A new report claims that transactions on the Ethereum blockchain network may be vulnerable to ‘frontrunners’, or certain kinds of arbitrage bots that attempt to exploit pending transactions. Dan Robinson, the Paradigm research partner who authored the report, said that the problem could become worse.
These ‘frontrunner’ arbitrage bots monitor Ethereum’s ‘mempool’, which is the set of transactions that have yet to be confirmed on the network. Once the bots identify a vulnerable transaction, they attempt to copy the transaction and replace the receiving address.
Robinson explained that these bots are typically searching for specific types of transactions, such as DEX trades or oracle updates.
He also said that these bots can execute transactions and copy profitable internal transactions generated by the execution trace. In other words, if the first transaction sets off a chain reaction of other transactions, those can also be exploited.
A Failed Rescue Plan
Therefore, Robinson’s rescue plan was to try and hide the transaction from the bots in the first place.
Indeed, in conjunction with a small team of smart contract and Ethereum security engineers, Robinson attempted to send a transaction that would bait the frontrunner bots.
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“In addition to burying the call as an internal transaction, we would split the transaction in two: a set transaction that activates our contract, and a get transaction that rescues the funds if the contract has been activated,” Robinson explained.
However, even though the plan was well-conceived, it did not succeed as “the monsters had devoured us,” Robinson wrote.
He also said that the problem could get worse: “Today, the frontrunners are just bots,” he wrote. “Tomorrow, it will be miners.”
And, in fact, “miners today leave money on the table by not acting on these opportunities,” he said. “In the future, they will reorder and submit transactions in their mempools for their benefit. Even worse, they could reorg blocks mined by other miners, in an attempt to steal Miner Extractable Value (MEV) which was not claimed by them, resulting in chain instability.”
However, Robinson added that there could be a solution: Optimism, a Paradigm portfolio company, “has an ambitious vision of how MEV can be redirected for the benefit of the ecosystem, as part of its layer-2 scaling solution, optimistic rollup.”
Until then, keep an eye out.