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A Hunt in the Ethereum Dark Forest: Arbitrage Robots Arbitrage 130ETH

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Learn about the sandwich arbitrage trade and the anti-arbitrage attack.

Title: "The Path of Defi by a Hunt in the Dark Forest of Taifang: Arbitrage Robots Arbitrage 130 ETH"

Original source: Babbitt

In response to the recent Sandwich Trading, developer Codeforcer created an ERC20 bait token called "Salmonella" that made 130 ETH in 24 hours, which tells us something about the dark forest of antagonism on the Ethereum network Mblockquotepool.

以太坊黑暗森林的捕食游戏：套利机器人反被套利 130 ETH

Here's what Codeforcer wrote:

Those who follow the Ethereum Mblockquotepool movement have been aware of the sudden rise of sandwich trading, and for readers who are not familiar with the concept, sandwich trading is a very interesting strategy that works by trading before and after the victim trades and arbitraging through the resulting slippage.

For example, when someone makes a trade in an asset, the arbitrageurs buy the same asset before him (artificially inflating the price of the currency), and then sell it at a profit after the other party has successfully bought it.

This strategy was very risky in the past because Ethereum could not guarantee that a transaction would succeed. MBlockquotePool is an interesting place to be, but it is not a safe place.

However, asFlashBotsSuch as the rise of MEV (miner extractable value) services, which allow traders to create "sandwich bundles" in which 3 transactions are either executed entirely or not executed at all. At the same time, the activity of miners' trading teams has also grown, incorporating "sandwich packets" directly into the blocks they dig.

The combination of these two innovations has allowed sandwich traders to engage in some "risk-free" arbitrage, which has left a lot of people in a mood of excitement.

But in reality, "risk-free" is not really risk-free.

In order to explain to everybody in the mblockquotepool risk of playing games, I demonstrated a new called "Salmonella" (Salmonella ‌) of new trading strategies, it involves using gm's false start trading Settings. The purpose of the sandwich trade is to take advantage of the slippage created by the trading of others, and the purpose of this strategy is to punish the exploiter.

A quick analysis of the blockchain shows that a team called "Ethermine" is currently executing most of the sandwich transactions on the market, and after identifying the initial goal, I started analyzing their setup.

At the time of this writing, EtherMine's setup was fairly basic, relying on the Uniswap Router-to-execute trades, and the trading history shows that most of EtherMine's trades were Revert trades, and that its smart contracts themselves held tokens for various failed trades. Considering this, I set out to create my Salmonella contract.

The premise of the Salmonella contract is very simple; it is a regular ERC20 token that behaves exactly like any other ERC20 token in a normal use case. However, it has some special logic to detect when someone other than the named owner is making a transaction, and in these cases, it returns only 10% of the specified amount.

Here is the "toxic" transfer function:

I deployed the Salmonella contract, and then set up a simple Uniswap pool that contained Salmonella and the Ethereum. I then replicated the sandwich trade detection data using binary detection to create a series of bait trades that Ethermine and other sandwich traders would consider an interesting opportunity.

Finally, I wrote an execution architecture that allowed me to quickly cancel trades, change gas prices, and reset the state of the trap Uniswap pool.

After a couple of espresso shots, I get to work and issue a series of bait trades, carefully setting the price slightly below the market gas level to keep the trade in the MBlockquotePool, but if the price starts to drop, I cancel the trade.

Within a few hours, I met my first target and stole 68 ETH from its robot, and a few hours later, I stole another 35 ETH from their contract.

Overnight, I went through my Salmonella contract and found that my experiment had cleared out 17 other sandwich contracts, all of which were much less lucrative than Ethermine.

I continued this strategy for a few days, emptying a bunch of sandwich trade contracts along the way, but my alpha strategy quickly failed as the contract deployers adjusted their Settings to better detect my toxic tokens.

All in all, it was an interesting experiment, and I present it now to the community as a warning. Being a Defi depraved is fun, but you have to be careful when trading, as the game is highly adversarial.

See Mempool!