🟣 Straight to Jail

DOJ indicts two brothers for $25M exploit of MEV bots

Author

Luke Leasure
May 16, 2024

Welcome back to 0xResearch – quick hitting alpha for the crypto degens. Here's what we got for you today:

  • Notable strength in crypto and equity markets

  • DOJ case for exploit in the MEV-Boost market

  • Sonne Finance exploited for $20M

  • Pump.fun flippening

With yesterday’s CPI print meeting the consensus expectations of .3%, equity indices S&P 500 and the Nasdaq settled the day at new all time highs. With this strength, Bitcoin traded up 7.60% on the day, clearing a recent resistance at $65,500. Notably, the strength in crypto markets demonstrated remarkable breadth; every asset in the top 100 has made gains over the past 24 hours, except for PEPE. Imagine that.

With this, the probability that the Fed cuts rates at the upcoming June 12th meeting has fallen to 2.9%, compared to 20.7% a month a ago. The market likes where things stand.

Despite the recent risk on behavior, Ethereum’s performance lags. The ETHBTC pair has broken down to a new 52-week low.

The Department of Justice has charged two brothers with conspiracy to commit wire fraud, wire fraud, and conspiracy to commit money laundering for their alleged involvement in the April 2023 exploit of the MEV-Boost relay. In this exploit, a rogue validator effectively bypassed logic in the MEV-Boost relayer implementation, allowing this validator to frontrun MEV bot transactions. The sandwich attackers were sandwiched, leading to losses for multiple bots in excess of $25M, which ultimately became the malicious validator’s reward. In the indictment, it is alleged that the defendants googled terms like, “money laundering,” “exploit,” “computer fraud abuse act,” and “does the united states extradite to [foreign country].” Never a good look.

On the theme of exploits, DeFi protocol Sonne Finance was exploited for $20M. The app, which is deployed on both Optimism and Base, lost ~57% of users deposits to the exploit. While the exploit only targeted the deployment on Optimism, deposits on Base have fallen from $6M to less than $2M as users flee.

Crypto saw a major flippening yesterday, but not the one we may have expected. Pump.fun, an application for users to easily launch tokens and memecoins, brought in $1.23M in revenue over the past 24 hours, flippening Solana’s daily revenue of $828K. The Fat Protocol vs Fat App debate is alive and well.

— Luke Leasure (X: @0xMether)

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Today’s chart is brought to us by BWR’s own Dan Smith, plotting transaction fees + MEV paid to validators for Ethereum and Solana, respectively. This metric, dubbed Total Economic Value (TEV), represents the aggregate of what users are effectively paying to have their transactions included on the chain. We can see that, on May 12th, users were paying more in dollar value to use Solana than Ethereum.

The Across protocol emerges as a dominant bridge within the Ethereum and L2 ecosystem, settling notable volumes with low latency, low fees and no slippage. The protocol’s architecture is based on intents, a deviation from many of its competitors' designs of “lock-and-mint” or “message-passing.” The recent v3 upgrade dramatically expands the scope of transaction types that can be settled through Across, enabling a higher degree of cross-chain interoperability and chain abstraction.

Compute DePINs are one of the best positioned verticals in crypto for mass adoption as AI compute demand has exposed structural inefficiencies in the cloud computing and leading-edge compute markets. These structural inefficiencies could last for years, as concentrated and technically complex supply chains are moving too slowly to meet the insatiable demand for compute as the step function growth in demand for AI compute sustains.

We need this repeal for the future of our digital economy, the safe custody of cryptocurrencies and the good of the American investor.

The US government is looking to seriously inhibit people from using and accessing crypto mixing services

The insights, views and outlooks presented in the report are not to be taken as financial advice. Blockworks Research analysts are not registered broker/dealers or financial advisors. Blockworks Research analysts may hold assets mentioned in this report, further outlined in the Firm’s Financial Disclosures.