What is MEV? And how to profit from it with Uroboros?
Hey dudes! Why should every conscious user of DeFi know about MEV? Because you lose a certain amount of money every time you make an exchange transaction on DEX. Since 2020, at the time of writing this post, the volume of MEV has exceeded $675 million, and over the past 30 days — $1 million 700 thousand already. Remember, youth won’t last forever guys! If you do not lose your money on MEV, you will have finances to pay for an IV and a pack of Viagra, cause in a couple of decades, not only all your money, but also your health will probably go to pay off your mortgage!
What is MEV? How are you losing money?
MEV is called an “invisible tax” that miners or arbitrage bots collect from blockchain users on Ethereum. In practice, this translates into the fact that you either pay a large transaction fee, or buy/sell an asset at a price which is less favorable to you. You need to understand that MEV manipulations do not exist on their own: they accelerate the asset price for the end user on the DEX.
A simple example: you want to exchange 1 ETH to USDT on your fav Uniswap in order to cash out the crypto and spend some wonderful days at sea with your buddies. The price at the time of exchange is 1368.24 USDT, the transaction fee is 1.85. You’re glad and immediately confirm this exchange without thinking about the difference due to price slippage. The minimum received after slippage: 1361.43. This divergence of 6.81 USDT is what exactly “MEV” is. An arbitrage bot that succeeds to intercept your transaction can potentially earn this amount (for example, by fronting it and winning a “gas fight” with other competing bots), even if he pays almost the entire amount of this difference for gas and keeps only 1 cent for itself.
Okay, 6.81 (not including gas fees) may be a small amount, comparable with a couple of Mojitos on the beach or a massage with a happy end in one of hot spots in Laos. You’re silent when your money is taken from you, and this case is no exception. But what if the volume and frequency of transactions get larger? Then your losses grow exponentially.
Here are a few basic types of MEV strategies (how bots are working):
1. Front Running. It is the process of getting a new transaction into the execution queue immediately before your transaction. For example, you have a large Ether deal on a DEX. This operation is large and is capable of pushing up the price of ETH. By keeping an eye on unconfirmed transactions in the mempool, the bot can make a profit: buy Ethereum at a low price just before you buy it, in order to subsequently sell the asset at a higher price after it rises.
2. Back Running. The bot submits transaction A to the network with a slightly lower gas price compared to an unconfirmed transaction B. Thus, A executes immediately after B within the same pool. For example, in liquidation strategies, bots place transactions as soon as the price oracle is updated to stay ahead of the competition. Or an order to sell the asset is executed immediately after a sharp increase in the price of a coin caused by a previous large purchase.
3. Sandwich. Sandwich attacks are a combination of front running + back running + real taekwondo! Let’s say your large order to buy an asset is detected in the mempool, and the bot places its front-running order in front of it in order to purchase tokens at a lower price. Then the large order is executed and moves the price up. The bot seizes the moment again and sells coins at a profit before the rest of the market participants.
4. **Uncle-bandit.** A relatively new type: the bot implements a sandwich attack based on the data found in the Uncle block. The latter, in fact, serves as the mempool.
Cumulative Extracted MEV — Gross Profit
Now you briefly know what “MEV” is, how you lose your money — and how arbitrage bots achieve this. In the following articles, we will analyze all the technical aspects in more detail.
How should users act to avoid losses and to earn?
A lot of awesome guys are now working on this solution. Some services like CowSwap offer MEV-protected trades where you can choose slippage tolerance.
Our “Uroboros” team offers a fundamentally different approach by profiting from MEV during the trading cycle and rewarding the user with cashback in the exchange asset. For example, in the case given above, by changing ETH to USDT, you receive your USDT + a cashback % in ETH. The % of cashback and the probability of getting it are floating, since there are many independent variables in this equation. But fooling a greedy MEV bot and its owner is miles better than feeding them or sitting in a defensive position due to the slippage.
Also, we are implementing a functionality where the user will choose the asset in which he wants to receive the cashback or exclude a certain asset from his cashback list. In other words, the user gets maximum freedom of choice how to use his money!
We wish “Uroboros” interface and functionality to be user-friendly to the extent, so we test our product in a closed community for co-builders and early-testers of the it. If you got interest in the functionality and feel the strength to participate, then we welcome you to join the early community! In return for your contribution, we are preparing rewards and special trading activities!
Be true! Be with Uroboros!
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