MEV Bots
Learn more about the infamous MEV (Maximal Extractable Value) bots.
MEV bots exploit the blockchain’s open and transparent nature, but traders aren’t helpless. By understanding how MEV bots operate and adopting protective strategies, you can reduce their impact on your trades. As the crypto space evolves, we can expect more innovations to make DeFi safer and more equitable for everyone.
For further tools and tips, explore our Knowledge Base and our tools, where we provide real-time data and insights to help you stay ahead of the game in decentralized finance.
What are MEV bots?
MEV, or Maximal Extractable Value, refers to the profit that bots can extract from blockchain transactions by reordering, inserting, or censoring them within a block. These bots take advantage of the way transactions are processed on blockchain networks like Ethereum, where miners or validators have the power to arrange transactions in the order they prefer.
Imagine you’re at an auction, and someone whispers to the auctioneer to bid higher just before you do, ensuring they win. MEV bots operate similarly. They monitor blockchain transactions and use algorithms to front-run, back-run, or sandwich transactions to extract value, often leaving regular users at a disadvantage.
How do they operate?
MEV bots perform their operations using various strategies. Here are some common ones:
Front-Running: Bots detect a pending transaction on the blockchain and submit their own transaction with a higher gas fee. This ensures their transaction gets processed first. For example, if you place a trade on a decentralized exchange (DEX), a bot might see your transaction and place its own to buy the asset before you. Once your transaction increases the price, the bot sells the asset back at a profit.
Back-Running: Bots place their transactions immediately after a profitable one. For instance, if a large trade is about to move the market price of an asset, a bot might buy right after that trade and benefit from the price momentum.
Sandwich Attacks: This is a combination of front-running and back-running. The bot detects a trade that’s about to occur, places a buy order before it to drive up the price, and then sells immediately after the original trade is processed. This tactic leaves the trader paying a higher price for their trade while the bot profits from the difference.
Why is this a problem?
For regular traders, MEV bots create several issues:
Higher Transaction Costs: MEV bots compete for priority by paying higher gas fees, which can increase the overall gas fees on the network.
Unfair Trades: Traders often find themselves paying more for their trades or receiving less value than expected.
Degraded User Experience: MEV bots can discourage traders from participating in decentralized finance (DeFi) platforms due to these negative impacts.
How to protect yourself from MEV bots?
While MEV bots are a challenging problem, there are several steps traders can take to minimize their impact:
Use Private Transaction Tools: Some blockchain networks and wallets offer tools to submit transactions privately. For example, services like Flashbots enable users to send transactions directly to miners or validators, bypassing the public mempool where MEV bots operate.
Slippage Settings: Adjust slippage tolerance carefully. Slippage is the difference between the expected price of a trade and the actual price at which it’s executed. By setting a low slippage tolerance, you can reduce the chances of your trade being exploited by sandwich attacks. However, too low a slippage may cause your transaction to fail.
Time Transactions Strategically: Avoid trading during periods of high network congestion, as MEV bots are more active when gas fees are high and trading volumes spike.
Utilize Decentralized Exchanges (DEXs) with MEV Protection: Some DEXs are specifically designed to prevent MEV attacks. For instance, protocols like CowSwap use batch auction mechanisms that make it harder for MEV bots to exploit trades.
Trading on Layer 2 Solutions: Compared to Ethereum's main network or Solana, Layer 2 solutions like Optimism and Arbitrum offer lower gas fees and reduced exposure to MEV bots.
Leverage Anti-MEV Tools: Use wallets or plugins that integrate anti-MEV solutions. Some platforms and tools detect and mitigate MEV-related risks during transactions.
Last updated