Uniswap: Stuck between MEV bots and sandwich attacks
- The presence of MEV bots on Uniswap grew, impacting users, who incurred losses.
- However, the price of UNI continued to grow.
Uniswap [UNI], one of the largest DEXes in the crypto sector, has always shown dominance in the space. However, MEV bots and sandwich attacks have been a constant pain for the protocol.
Realistic or not, here’s UNI’s market cap in BTC’s terms
Too many bots
For context, MEV (Miner Extractable Value) bots are automated programs used by miners to maximize their profits. They search for profitable opportunities in blockchain transactions.
A sandwich attack occurs when a MEV bot positions itself between a trader’s transaction and the blockchain. It can manipulate prices, causing the trader to buy at a higher price or sell at a lower price.
MEV bots aim to capture these price differences, earning profits at the expense of regular traders. This practice can lead to unfair advantages and market inefficiencies.
According to Arkham Intelligence, a user lost a whopping $700,000 in just 12 seconds due to MEV Bots. This individual, identified as 0×568, made a big error when creating a new pool for WBTC-CRV on Uniswap v3.
They accidentally added $1.5 million worth of liquidity, well above the fair market price.
MEV Bots swiftly swooped in, aiming to swap CRV tokens for valuable WBTC. The first bot managed to grab $1.36 million worth of WBTC by trading $730,000 worth of CRV tokens.
However, the bot’s profit was only around $260 because it had to pay a significant $527,000 in ETH to the validator for the transaction. This incident highlights the risks associated with MEV and the importance of careful transactions.
MEV Bots instantly rushed the pool to swap CRV for valuable WBTC – with the first bot making off with $1.36M in WBTC for only $730K in CRV.
But the bot only netted ~$260, paying $527K of ETH to the validator just to make this transaction.
Tough luck! pic.twitter.com/3JbVwhwYoj
— Arkham (@ArkhamIntel) November 4, 2023
This incident could raise concerns among liquidity providers on Uniswap. They might worry about accidental errors and the influence of MEV Bots, which aim to take advantage of such situations.
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Liquidity providers could thus become more cautious about adding liquidity to pools to avoid potential losses due to price discrepancies. It might also lead to a reassessment of the procedures for creating and managing liquidity pools on decentralized exchanges.
State of UNI
Despite these challenges, the UNI token remained unaffected. At press time, UNI was trading at $4.89 and had grown by 3.14% in the last 24 hours.