Original author: Terry
Original source: Vernacular Blockchain
Not long ago, several top MEV robots were attacked by hackers. After the hackers disassembled the MEV robot's transaction package, they replaced some of the transactions and stole the MEV robot's funds, resulting in a loss of approximately US$25 million. This once again illustrates the " The crypto industry is a paradise for technicians and hackers."
According to the latest data from Flashbots, from January 2020 to now, the Ethereum network MEV has brought in nearly $700 million, including about $2 million in the last 30 days. So what exactly is MEV and why can it bring such great value? ?
Source of total revenue of Ethereum network MEV during 2022.01-2023.01: Flashbots
What is MEV?
MEV, the full name is Maximum Extractable Value (Maximum Extractable Value), previously also known as Miner Extractable Value (Miner Extractable Value) - because of factors such as Ethereum's conversion to PoS, block producers are no longer the only ones to determine transaction ordering. .
So the definition of MEV now refers to a measure of the profits earned by validators, sequencers, etc., through their ability to arbitrarily include, exclude, or reorder transactions within the blocks they produce. In short, MEV can be simply understood as on-chain arbitrage in the form of front-running transactions.
Before that, we need to review the basic knowledge of Ethereum network transaction packaging. As we all know, a transaction fee in the Ethereum network = Gas (Used) * Gas Price (Gwei), where:
Gas is the total amount of Gas consumed by the transaction. Generally, the amount of Gas consumed by each transaction is fixed;
Gas Price (Gwei) is the price we are willing to pay for each unit of Gas in this transaction, so it is the key to directly determining whether the block producer is willing to quickly package the transaction;
The current Gas Price (Gwei) is mainly a "bidding" game - the Gas Limit capacity of each Ethereum block is fixed, that is, the pit positions are limited, so naturally whoever bids higher (the Gas Price is higher) will win. Transactions will be packaged into blocks for confirmation first.
It is clear that the key to having room for maneuver lies in the "problem of transaction sequencing." Especially with the substantial growth in activities on the Ethereum chain caused by DeFi, the room for maneuver is also getting larger and larger.
To take the simplest example, a user made a large transaction on Uniswap, which resulted in a large slippage and created an arbitrage opportunity of $10,000 in income by moving bricks in different DEXs (or CEXs). In this case, friends who are always paying attention to on-chain arbitrage opportunities will undoubtedly immediately submit a transaction to capture it after noticing a similar opportunity.
At this time, it is actually the competition of robots. Countless on-chain trading robots will notice this arbitrage opportunity and give higher transaction fee quotations, starting a bidding war for arbitrage rights. This kind of bidding is called "priority" Gas Auctions" ("Priority Gas Auctions", referred to as PGA).
At this time, it depends on which robot moves faster. It is essentially an open game process. Any trading robot that aims to find arbitrage opportunities on the chain competes based on its ability. As "players" on the same track, everyone is relatively Fair.
The potential profit of $10,000 that everyone is competing for is MEV. At the same time, the difference between the auction settlement price and the total MEV is the winner’s profit (for example, if an arbitrage robot pays a $7,000 bidding fee to the block producer, the remaining $3,000 is left to the arbitrageur).
The fierce battle for MEV
In short, MEV exists objectively and is unavoidable. There is a view that "there will always be a certain number of MEV in a distributed system."
Because like the situation mentioned above, to a certain extent, the arbitrage robot is responsible for arbitraging the market price until it is equal to the real price, making the on-chain market more efficient without harming the interests of the original trader. This can be called benign. MEV transactions.
There are also some interesting ideas for using MEV. For example, there was a project at EthDenver 2022 that aimed to solve the phishing problem by open source benign flashbots:
It can detect when funds are transferred out of the wallet. Once it detects that the funds are transferred to an untrusted address, the MEV leader will immediately send a transaction with double the gas fee to transfer all the user's assets to the backup address.
Of course, since MEV itself is neutral, the "malignant" MEV transactions behind the interest drive are naturally unavoidable:
Still with the $10,000 example mentioned above, don’t forget the possibility of the “referee” personally ending the transaction – if the block producer (now the verifier) “does not follow martial ethics” and copies and reviews the arbitrageur’s transactions, Therefore, you can package your own transactions;
Or for the same transaction, the arbitrage robot will identify the user's transaction before execution and "sandwich" the transaction between its own buy and sell orders, artificially raising the execution price, and then the robot will sell it immediately to obtain profits;
There was even a phenomenon of robots "clamping" each other, causing the MEV competition market to become a real Ethereum DeFi "dark forest" that outran the robots - a strategic competition without any emotion between robots. cut off from each other;
These vicious MEV transactions have attracted many stakeholders to cut the cake, causing the Gas Price to continuously push up and become a ruthless bidding game. It will undoubtedly greatly reduce the user experience and hinder the healthy development of the network. It has also been developed and formed. A huge profit redistribution market.
After all, as long as the MEV is large enough, front-runners will be willing to pay gas fees hundreds of times higher than ordinary transactions through vicious competition. This will cause the already tight blocks to be filled with many high-fee transactions that have no practical significance. Causing congestion is also a waste of block resources.
The growing importance of long hill courses
After Ethereum switched to PoS, the original situation where only block producers (mainly large mining pools) could intervene in transaction ordering was changed. Currently, many strategy robots and other network participants (also known as DeFi transactions) focus on DeFi transactions. More and more people, called searchers, are also participating in the process of extracting MEV, vying for trading profits.
Therefore, the range of people acquiring MEV in the PoS context has become larger, but everyone’s purpose has not changed, they are all to obtain maximum benefits, and we cannot underestimate the huge imagination space hidden in the long slope track of MEV:
Ultrasound.money data also shows that since the merger of Ethereum, the consumption of the top-ranked MEV Bot in the ETH burning rankings has even exceeded that of the ENS registered contract, exceeding 2,000 ETH, and there are also several MEV The Bot's Ethereum consumption also exceeded 1,000 ETH.
This also shows from the side that the MEV track has gradually become more intense since the merger of Ethereum. Competition and arbitrage among various MEV robots full of innovative gameplay on the chain are common.
Just like the recent high-impact SushiSwap smart contract vulnerability incident, the Ethereum staking protocol Lido captured a MEV reward of 689.02 ETH on Epoch 193,186 during this security incident and directly paid it into the Lido vault.
Although SushiSwap later stated that it would communicate with Lido to explore solutions, this means that it may not be directly divided among Lido users.
But this also proves that as MEV continues to grow as a category, especially the opportunities for multi-chain MEV continue to expand (now mainly within the Ethereum ecosystem), Rollup, application chains and super DApps are bound to regard MEV as new revenue source, and even part of subsequent revenue will be returned to users in the form of Gas subsidies or other discounts.
All in all, MEV will continue to be an integral part of the development of the crypto industry, especially as DApps continue to make product decisions with MEV in mind, MEV will become more and more core components of revenue and business models. important.
(The above content is excerpted and reprinted with the authorization of partner MarsBit, original text link | Source: Vernacular Blockchain)
Statement: The article only represents the author's personal views and opinions, and does not represent the objective views and positions of the blockchain. All contents and opinions are for reference only and do not constitute investment advice. Investors should make their own decisions and transactions, and the author and Blockchain Client will not be held responsible for any direct or indirect losses caused by investors' transactions.
This article "Dark Forest" MEV: The crazy "arbitrage activities" hidden under the water of Ethereum first appeared on Blockchain.
