'Institute of Electrical and Electronics Engineers (IEEE)'
Abstract
Permissionless blockchains such as Bitcoin have
excelled at financial services. Yet, opportunistic traders extract
monetary value from the mesh of decentralized finance (DeFi)
smart contracts through so-called blockchain extractable value
(BEV). The recent emergence of centralized BEV relayer portrays
BEV as a positive additional revenue source. Because BEV was
quantitatively shown to deteriorate the blockchain’s consensus security, BEV relayers endanger the ledger security by incentivizing
rational miners to fork the chain. For example, a rational miner
with a 10% hashrate will fork Ethereum if a BEV opportunity
exceeds 4× the block reward.
However, related work is currently missing quantitative insights on past BEV extraction to assess the practical risks of
BEV objectively. In this work, we allow to quantify the BEV
danger by deriving the USD extracted from sandwich attacks,
liquidations, and decentralized exchange arbitrage. We estimate
that over 32 months, BEV yielded 540.54M USD in profit, divided
among 11,289 addresses when capturing 49,691 cryptocurrencies
and 60,830 on-chain markets. The highest BEV instance we find
amounts to 4.1M USD, 616.6× the Ethereum block reward.
Moreover, while the practitioner’s community has discussed
the existence of generalized trading bots, we are, to our knowledge, the first to provide a concrete algorithm. Our algorithm can
replace unconfirmed transactions without the need to understand
the victim transactions’ underlying logic, which we estimate
to have yielded a profit of 57,037.32 ETH (35.37M USD)
over 32 months of past blockchain data.
Finally, we formalize and analyze emerging BEV relay systems,
where miners accept BEV transactions from a centralized relay
server instead of the peer-to-peer (P2P) network. We find that
such relay systems aggravate the consensus layer attacks and
therefore further endanger blockchain security
