Trading DeFi is fraught with financial risks, due to its volatile and free-wheeling environment. As if crypto trading was not already dangerous enough, in the last few weeks highly-effective bots emerged that ate up unwary investors’ value.
The robots that are stealing orders from vulnerable users in Ethereum’s mempool constantly search for victims.
You could technically argue that they are not “stealing” Nothing in particular. They are merely trying to maximize value (MEV) as efficiently and effectively as possible.
Ostensibly, they’re just playing by the rules — and finding loopholes — better than everybody else. Just so happens that their actions are also at the cost of everyone else. In traditional finance this would be an obvious case of criminal behavior. However, in decentralized financial systems, legalities may not be as clearly defined. At least not yet.
Mike Ippolito of the Bell Curve Podcast spoke with Blockworks in regards to Robert Miller’s tweets about a MEV exploit. Robert Miller is a Flashbots steward, product lead, and a Twitter user. The bot in question, known as jaredfromsubway.eth has had great success with the technique called a “sandwich attack.”
Sandwich attacks are two quick swaps that surround a trade of the victim. It begins with an innocent trader sending their order to the public mempool, at which point the bot — always searching — spots its opportunity.
This attack starts with a “frontrun” and then moves on to the trade’s back-end. “sandwich.” Miller posted an example of a bot that exploits the pepe (PEPE), ether (ETH) and ether trades.
Miller describes the frontrun as selling pepe to an attacker in exchange for ether. Miller explains that the frontrun causes ether’s price to rise just before the target trade. After the bot has risen the price of ether the victim swaps his pepe to ether and receives less money than they expected due to the increase in the price.
The bot then proceeds to sell the ether for memecoin. This is cheaper now because the sell order was made by the victim.
The bot, unaware of the victim, gains 0.04 Ethereum and 300 memecoins in this example. The bot has made millions in the last few weeks from this seemingly small act.
Only the best snipers can be considered.
Ippolito claims that this bot is very effective as it “takes a very different approach.” It starts with a large supply of a token — in this case, pepe — so “there’s just much less competition.”
“The reason why more bots don’t do that is just because warehousing becomes very difficult,” “He says”
“You don’t really want to hold a whole bunch of your assets in something that’s as volatile as something like pepe, because any profits that you get from the sandwiching could be offset by declines from the memecoin basically failing.”
“But I guess jaredfromsubway is extremely good at sniping.”
It is noteworthy that the bot works best at “sniping,” It was suspicious that a huge supply of Pepe had been purchased within 10 minutes of its initial deployment. The company was able to acquire the inventory it needed for its MEV plan thanks to this lucrative purchase.
Flashbots’ Protect RPC can be used to prevent becoming the victim of such attacks. This tool redirects public transaction requests to a mempool that is protected. The tool then sends the transactions in a private manner, making them unreadable to bots.
Vance Spencer (co-founder at Framework Ventures) believes the recent increase of MEV activity in the US is positive for the MEV market. He also notes that “MEV is turning back on.”
Michael Anderson from Framework Ventures concurs, noting the engagement level on pepe. “green shoots” The possibility of eventually escaping the bear market “moving past it.”
When it comes to good or bad “MEV is gonna be a benefactor for all of that.”
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