Analyst suspects Ethereum miners of manipulating block contents

The growth of decentralised finance could push Ethereum miners toward dishonest play. An analyst and cryptocurrency researcher using the pseudonym Frank Topbottom noticed a suspicious clustering of transactions in blocks.

Typically, at the start of a block, transactions from the pool’s miners are added, followed by all transactions in order of decreasing gas price. But amid the DeFi boom the picture changed — transactions in blocks began to be arranged to extract miner-extractable value (MEV). Until now this MEV had been regarded only as a theoretical method of manipulating block contents.

1/11 Okay, MEV is coming
MEV is a consequence of the fact that miners (pool operators) have the right to choose the tx order in a block.
They can be the first to:
— execute arbitrage
— get access to token offerings
— perform liquidation
Plus, they may not pay a fee for this. pic.twitter.com/fKCYnvXeME

— Frank Topbottom (@FrankResearcher) September 30, 2020

“MEV is the consequence of miners (pool operators) being free to choose the order of transactions in a block. They can be first in arbitrage, in gaining access to token offerings, in liquidations. Moreover, they may not pay for it,” wrote Frank Topbottom.

The researcher noted that in some blocks generated by the SparkPool, transactions that would not normally have appeared at the top due to their low fees were frequently first.

3/11 However, the DeFi boom led to the fact that more often, txs with not the highest gas price began to be the first in blocks. In some Spark Pool blocks, the first places in the block were occupied by txs from some address, although the price for gas in them was ~1 gwei. pic.twitter.com/c8Ow1Opw3P

— Frank Topbottom (@FrankResearcher) September 30, 2020

Similar things could be seen in F2Pool blocks: some transactions were suspiciously often appearing first when gas prices were low. In the analyst’s view, this indicates MEV.

4/11 Similar things can be seen with F2Pool. Txs of some accounts were suspiciously often appearing first of all in blocks, while their gas price was lower than that of other txs. These txs are often token swaps, which could lead to frontrunning users and extracting MEVs. pic.twitter.com/fuwZG40Z27

— Frank Topbottom (@FrankResearcher) September 30, 2020

The researcher noted that in some blocks generated by the SparkPool, transactions that would not ordinarily have appeared at the top due to their low fees were frequently first.

The most unusual transaction was one that, under normal circumstances, would hardly ever have reached the network: its processing fee was only 2 wei (0,000000002 Gwei). It appeared in the block in just 17 seconds.

5/11 Now let’s move on to the explicit MEV, which is expressed in the priority execution of arbitrage transactions for a fraction of a gwei. Four pools (2Miners: SOLO and PPLNS, Minerall Pool, EzilPool), which have mined about 2.5% of blocks in the last week, participate in it. pic.twitter.com/C9NbfuBioz

— Frank Topbottom (@FrankResearcher) September 30, 2020

According to the analyst, this is either collusion among pool operators or ownership by a single entity, or bribes for priority placement in the block.

“In any case this raises serious concerns, because miners could start mining MEV more often and at a larger scale. The proposed countermeasures, such as MEV auctions, have not yet been implemented. This poses a threat to Ethereum’s future,” the researcher says.

Even Ethereum 2.0 will not solve the problem, since stakers will be able to carry out similar manipulations.

In September, transaction processing fees brought Ethereum miners a higher income than rewards for mined blocks. This happened for the first time in the history of the second-largest cryptocurrency.

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