Unveiling MEV Bots: The Automated Strategies Behind Blockchain Arbitrage

What is MEV Bot? A glimpse into the essence of on-chain arbitrage bots

MEV, short for ‘Maximum Extractable Value’, refers to the additional revenue obtained by optimizing transaction ordering in the blockchain. MEV bots utilize this mechanism to autonomously search for and execute high-profit operations on the chain.

What are the Arbitrage strategies of MEV Bots?

These Bots profit in the DeFi world through a variety of strategies, including but not limited to:

• Inter-exchange price difference arbitrage:Compare the price difference between different DEXs to achieve buying low and selling high.
• Front-run trading (Frontrun):Complete the transaction before the user and profit from price changes.
• Price sandwiching (sandwich strategy):Amplify slippage to profit from front-running user transactions.
• Flash loan combination strategy:Completing complex arbitrage paths using zero collateral loans.
• Clearing Arbitrage:Automatically execute collateral liquidation to earn rewards on the lending platform.

What is the execution process of a sandwich attack?

Sandwich attack is a typical MEV technique, the process includes:

1. Listen to memory pool transactionsIdentify trades with large order sizes or high slippage.
2. Predicting Price ImpactAssess the market reaction that the target trade may cause.
3. Initiate two arbitrage trades:

- **Pre-buy**Buy assets before the target trade with high Gas.
- **Sell later**Sell immediately after the target transaction is completed to earn the price difference.

1. Lock in profits: Complete arbitrage by taking advantage of short-term market fluctuations.

How can beginners build a simple MEV Bot?

Deploying a basic MEV Bots typically involves the following steps:

• Set up on-chain node monitoring environment (recommended to use WebSocket)
• Decode and analyze trading data, filter target trades
• Set the appropriate Gas price according to the strategy to improve transaction ordering
• Write the smart contract call logic to achieve arbitrage execution

Reference tutorial：Click to view the deployment guide

What are the risks and limitations of MEV bots?

While MEV Bots can bring high returns, the risks should not be ignored:

• Intense competition: Multiple Bots competing for the same opportunity reduces the success rate.
• High operating costs:High Gas and failed transactions may devour profits.
• Market extremely volatile:A slight mistake could lead to losses in the opposite direction.

How do ordinary users and projects deal with MEV?

To prevent being ‘ambushed’ or ‘front-run’ by bots in trading, you can take the following measures:

• Using private transaction channels (such as Flashbots):Avoid being publicly monitored.
• Set a reasonable slippage protection mechanism, reduce the probability of being pinched.
• Time lock and Gas limit mechanism:Reduce high-frequency malicious interaction space.
• Improve trading priority: Pay slightly higher Gas to increase the success rate of packaging.

In conclusion: MEV is an opportunity as well as a challenge

MEV Bot is an indispensable part of the DeFi ecosystem, driving on-chain market efficiency but also bringing new games and risks. Understanding how it works can help you better control or prevent such arbitrage bots.

Want to learn more about MEV? Welcome to visit Gate LearnKeep learning!