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What is an MEV Bot?

An MEV bot is a software program designed to extract Maximum Extractable Value (MEV) from blockchain transactions. MEV refers to the value that can be extracted by reordering, including, or excluding transactions within a block. MEV bots operate on blockchain networks like Ethereum, where miners, validators, or bots can manipulate the transaction order for profit.

Usage

Common Strategies Used by MEV Bots

Arbitrage

Detect price differences for the same token across multiple DEXs and profit by buying low and selling high.

Sandwich Attacks

Front-run a large trade to drive up the price, then back-run the trade to sell at a profit.

Liquidation

Monitor DeFi lending platforms for undercollateralized loans and trigger liquidations for a fee or profit.

How it works

How MEV Bots Operate

  1. Monitoring the Mempool:

    • MEV bots constantly scan the mempool, where unconfirmed transactions are waiting to be included in a block.
    • They identify profitable opportunities such as arbitrage, liquidations, or sandwich attacks.
  2. Exploiting Opportunities:

    • Arbitrage: Exploit price differences between decentralized exchanges (DEXs).
    • Liquidations: Trigger loan liquidations to earn rewards.
    • Front-Running: Submit their transactions with higher gas fees to prioritize them over others.
    • Back-Running: Place transactions after a targeted transaction to capitalize on its effects.
  3. Submitting Transactions:

    • MEV bots use strategies like paying high gas fees or working with private channels (e.g., Flashbots) to ensure their transactions are prioritized by miners or validators.

Benefits and Drawbacks of MEV Bots

Benefits:

Market Efficiency: Arbitrage bots help align prices across markets.

Platform Stability: Liquidation bots contribute to the health of DeFi platforms by clearing risky loans.

Drawbacks:

Harm to Users: Strategies like sandwich attacks can lead to losses for regular traders.

Increased Gas Fees: Gas wars between competing MEV bots raise transaction costs for all users.

Centralization Risk: Bots working closely with validators can undermine blockchain decentralization.

What is MEV Bot Development & How to Create Your Own One

A particular kind of cryptocurrency trading bot called a Maximum Extractable Value (MEV) bot is made to take advantage of arbitrage possibilities in blockchain transactions in order to maximise earnings. The potential profit a bot may earn from the block production process on a blockchain is known as MEV. It involves carefully rearranging, adding, or removing transactions from a block. Although it originated with Ethereum, this idea may now be used to other blockchain networks.

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