🤖 MEV Hack: The Robots Got Frontran

zkSync Chain Growth | Sepana Search for Web3

April 03, 2023

Happy Monday.

Ethereum Shapella upgrade (staking withdrawals) is coming soon, Arbitrum sees a lot of drama, and an Ethereum MEV bot gets attacked for $20M. Let's dive in.

In Today's Email:

What Matters: MEV bots got hacked 🤖
Products: Sepana, search for web3 🔍
Charts: zkSync Era growth, BTC holder realized price 📈

We plan to start a weekend issue breaking down crypto businesses. Check out our issue from yesterday covering Etherscan, here.

Reply to this email to let us know what protocols/companies you want us to cover!

Narratives: Projects launching on zk-related chains, including ConsenSys Linea, Polygon zkEVM, and others.

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WHAT MATTERS

MEV Bots Got Hacked

Pixabay | @fszalai

State of play: An exploiter has hacked major MEV bots, resulting in a $25M+ loss. The exploiter is a rogue Ethereum validator. The exploit happened by taking a transaction bundle from the MEV bots and replacing it with its exploitative transaction.

@punk3155 Sandwichers both frontrun and backrun. They can do this because 'bundles' define the frontrun buy tx, victim buy tx, and backrun sell tx in one, and trust validators to execute all together. Here, I think the validator inserted their own sell tx after the sandwicher frontrun.
— Triv (トリブ) | Revenge Arc (@cryptotriv)
7:01 AM • Apr 3, 2023

What’s next: MEV searchers *were* potentially one of the most profitable fields in crypto over the past year. With this exploit, that might no longer be the case. This event will also change the thinking about whether or not Ethereum validators will interfere with bundles.

Our take: This will become an interesting discussion in the coming weeks as the very nature of MEV bots is front and back running transactions.

Usually, flashbot validators are not allowed to temper with bundles and are slashed if they do so.
However, the slash amount was likely less than the profit amount in this attack so the validator pulled it off anyway.
This is a design flaw in flashbots and was bound to happen.
— Mudit Gupta (@Mudit__Gupta)
10:59 AM • Apr 3, 2023

For builders: Ethereum block optimization and transaction dynamic is a highly technical field that's often overlooked. I would focus on understanding what's the business model first, before diving heads into the building in this space.

For investors: Understand the business model of MEV-related protocols. It's not a simple topic. Here's an amazing source from Theblockcrunch, written by Catrina Wang.

Take a peek at our new referral reward at the bottom of this issue. Share this newsletter and receive our list of 100 smart crypto investors' wallet addresses 👇

PRODUCTS OF THE WEEK

Sepana: Search for Web3

Sepana

What is Sepana: Sepana is a decentralized search tool that helps users query blockchains and dApps. The long-term goal of the firm is to build a fully decentralized peer-to-peer search protocol.

Sepana raised $10M in November 2022.
The round was led by Hack VC and Pitango First, with participation from Protocol Labs, Lattice Capital, and Balaji Srinivasan
Sepana enables any web3 project to integrate an advanced search (cross-chain search, full-text support, ML-based querying), web3 resolvers (IPFS, ENS, and others), and web3 first recommendations, discovery, and personalization with a simple API

Other cool products:

Hundrx, a web3 for Twitter.
Menthol Protocol, a decentralized regeneration protocol.
Reap, a tool to pay bank bills from crypto wallet directly.
Fregg, a Tamagotchi-style web3 games by KairosNFTs.
MoonPier, an NFT presale tool.

CHARTS OF THE WEEK

zkSync Era Growth

Delphi Digital

Post Arbitrum and Optimism airdrops, zkSync is the next L2 that *might* potentially do an airdrop. Last week, the zkSync Era mainnet was launched. TVL has since hit $20M.

Our take: The next generation of L1 and L2 chains will be based on zk-tech. We've seen multiple iterations such as Linea from ConsenSys and Polygon's zkEVM chain.

To watch: How would value gets dispersed across these chains? In the short to medium term, projects building across these chains will be doing incentives and rewards. There's an opportunity to capitalize on their growth hacking strategy.

Bitcoin Holder Realized Price Flips

Glassnode | @jimmyvs24

State of Play: For the first time since May 2019, Bitcoin's short-term holder realized price flipped the long-term holder's realized price. This had only happened 3 times in the past. Each time signaled the end of a bear market.

Our take: While no indicator is a guarantee, this adds to the argument that almost all possible negative events had happened in crypto over the past year. Maybe...? 🐂

QUICK BITES

Arbitrum sells token amid 77% disapproval.
US National Futures Association issues compliance rule.
Bittrex shuts down US operations.
US Government sells $215M in BTC, plans to dump $1.1B.
UK Banks are reluctant about the country's crypto plans.
FTX proposes order for Deltec to return assets linked to Ryan Salame and Alameda.
Japan regulators flags four crypto exchanges.
MEV bots got hacked for $20M.

MEME & NOTEWORTHY READS

@SplitCapital's governance post on Arbitrum token sale drama.
DLNews' article about Waves founder's role in $530M lost.
Our Network's read on NFT lending.

OpenAI explaining the business model
— gaut (@0xgaut)
5:27 PM • Apr 2, 2023

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.