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Ethereum Gas Fees Fall to 4-Year Low But High-Transaction Bots Still Pay Thousands

Last Updated June 24, 2024 11:32 AM
James Morales
Last Updated June 24, 2024 11:32 AM

Key Takeaways

  • On Saturday, average Ethereum gas fees fell below 3 gwei for the first time since January 2020.
  • However, high MEV bot activity continues to drive up fees for ordinary users.
  • The Ethereum community is considering ways to minimize bots’ impact on fees.

On Saturday, June 22, the median gas fee for an Ethereum transaction fell to just 2.9 gwei, its lowest level since January 2020. Many observers celebrated the event as a major success for the ecosystem, signaling the end of high fees in the post-Dencun era.

But with rival platforms (blockchain-based or otherwise) offering zero fees at the point of use, Ethereum still has room for improvement. And what better place to start than the problem of MEV bots?

How MEV Bots Drive up Gas Fees

MEV, or Miner Extractable Value, refers to the additional profit miners or validators can make through their ability to reorder, include, or exclude transactions within the blocks they produce. This phenomenon has significant implications for blockchain ecosystems, particularly Ethereum, where MEV bots are rampant and have a considerable impact on gas fees.

Ethereum’s MEV model revolves around the public mempool, where transactions are broadcasted and visible to all network participants before being mined into blocks. MEV bots scan this mempool to identify arbitrage opportunities, front-running, and sandwich attacks. 

By paying higher gas fees, these bots ensure their transactions are prioritized by validators, driving up gas fees for everyone else on the network.

Bots Among Most Active Ethereum Addresses

MEV Bots are often some of the most active Ethereum addresses. For instance, in the last 24 hours, a bot  responsible for 7,435 transactions was the single largest gas spender on the network, forking out over $190,000 worth of ETH and accounting for 9.55% of all fees.

While the prevalence of bots isn’t exclusive to Ethereum, the platform’s open mempool and high DeFi activity means it suffers more acutely from MEV-induced fee hikes than other blockchains.

However, leading figures in the space have proposed potential Ethereum improvements that could mitigate their effect on gas fees.

Vitalik Buterin Proposes Solutions for Ethereum’s MEV Problem

Ethereum founder Vitalik Buterin recently addressed the MEV problem in a blog post  arguing that the community should pursue a two-pronged approach focused on MEV minimization and MEV quarantining

The first strategy revolves around minimizing the information available to block producers, thus reducing the revenue bots are able to capture. The second involves accepting the existence of the MEV economy but trying to limit its impact on fees by separating the task of ordering blocks from the rest of the validation process. 

One way to achieve MEV minimization would be to promote what Buterin calls “MEV-free alternatives to Uniswap.”

Because of its public liquidity pool model, Uniswap creates significant MEV opportunities for bots, which exploit small price fluctuations that occur between trades being initiated and blocks being printed. In contrast to Uniswap’s peer-to-pool system, Decentralized Exchanges (DeXs) like CoWswap deploy a peer-to-peer model that limits the trading data available to bots before it is posted to the blockchain.

Meanwhile, at the protocol level, Buterin highlighted the potential for encrypted mempools to prevent MEV strategies such as sandwich attacks, which place transactions before and after trades to exploit them for profit.

Although he said it is worth pursuing, Buterin noted that MEV minimization alone won’t be sufficient and Ethereum will need some kind of MEV quarantining too. To that end, he welcomed moves to introduce a concept known as proposer-builder separation (PBS).

Proposer-Builder Separation

Under the current model, Ethereum validators create and broadcast blocks to the rest of the network. But going forward, the Ethereum roadmap includes plans to transition to a PBS model 

PPBS splits the tasks of creating and distributing blocks across multiple validators. Block builders are responsible for selecting and ordering the transactions in each block. Independent block proposers cannot see the contents of the block, they simply choose the most profitable one and broadcast it to the network.

Separating block builders and proposers would make it much harder to profit from the inclusion/exclusion and order of transactions, completely reconfiguring the economics of MEV. 

PBS might not completely do away with Bots, but it would place them on a more even playing field with genuine users. By limiting opportunities for MEV extraction, it could significantly reduce Ethereum’s bot activity and drive down fees for everyone.

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