The Great MEV Heist

Last week, Tether made headlines by blacklisting an address that managed to snag a staggering $25 million from unsuspecting Maximal Extractable Value (MEV) bots. How did it all unfold? Buckle up, because it involves bugs, sandwiches, and a little sprinkle of chaos in the crypto wild west.

Understanding the Sandwich Trade

If you’re scratching your head at the term “sandwich trade,” don’t worry, this isn’t about brunch. Essentially, it’s a sneaky tactic where a trader places one order just before a pending transaction and another right after. Think of it as a financial game of leapfrog – only one player takes a dive and walks away with the loot.

• Front-running: This is when the crafty trader jumps in first to make a profit off the anticipated price increase.
• Back-running: Right on the heels of the first transaction, the trader makes a second move, cashing in on the chaos.

In this particular instance, a so-called rogue validator exploited a bug in the MEV-boost relay, resulting in their spectacular heist.

The Fallout From Blacklisting

As you can imagine, Tether’s blacklisting of the address hasn’t come without its share of drama. The crypto community is reaction central, with debates sparking over censorship versus security. Arthur from Kraken called the blacklisting “bullshit,” summing up a sentiment shared by many: should they really be punishing someone for playing the game using the rules of the game?

“MEV bots take advantage of mfers and it’s all good, but someone does it to them and they get blacklisted?!”

Ouch. Moreover, as pointed out by Twitter sleuth ZachXBT, the whole blacklisting could even be a response to a court order. Now, that’s a plot twist!

Community Reactions: A Double-Edged Sword

The mixed reactions highlight the complexities of this situation in the DeFi ecosystem. Jaynti Kanani, co-founder of Polygon, warned that Tether’s actions set a worrying precedent. Imagine a future where the big players get to decide who plays and who gets grounded for being “too naughty.” Fastlane Labs co-founder Jordan Hagan echoed this concern, calling it “the most concerning DeFi development of 2023.”

The Invisible Tax of MEV

Let’s not forget what all the fuss is about: MEV bots. These little critters capitalize on the digital currency wilds by exploiting transaction information, often likened to an invisible tax on honest traders. Just when you thought you were safe sending a transaction, poof! An MEV bot sweeps in, front-running your order and pocketing that sweet profit.

To combat this, 27 Ethereum-based projects have banded together to launch MEV Blocker, aimed at shielding traders from the clutches of these opportunistic bots. Will this mark a new era of fair play in crypto? Only time will tell.