Major MEV event wipes out $25 million: How this affects Ethereum validators and ETH holders
- Ethereum network suffered an exploit where a group of bots that generate funds through MEV were compromised for $25 million.
- The attack was sophisticated to the extent that a malicious validator was involved in the exploit.
- The malicious actor staked 32 ETH to become a validator and drain assets on the blockchain, while putting their stake of $57,000 at risk.
The Ethereum blockchain was hit by a sophisticated attack by a group of automated entities, bots. The bots targeted Miner Extractable Value (MEV) extractors and compromised them for $25 million in their exploit.
The most interesting part of the exploit was that the hacker put nearly $60,000 worth of their capital at risk, joining the ETH network as a validator to engage in the MEV attack.
Also read: Ethereum price shows sign of rally, will Ethereum climb to $2,000?
How a group of bots stole $25 million: MEV exploit
The MEV attack on Ethereum network turned out to be a sophisticated exploit on a series of blockchain bots that work in tandem and generate revenue by pooling together transactions with the highest fees to maximize their profits.
$25 million was wiped out, and the attacker put nearly $57,000 of their capital at risk, staking 32 ETH in the ETH2 deposit contract and joining the blockchain as a validator.
A malicious actor pooled together MEV bots and replaced transactions picked by bots with malicious ones, resulting in a theft of $25 million. The MEV bots that use the strategy to increase their profitability suffered a significant loss with the actions of the exploiter.
Major MEV event just went down!
— Hudson Jameson (@hudsonjameson) April 3, 2023
A validator is eating delicious sandwiches.
See thread for attempts at explanations and updates, from me and others. https://t.co/w7raBvYbKG
Stealing stolen funds: What does this mean?
Experts on crypto Twitter commented on the MEV exploit, calling it out for “stealing stolen funds,” however MEV is a rational strategy implemented by block producers for higher profitability. The funds are not “stolen” when extracted by a block producer since they guarantee integrity of transactions on the blockchain and support their function.
Lmao @bertcmiller and all of those flashbots scammers getting rekt because their bot got sandwiched. Who’s the thief? The thief? Or the thief that steals from the thief?
— crypterotas (@crypterotas) April 3, 2023
Therefore, the exploit by malicious actors resulted in a theft of $25 million of the MEV bots’ funds and resulted in damages to their profitability. It cannot be regarded as an exploit on “stolen funds.”
How does the MEV attack affect the ETH community and holders?
The MEV attack has now raised questions on the “honesty” or “maliciousness” of validators. While there is an honest validator specification in the Bellatrix upgrade on Ethereum, there is no centralized process and no KYC for validators.
This spec. in the Bellatrix update called "Honest Validator" seems to indicate that validators need to register for external block builders, but this isn't a centralized process & isn't governed by an entity (that could KYC validators for example).https://t.co/YjHurgLCzK
— Hudson Jameson (@hudsonjameson) April 3, 2023
This has posed as one of the challenges of designing a trustless decentralized protocol where malicious actors don’t gain access to validators and corrupt a blockchain. Experts believe such setbacks continue to pile on the technical challenges that Ethereum developers tackle in improving the protocol through Ethereum Improvement Proposals (EIPs) in subsequent upgrades.
Ethereum holders and community members that engage in arbitrage, front-running, and liquidation to profit through MEV are at the risk of such attacks by exploiters.
Author
Ekta Mourya
FXStreet
Ekta Mourya has extensive experience in fundamental and on-chain analysis, particularly focused on impact of macroeconomics and central bank policies on cryptocurrencies.
