Trading bots that capitalize on the flaws in Ethereum’s infrastructure have generated $ 107 million in revenue last month and $ 314 million since the beginning of 2020.
The Miner Extracted Value (MEV) arbitrage strategy assumes that bots identify and select deals on DeFi services pending confirmation in Ethereum mempools. Bots can use several methods to profit from a targeted trade. First, the bot looks for a profitable trade in the mempool. He then copies that trade and raises the gas price for his trade. Thus, the miner confirms a copy of the transaction before the original. The Flashbots research group writes in a Medium article:
“After checking the Ethereum blockchain, starting from the first block of 2020 (9193266), we found MEV transactions, of which at least $ 314 million (~ 540 thousand ETH) were extracted from January 1, 2020.”
According to Flashbots, in January alone, MEV transactions made $ 57 million, or 47,600 ETH, and $ 107 million over the past thirty days. For example, this Flashbots flagged trade indicates the creation of a permanent repeat order to protect it from trading robots. The original trader was able to “fight back”, but also at the expense of bots that waste gas on an unsuccessful transaction and increase the load on the Ethereum blockchain.
Failed transactions usually increase the average value of a transaction in the chain, which is paid for by ordinary users who are forced to pay a commission of more than $ 20 per transaction during periods of peak blockchain load. Such transactions remain on the blockchain, increasing its size. In other words, MEV negatively affects Ethereum performance.
It is important to note that MEV is not run by miners, but mainly by trading bots, which are often run by firms that control market makers on major DeFi platforms. In fact, there is little evidence that Ethereum miners have used MEV methods so far. Some ETH mining pools have even created their own networks to prevent MEVs from working, like SparkPool’s Taichi network.
The research team warns that the Flashbots dataset is only a rough estimate of MEV activity, as it requires active chain management to identify arbitrage bots. The group continues to update its methodology to better reflect real-life MEV statistics.
