Some Ether Miners (ETH) appear to be reengineering blocks to take advantage of DeFi opportunities in an instance of what is known as “Miners Extractable Value” or SRM.
Miners’ extractable value has long been awaited by researchers as a potential mining model for DeFi that takes advantage of the unique influence of the miners protocol. Since miners have the freedom to decide which transactions to include and in what order, this paves the way for several exploitation techniques for on-chain decentralized finance.
Anonymous researcher Frank Topbottom pointed out several instances of VPDs in the wild, which is probably the first time that these activities have been noticed by the public.
He noted several cases of suspicious transactions being undermined by large pools like SparkPool and F2Pool. These were often initiated by a small set of addresses and appeared first in blocks despite having lower gas charges than others below. The behavior is not immediately explicable by “legitimate” activities such as the distribution of rewards to minors. But it is also unclear what the purpose of these transactions is.
A more obvious case of MEV can be seen with the transactions of some minor pools, Topbottom citing 2Miners, Minerall Pool and EzilPool, which hold around 2% of the total hashrate.
One of the transactions in question has several characteristics that point to the extraction of value from miners. The first clue is that his fees are actually zero – just two Wei. This should not be confused with Gwei, or a billion Wei. Wei is the smallest monetary unit of Ether, equal to one billionth of a billionth of Ether.
Two Gwei would be suspicious enough in today’s Ethereum fee market, but a two Wei fee transaction will likely never be confirmed. In fact, it was confirmed in just 17 seconds.
The second clue is that the transaction is an arbitrage transaction that earned its originator about $ 70 on a commitment of $ 2,800. Such a trade would never be profitable with the current gas fees, so existing arbitrage traders have ignored this opportunity. While it is not known who was responsible for this transaction, it is virtually impossible that it was done without the help of the miners.
Topbottom noted that in this case, the transaction made the market a bit more efficient by balancing prices where others were not able to. But the power of minors can go far beyond that.
Due to their power to rearrange transactions at will, miners can rule every non-miner. This can be used to beat everyone in arbitrage deals, auction closeouts, and token deals, among others.
There are benefits to this power, Topbottom noted. Miners could be the most effective gatekeepers, which would help avoid situations like Maker’s $ 0 guarantee offers on Black Thursday. The flip side is that miners can submit their own $ 0 bids and completely block legitimate auction participants. This is incredibly unlikely as it would require the collusion of all miners for long periods of time, but the theoretical possibility highlights the power minors hold.
A more realistic scenario would be for the miners to compete for a high-value SRM, causing them to provoke chain reorganizations to steal the “loot” of others. This would be extremely unsettling for average users who would have their transactions removed from the chain after confirmation.
Preventing miners from extracting value from DeFi is extremely difficult, as these actions do not go against the rules of consensus. It’s also worth noting that this is not unique to Ethereum Proof of Work miners. Ethereum 2.0 players would have the same power, provided that the general architecture of the blockchain remains the same. Operators of some layer two solutions would also be able to manage their users upstream.
One potential solution under consideration is the auctioning of MEVs, which would formalize the behavior and “sell” the right to reorganize transactions at will.