Original author: Beosin
Meme tokens in the Solana ecosystem have been the focus of the market recently.BONK, Dogewifhat or some deliberately misspelled celebrity meme tokens have become the targets of crazy pursuit by crypto users. Dogewifhat is even listed on Robinhood Crypto and Binance, with a market value of over US$3 billion. On March 15, crypto artist Darkfarms launchedThe BOME token increased more than 47 times in 24 hours, with trading volume exceeding US$300 million.
The problem with the meme craze is that when users purchase meme tokens on Solana Chain’s decentralized platform,frequently attacked by sandwiches,As a result, the purchase price of meme tokens is too high and the users suffer losses. This type of bot is a MEV attack,What is MEV? What impact does it have on the blockchain ecosystem? How does Solana handle issues caused by MEV?Today Beosin will analyze it one by one for everyone.
MEV and trading opportunities
MEV stands for Maximal Extractable Value, which is translated as the maximum extractable value. Initially MEV refers to Miner Extractable Value (miners can extract value). In the BTC network, minersEarn rewards beyond block and network fees by reordering transactions in blocks.But in fact, MEV has nothing to do with the type of blockchain network. All public chain networks actually have similar situations, so MEV has been expanded from Miner Extractable Value to Maximal Extractable Value.
MEV is like a tax that is collected by the maintainers of the entire blockchain network from ordinary users who use the network. This may seem like a burden, but MEV plays an important role in the development of blockchain networks and the stability of the ecological economy.
Since miners/validators can reorder transactions within a block, MEV is often used in the following strategies:
1. Atomic Arbitrage
If arbitrageurs find that there is a price difference for the same trading pair in different liquidity pools on the chain, then the arbitrageurs will use MEV to strive for their transactions to exist in the same block to make a profit. This arbitrage behavior can balance the asset prices of different liquidity pools,
2. Liquidation
When it comes to on-chain lending business, bad debts are not avoided. Lending agreements often allow third-party liquidators to participate in the liquidation of collateral.Keep the protocol stable by liquidating unhealthy margin positions.For example, in MakerDAO, if users mortgage ETH and other assets for borrowing, MEV robots will be responsible for liquidating and making profits.
3. Sandwich attack
Using the price calculation mechanism of AMM, profits are made by preempting the purchase transactions of ordinary users, buying before the victim in a block, and then selling before the victim.
There are other profitable activities such as IDO, INO, preemptive purchase of tokens, minting NFT, etc., which can also be used to make profits using MEV.
Solana MEV
Solana is similar to public chains such as ETH and uses PoS to ensure security. Due to the extremely high requirements for Solanas node operation, ordinary users cannot run Solanas verification nodes. Most of Solanas validation nodes are located in data centers that handle massive amounts of data. Validation nodes hosted in data centers can take advantage of network advantages and parallel design to process more transactions and obtain more block rewards.
50% of all transaction fees collected by validators are required to be burned.The purpose of this is to incentivize validators to process as many transactions as possible within the allotted period.
Solana’s on-chain fee destruction hits a new high in recent years: https://dune.com/21co/solana-key-metrics
On Solana, a block is produced approximately every 400 ms. Previously, due to Solana’s first-come-first-out transaction processing mechanism,To take advantage of MEV one must compete for low latency rather than high fees.Being able to read the block state first means being able to execute profitable transactions with a higher probability.
Previously, to utilize MEV on Solana, you needed to run a node to read the latest network status and be a high-stake validator. This solution is demanding and costly.
Solana front-running strategy
1. Spam transactions
Previously, due to Solana’s first-in-first-out transaction processing mechanism,Spam trading has always been the most common method of front-running.This method is not valid on Solana. Many people have used this method before on Friend.tech of the Base chain.Front-running profit. However, this method requires the verifier to process a large number of failed transactions. In severe cases, it may overload the verifiers processing capacity, lead to inconsistent consensus, and finally force the network to interrupt.
2. Priority gas fee
Prioritized gas fees are part of Solana’s new upgrade,Designed to address and reduce transaction spam by creating new incentives for transaction prioritization.The priority gas fee determines priority inclusion in the block (a more costly method) based on the gas level, thereby helping to reduce spam transactions.
Introducing this mechanism will increase the cost of generating spam transactions. However, the priority gas fee needs to always be high enough to ensure that spamming senders are incurring substantial costs in real terms.
also,The introduction of prioritized gas fees enables users to express their desire for priority confirmation of transactions in a fair and competitive manner.This mechanism of Solana is actually similar to Ethereum. We can see Solana’s gas war:
Spend 21.78 SOL to confirm the transaction: https://explorer.jito.wtf/bundle/a6fb6ad4f7f4ad1f797c2115f688e6bc178f2609a1a420769af97a17b6dbde4c
3. Jito-Solana
Jito-Solana is like Solana’s Flashbot,By introducing mempool and block space auction mechanism,Users submit transaction packages they wish to be included in blocks along with client bids for those packages to validators running Jito-Solana. The highest bidder wins and their bundle is committed on-chain, creating an additional revenue stream for validators and their stakeholders. 100% of the tips paid are paid to the verifiers and their stakers:
https://dune.com/21co/solana-key-metrics
Currently, Jito-Solana client accounts for 66% of the verification node client market share.Become the mainstream authentication client for Solana.The validator MEV rewards and the number of validators using the Jito client (currently 814) indicate that more and more Solana participants are considering or are already practicing how to use MEV to capture/distribute profits on Solana.
In this Solana meme craze, sandwich attacks launched through Jito have made ordinary users miserable. Not long ago Jito announced that it would temporarily shut down its mempool to reduce sandwich attacks:
https://twitter.com/jito_labs/status/1766228889888514501
How to correctly view MEV?
MEV is not something that can really be eliminated.The focus of MEV research should be on how MEV can be used to benefit ordinary users and applications in the ecosystem:For example, Jito guides Solana verifiers to choose their clients through MEV, which increases the diversity of Solana clients. Of course, currently due to its network effect, it has led to certain centralization issues; using MEV to save users and protocol assets; using MEV to The benefits generated by the network are redistributed. These are the aspects that MEV is beneficial to the entire blockchain network ecology.
