EigenPhi’s Discovery of “Sandwich Attacks”: The Rise of MEV Contract Profits

On April 30th, EigenPhi detected that three MEV contracts had made significant profits through “sandwich attacks”. The MEV contract starting with 0x6b75 earned a profit of $465126 from $33374 within 7 days, with a return on investment of 1400.1%. The MEV contract starting with 0x4707 earned a profit of $27204 from $18 within 7 days, with a return on investment of 64346%. The MEV contract starting with 0x0000 earned a profit of $45496 from $687 within 7 days, with a return on investment of 3145.5%.

A sandwich attacker earned over $460000 for $30000

Introduction

On April 30th, 2021, EigenPhi, a blockchain analytics firm, made headlines with its discovery of three MEV (miner-extractable value) contracts that had made significant profits through “sandwich attacks”. The attack strategy involves inserting and extracting a transaction between two other transactions to manipulate the market price in favor of the attacker. This article will delve deeper into EigenPhi’s findings and the implications of this emerging trend in the cryptocurrency world.

Understanding the MEV Contracts

MEV refers to the amount of value that miners can extract from the network beyond their block rewards. In other words, MEV contracts allow miners to choose and execute transactions that contain profitable trades at the expense of other network participants.
The three MEV contracts discovered by EigenPhi (0x6b75, 0x4707, and 0x0000) earned massive profits within seven days, with each enjoying a return on investment of 1400.1%, 64346%, and 3145.5% respectively. The sheer size of profits received begs the question whether **Sandwich Attacks** will become a prevalent practice in the blockchain industry.

The “Sandwich Attack” Explained

Sandwich attacks involve inserting and extracting transactions within a block to manipulate market prices. Attackers can earn profits by placing their transactions in between two unrelated transactions to change the price of a traded asset.
A well-executed sandwich attack can happen in seconds, and an attacker can earn a significant profit if the price was changed in their favor. While sandwich attacks are rare and require certain conditions to execute successfully, the profits from such an attack can be game-changing for small-scale miners looking to earn additional revenue.

Implications of MEV and Sandwich Attacks

The prevalence of mining pools, which account for a significant portion of Ethereum’s hash rate, has made it easier for miners to execute profitable MEV transactions on Ethereum’s blockchain. The rise of MEV and the potential profitability it presents has led to the emergence of liquidity management strategies aimed at maximizing MEV profits.
The rising popularity of sandwich attacks raises concerns regarding market manipulation, particularly in the decentralized finance (DeFi) space. If left unchecked, it could lead to instability within the blockchain industry. The attacks could drive away investors and stifle the growth of DeFi projects, which have been instrumental in driving blockchain adoption.

Conclusion

The discovery of profits from MEV contracts through sandwich attacks reveals new opportunities for miners to earn more rewards but also highlights the risks associated with market manipulation and instability in the blockchain industry. Regulators and industry players must put measures in place to identify and prevent this kind of attack, which could discourage widespread blockchain adoption.

FAQs

1. Q: What is the MEV contract, and how does it work?
A: MEV stands for miner-extractable value and refers to the amount of value that miners can extract from the network beyond their block rewards. MEV contracts allow miners to choose and execute transactions that contain profitable trades at the expense of other network participants.
2. Q: What is a sandwich attack, and why is it dangerous?
A: Sandwich attacks involve manipulating transactions’ market prices by inserting and extracting transactions between them. If left unchecked, it could lead to instability within the blockchain industry. The attacks could drive away investors and stifle the growth of DeFi projects, which have been instrumental in driving blockchain adoption.
3. Q: What can be done to prevent sandwich attacks?
A: Regulators and industry players must put measures in place to identify and prevent this kind of attack, which could discourage widespread blockchain adoption and lead to market manipulation. Additionally, raising awareness of the risks of sandwich attacks and promoting adoption of secure blockchain technologies could help prevent such attacks from happening.