Some Miners Are Manipulating ETH Blocks To Exploit DeFi

According to the latest research, some miners are manipulating ETH blocks to exploit DeFi and to take advantage of the Defi opportunities which are an instance of what is termed as Miner Extractable Value concept so let’s find out more in our ETH news.

Miner Extractable value was long anticipated by the researchers as a potential exploit pattern for DeFi which leverages the miners’ unique protocol influence but there are some miners that have free reign over the transactions and their order which opens up a way for potential exploitation for on-chain decentralized finance. The anonymous researcher Frank Topbottom outlined a few convincing instances of MEV on the market which is likely to be the first time these activities have been noticed by the public.

1/11 Okay, MEV is coming
MEV is a consequence of the fact that miners (pool operators) have the right to choose the tx order in a block.
They can be the first to:
– execute arbitrage
– get access to token offerings
– perform liquidation
Plus, they may not pay a fee for this. pic.twitter.com/fKCYnvXeME

— Frank Topbottom (@FrankResearcher) September 30, 2020

He outlined a few cases of suspicious transactions mined by a few pools like F2Pool and SparkPool which were often initiated by a smaller set of addresses and appeared in the first blocks despite having lower gas fees than others. The behavior is not explainable right away by legitimate activities like the miner reward distribution but it also unclear what is the purpose of these transactions too.

A more evident case of MEV can be seen with transactions from minor pools as Topbottom noted, 2Miners, EzilPool, and Minerall Pool that hold about 2% of the total hashrate. One of the transactions in question presents a few features that point to miner vale extraction and the first clue is that the fee is zero or two Wei, not Gwei. The Wei is the smaller monetary unit of Ether which is equal to a billionth of Ether.

The second clue is that the transaction is in arbitrage trade which netted the sender about $70 out of $2800. A trade like this will never be profitable with today’s gas fees therefore there are arbitrage traders that ignore the opportunity. While it is unclear who is behind these transactions, it’s not possible that it was done without the help from the miners.

Miners can also be the most efficient keepers which will help in situations like Maker’s $0 collateral bids that happened on Black Thursday. The flip side however is that miners could send their own bids and block the auction participants entirely. This is unlikely because it will require collusion from the miners for a longer period of time but it is possible in theory.