Tether Takes Action: Blacklists Validator Address Linked to $25 Million MEV Bot Drain – Here's What Happened
Tether, the company behind the world's largest stablecoin, has blacklisted a validator address responsible for draining $25 million from Miner Extractable Value (MEV) bots.
The validator exploited a bug in the MEV-boost relay to bypass MEV bots by attempting to execute a sandwich trade, which processes an order immediately before another trade and then right after it.
Essentially, this process simultaneously front-runs and back-runs an originating transaction, on the condition that its verification status is still pending.
The validator, in this case, back-run the MEV’s transaction, leading to losses of nearly $25 million in various digital assets, making it the largest MEV exploit to date.
A validator is responsible for processing transactions and creating new blocks on the blockchain.
Blockchain explorer Etherscan has already flagged the address involved.
The attack has the potential to transform the MEV ecosystem because MEV extractors will wonder "which Ethereum validators are malicious," former Ethereum Foundation member Hudson Jameson said in a tweet.
MEV (Maximal Extractable Value) bots have been profitable by leveraging information about transactions about to be executed, often using arbitrage to capitalize on price differences between exchanges.
These bots front-run trades, purchasing currency slightly cheaper than other traders, which results in their practices being viewed as a form of "invisible" tax.
To date, 27 Ethereum-based projects joined forces to launch MEV Blocker, aiming to minimize the value extracted from traders by MEV bots.
Crypto Community Lash Out at Tether For Blacklisting the Drainer Wallet
Tether's decision to blacklist the validator address has drawn criticism from the crypto community, with some arguing that it sets a "bad precedent" for regulatory and policy-related implications.
By blacklisting the address, Tether effectively exercises its authority to censor transactions, which could be seen as a centralizing force in an ecosystem that is meant to promote decentralization.
This raises concerns about the potential abuse of power by centralized entities, such as Tether, and the implications this might have on DeFi.
Fastlane co-founder Thogard said this was the “most concerning DeFi development of 2023.” He added:
“The bot ‘victims’ signed those transactions and sent them to the relay. They were executed. The exploit wasnt in DeFi. Tether’s block implies they have an opinion on eth’s consensus / social layer.”
Meanwhile, an on-chain sleuth who goes by the Twitter name ZachXBT said that the blacklisting by Tether could be the result of a court order.
On the other hand, some noted that Tether's decision to blacklist the exploiter could be seen as a necessary security measure aimed at preventing bad actors from profiting off exploits and vulnerabilities in the DeFi ecosystem.