a decentralized exchange. Before it executes, bots see it sitting in the mempool and front-run you. They buy before you do, then sell immediately after your trade goes through. You pay more, they pocket the difference.

In March 2025, a single trader lost $714,000 to six sandwich attacks executed in just five minutes. This is not some edge case. The practice is systematic, which explains why your slippage is consistently worse than you expected and why limit orders do not work the way they should in DeFi.

In traditional finance, your limit order executes at the price you set. DeFi cannot promise that right now. Want indexes that rebalance automatically? MEV bots will manipulate prices right before the rebalance happens. Want to use sophisticated trading strategies? Every transaction is visible before execution, which creates opportunities for extraction at every turn.

The problem becomes more acute during market volatility. When order books thin out and price swings widen, MEV attacks extract even more value from regular traders. Institutions watching from the sidelines see this and stay away. They are not going to bring serious capital onchain when they cannot get reliable execution. They are used to regulate markets with clear rules about front-running, so DeFi looks like the Wild West by comparison. That infrastructure gap is what is holding further adoption back.

Retail traders can tolerate some slippage. Institutions managing billions cannot. They need execution guarantees, audit trails that prove fair treatment, and infrastructure that works invisibly in the background without creating new attack vectors.

Private mempools help. Flashbots help. But these are band-aids. The real solution needs to happen at the consensus layer, where transactions are encrypted until they are finalized. No visibility for validators, no visibility for bots, just fair execution for everyone.

This is table stakes for institutional adoption and any serious trader who is tired of getting sandwiched.

What can traders do right now? Use MEV-protected RPCs when possible. Break large trades into smaller chunks. Check your slippage settings religiously. Route through aggregators that optimize for MEV protection. But understand that these are workarounds. The real fix needs to come from infrastructure.

New blockchain architectures are being built with threshold encryption at the consensus layer. Transactions stay encrypted through the entire validation process, which means no front-running and no sandwich attacks. Just fair execution. This is how we get to the next level. This is how DeFi competes with TradFi on a level playing field.

Infrastructure should be invisible. But when it is broken, everyone feels it. MEV is the tax you pay when you use infrastructure that is not set up to defend against it. For real institutions to fully embrace web3 rails, they will need infra that gives privacy and security against front running.