These DeFi sharks – Two trading bots managed a “heist” of several hundred thousand euros by using the concept of maximum extractable value (MEV) to their advantage. Above all, this performance shows that beyond the myths extolling the thousand and one virtues of the blockchain, the latter does not in reality escape unethical practices.
Underside and big wins: robots, “gifts”…
MEV is a strategy for arranging transactions in a block by miners, in order to take advantage of this particular scheduling. The resulting winnings are in addition to the block reward and ‘normal’ transaction fees paid to them.
MEV can harm one of the very major value propositions of blockchain, which is decentralization – and the fine speeches on the end of corruption in decentralized finance. Miners can indeed prioritize certain transactions and thus censor others, for their own interests and even to the detriment of those of other blockchain users.
How have trading robots exploited MEV for their benefit? The first bot simply aimed at an opportunity created by a $24 million exchange of stablecoins.
A trade by a trader exchanging 24.54 million in USD coin (USDC) for 22.94 million in tether (USDT) was initiated on March 24, 2022 at 7:57 AM UTC, at block 14447742, according to data from Etherscan.
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And big prize in Ethereum
As these figures show, the size of the transaction created a significant difference between the traded amounts of the two stablecoins. This price difference between when a trading order is placed and when it is executed is called splitting.
The robot took advantage of this significant drop in price. He made a gain of 275 ETH – approximately $832,000 – by first trading ETH for USDC and then USDT. He scheduled his transaction in the block following that of this exchange between the two stablecoins, paying in the process a large part of his earnings to the producers of Ethermine blocks – who therefore made sure that he did not miss his shot. The robot made, after deducting this generous gift, a profit of 10 ETH – around $30,000.
The second robot used the same principle to take advantage of a similar situation. The outcome of the operation is, however, much juicier. Winnings amount to 164 ETH – approximately $492,000 – while they only had to deposit 16.44 ETH – nearly $49,000 – to the F2Pool mining pool which has inserted its transaction in the appropriate block. The robot therefore made a profit of around 147 ETH – $446,000.
Properly configured trading bots, such as the 2 mentioned above or that of this trader who grabs all the bitcoins (BTC)bring happiness to their masters but “brutally” remind the idealists that the new finance is far from being rid of certain practices of the sharks of traditional finance.
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