Tether blacklists address that drained $25M from MEV bots in largest exploit yet!

In the Brief:

  • Tether blocked an address that took $25M from MEV bots
  • MEV Blocker was created by 27 Ethereum-based projects to reduce value extracted from traders
  • Blacklisting moves and MEV exploits raise concerns about censorship and blockchain network reliability
  • Total bans on addresses could limit trading

4 - 6 minute read

Tether, the issuer behind the USD-backed stablecoin Tether (USDT), has blacklisted an address that drained nearly $25 million from Maximal Extractable Value (MEV) bots. Explaining that a MEV bot’s primary function is to extract value from traders, Tether blacklisted the address that exploited a bug in the MEV-boost relay to outsmart the MEV bots trying to execute a sandwich trade. Reports have already flagged the address, warning of its involvement in the exploit. Experts noted that the blacklisting of such an address attracted pushback from the community for its censorship approach, and described it as a “bad precedent” by Tether, citing the potential issue with Tether’s willingness to block or unblock “large amounts based on activity in the consensus layer (beacon chain).”

MEV bots make more money by taking advantage of information about transactions on the blockchain. Most often, arbitrage is used to do this. Front-running the trade, the bot skips the queue and buys the cryptocurrency for a tiny bit less than the going market price. The bot than cuts in front of the trade and purchases the cryptocurrency for a tiny bit less than the going market price. The practices of MEV bots are often considered a form of invisible tax. Recently, a total of 27 Ethereum-based projects joined hands to launch MEV Blocker with the goal to minimize the value extracted from traders.

As far as the blacklisting is concerned, even as Tether’s actions may be interpreted as a censorship move, Arthur, an engineer at Kraken crypto exchange, was among the few who called the blacklisting “bulls***” and reminded that MEV bots take advantage of traders as well, and the sandwich trade they were trying to execute was as nefarious as the draining of their funds.

Rouge validator address. Source: Etherscan
Digital assets held in blacklisted validator address. Source: Etherscan

MEV exploits and blacklisting moves such as the recent one by Tether can shake the reliability of the blockchain networks and lead to mixed reactions from market participants who not only question the blacklisting moves but can become increasingly cautious about the entire blockchain ecosystem in the future.

The Bottom Line

MEV exploit on blockchain continues to raise concerns not only on the issue of privacy but also the possibility of censorships in the future. Experts predict that what Tether did could be a precursor to more extreme actions including a total ban on some addresses, which could be used by other entities to restrict traders when they find a trade against their interests. Since arbitrage is one of the tools utilized by traders on blockchain exchanges, potential tools to minimize MEV cutting is necessary for a healthy and stable blockchain environment.

Disclaimer: The content in this article is provided for informational purposes only and should not be considered as financial or trading advice. We are not financial advisors, and trading carries high risk. Always consult a professional financial advisor before making any investment decisions.

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