The cost of doing business?
$1.3M was lost on Tuesday when a Uniswap V3 whale LP made a costly fat-finger error.
However, instead of picking up the back-run profits for themself, an MEV bot paid 98% of the take as a bribe to the block’s lucky solo validator.
In the dark forest of MEV extraction, enormous sums are routinely weaponised, often to shave off mere crumbs from the amounts involved.
Amongst such cutthroat competition between ever-evolving bots, the block reward lottery's top prizes are growing. And with the increasing centralisation caused by liquid staking providers, the house (almost) always wins.
Should validators be rewarded quite so generously for sitting on their stakes while searchers seek out the opportunities only to pay hefty bribes?
Or should predatory MEV bots be grateful for any scraps they can get?
Do either of them deserve the spoils?
Despite its deceptive name, we should all be well acquainted with the risks of ‘impermanent loss’ by now, Uni V3 LPs more than most.
But far greater risks come from within.
In the meantime, MEV bot 0xfde0d1 had eaten the excess USDT worth almost $1.3M from the costly, albeit juicy, error.
Out-of-range LP positions on V3 can be used to set limit orders. One user pointed out:
aavebank.eth has added followed a similar pattern in the past where they add $2 million USDT out of range essentially setting a limit order to buy UNI in the future. However, this time they fucked up the range and essentially offered to buy $730k UNI for $2m USDT.
While the victim LP holds the ENS aavebank.eth, the address doesn’t appear to have a connection to the Aave protocol or team.
But that doesn’t mean experienced DeFi teams aren’t making similar blunders.
While previously a niche and lucrative racket, MEV has increasingly become a race to the bottom.
It may be entertaining to watch the occasional examples of on-chain karma as these blockchain predators feast upon one another, but MEV bots can also be responsible for returning frontrunned hack attempts (in this case, the bot responsible is tagged on Etherscan as having thwarted two hacks to date).
Whenever someone loses out, be it to a sandwich attack or fat-finger mishap, a blockchain predator will snap up their losses.
But pickings are getting slimmer as the arena becomes more crowded.
Bots willing to take the lowest profit margin are able to take it all, while validators sit back and feast on gradually more generous portions.
Lido certainly doesn’t think so.
So will these bumper rewards simply serve to drive up rates on liquid-staking behemoths, leading to further concentration of mainnet’s validators?
Or might it encourage more users to solo stake, hoping to hit the bribe jackpot themselves?
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Zero pity. The notorious MEV bot known as 0xbad has fallen on hard times, just like the rest of us. After 75 days of exploiting value from unexpecting users, this mempool menace backfired on its owner, creating a beautiful display of on-chain karma.
It’s not all rainbows and unicorns in Uniswap V3. A recent study suggests that ~50% of UNI V3 LPs are losing money.
Over $6.4 million was stolen from users wallets on February 28, thanks to the bad tao of Seneca. Roughly 80% of the funds were returned within a day. Clearly Seneca knew there were issues, but chose the reckless route.