Introduction
Miner Extractable Value (MEV) bots have become a prominent feature in the cryptocurrency world, particularly within the Ethereum network. These bots are designed to identify and exploit profitable opportunities within the blockchain, but they have also been associated with scams and controversial practices. This wiki provides an in-depth look at MEV bots, their functionality, and the ethical considerations surrounding their use.
What is MEV?
MEV stands for “Miner Extractable Value” or “Maximum Extractable Value”. It refers to the potential profit that miners or validators can generate by selectively reordering, censoring, or including specific transactions in a block. MEV stems from the flexibility of transaction processing in the Ethereum network.
MEV is too coming up in the NFT market. Techniques used in traditional MEV opportunities can be applied in the NFT space. For example, seekers can program trades to be first in line to buy a popular NFT or buy an entire set of NFTs in one trade.
MEV bots explained
MEV bots are software applications programmed to monitor the Ethereum blockchain for new transactions, identify profitable opportunities and execute those transactions on behalf of their owner. These bots aim to capture as much of the MEV as possible and can take various forms such as flash boats, arbitrage bots, and liquidation bots.
Arbitration bots: An MEV arbitration bot monitors transactions decentralized exchanges (DEXs) and takes advantage of price differentials. For example, it can execute a buy order just before a large buy order on a DEX, taking advantage of the subsequent price increase.
Sandwich Attacks: A sandwich attack is a strategy where the MEV bot places its trades between large buy and sell orders. This manipulation can lead to profit for the bot at the expense of other traders.
Liquidation Bots: Some MEV bots focus on liquidating troubled crypto investor accounts. These bots can automatically seize and sell collateral when the value falls too low, to make a profit from the liquidation process.
Typical MEV bots
Flash bots: It is an independent project that allows seekers to submit MEV transactions to validators without revealing them to the public mempool. On July 26, 2023, Flashbots announced it had raised $60 million in a Series B round led by Paradigm, highlighting its importance in the MEV landscape.
Jito Labs: Jito Labs, a Solana MEV software, focuses on maximizing the benefits on the Solana blockchain. On August 11, 2022, Jito Labs announced the completion of a $10 million Series A round, co-led by Multicoin Capital and Framework Ventures, with participation from Solana Ventures and others, highlighting its role in the evolving MEV room.
MEV Bot Profits
MEV Bots are very active in decentralized exchanges (DEXs). According to a analysisthey account for a significant portion of the trading activity, taking up 50% of the trading volume Uniswap is consumed by MEV bots.
OwnPhi, a leading company specializing in MEV and liquidity data analytics, provided a case study to illustrate the profit potential of these bots. On February 27, 2023, the creators of a specific sandwich bot brought it to life. By April 17, it had gained public attention, contributing to more than 60% of blocks and leading to an increase in Ethereum’s gas costs. While the bot was slow to make profits at first, it capitalized on a popular altcoin trading trend, making $2.7 million in just one week and reaching a total of $6.3 million on May 8. Using 7082 tokens for sandwich attacks and sticking to certain altcoins like PEPEthe bot managed to outperform its competitors and generate significant profits.
However, MEV bots are not without risks. They can be targeted by hackers. On April 3, 2023, several top MEV bots were focused, leading to a loss of approximately $25 million. This incident highlights the potential vulnerabilities of MEV bots and underscores the importance of security measures in their operation.
Ethical Considerations
MEV bots have been associated with both legitimate profit-making methods and controversial practices. Some strategies, such as sandwich attacks, have been criticized for their manipulative nature. In addition, the use of MEV bots has sometimes resulted in increased transaction costs and network congestion.
MEV Bot scam
The MEV bot concept has also been used in scams. In 2021 and 2022, there was a spate of fraudulent schemes where scammers promised to show victims how to create a MEV trading smart contract. Victims were instructed to deposit Ether, which was then routed to the scammer’s wallet. As of the date of investigation, these scams have resulted in significant losses, with some reports indicating that more than $250,000 has been stolen.
Regulation and supervision
The world of MEV is largely unregulated, allowing for practices that could be considered unethical or illegal in traditional finance. Efforts are being made to make MEV more accessible and reduce the negative effects, but the lack of regulation remains a concern.
Conclusion
MEV bots represent a complex and multifaceted aspect of the cryptocurrency landscape. While they offer profit opportunities, they also raise ethical questions and are associated with fraudulent activity. Understanding the mechanics, strategies and potential risks of MEV bots is essential for anyone involved in the crypto space.
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