Tether, the issuer behind leading stablecoin Tether (USDT), blacklisted an address that drained bots of maximum minable value (MEV) for $25 million last week.
The address in question exploited a bug in the MEV-boost relay to thwart MEV bots trying to execute a sandwich swap. The sandwich occurs when an order is placed immediately before the transaction and another immediately after. Essentially, the trader will execute upstream and downstream at the same time, sandwiching the original pending trade in between.
In this case, the red validator address stepped in to support the MEV transaction, resulting in losses of nearly $25 million in various digital assets, making it the largest MEV exploit to date. Etherscan has already reported the address, warning of its involvement in the exploit.
The USDT address held approximately $3 million in USDT at the time of the blacklisting and a total of $21 million in various other ERC-20 tokens.
The blacklisting of the red validator’s address has drawn community backlash for its approach to censorship. Arthur, an engineer at crypto exchange Kraken, called the blacklisting “bullshit,” saying MEV bots also take advantage of traders and the sandwich trade they attempt to execute is as nefarious as the depletion of their funds.
“MEV bots take advantage of mfers and it’s fine, but someone does it to them and they get blacklisted?!”
Another chain detective who goes by the name of Twitter ZachXBT said that Tether’s blacklisting could be the result of a court ruling. Cointelegraph has contacted Tether to confirm but has not received a response as of press time.
Jaynti Kanani, the co-founder of Polygon, called Tether’s action is a “bad precedent”, while Fastlane Labs co-founder Jordan Hagan called it “the most concerning DeFi development of 2023”. He added that the main issue is Tether’s willingness to block or unblock “large amounts based on activity in the consensus layer (Beacon Chain)”.
This is the most concerning DeFi development of 2023.
The “victims” of the bot signed these transactions and sent them to the relay. They were executed.
The exploit was not in DeFi. Blocking Tether implies they have an opinion on Eth’s social consensus/layer.
Slippery slope… https://t.co/I4Lf2N6WtG
— Thogard (@ThogardPvP) April 11, 2023
MEV bots make more money by taking advantage of information about trades that are about to be executed. Most often, arbitrage is used to do this (taking advantage of price differences between exchanges).
When an MEV bot notices that someone else is considering buying a coin, it is positioning itself to benefit from the slight price increase its offer will likely bring. At the head of the trade, the bot skips the queue and buys the currency for a little less. The bot then cuts ahead of the trade and buys the cryptocurrency cheaply.
Related: Ethereum validator cashes in 689 ETH from MEV-Boost relay
MEV bot practices are often seen as a form of invisible tax. Recently, 27 Ethereum-based projects teamed up to launch MEV Blocker. The MEV blocker aims to minimize the amount of value extracted from traders.
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