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A sophisticated exploit led to a loss of over $25 million for a group of blockchain bots working to generate revenue through a process called maximal extractable value (MEV).

MEV bots operate like blockchain-based high frequency traders. They focus on using speed and the technicalities of how blockchains work to capture arbitrage opportunities. But to do so, they often have to put large amounts of money at risk (in order to manipulate prices to sufficient levels).

An attacker compromised some of these MEV bots on April 3, by substituting their regular transactions with malicious ones, resulting in the theft of their funds. In doing so, the attacker inflicted substantial losses on the MEV bots.

Joseph Plaza, decentralized finance trader at Wintermute, explained that the exploiter likely set “bait” transactions to lure the MEV bots. The attacker then replaced the initial baiting transactions with new, malicious ones, allowing them to steal the funds. To prepare for the attack, the perpetrator deposited 32 ETH to become a validator 18 days before the incident.

Plaza added that the attacker probably waited until it was their turn to propose a block as a validator, which coincided with the attack. They subsequently reorganized the contents of the block and created a new one containing their malicious transactions in order to drain assets.

Smart contract developer “3155.eth” initially revealed the incident on Twitter, and PeckShield subsequently traced the stolen assets to three Ethereum addresses, consolidated from eight other addresses.

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Arbitrum backtracked on a key governance proposal after a weekend that called into question exactly how much sway token holders have over the direction of the project.

The proposal — a package of actions named “Arbitrum Improvement Proposal-1,” or AIP-1 — controversially planned to send 750 million ARB tokens, worth around $1 billion, to the Arbitrum Foundation. The purpose of the transfer was to give the foundation capital to invest in initiatives built using Arbitrum’s technology.  

The proposal appeared set to go ahead without the approval of token holders — who make up the decentralized autonomous organization or DAO that in theory governs Arbitrum — who had voted overwhelmingly against the move. Arbitrum initially tried to style the vote as a “ratification.” 

But the project has seemingly now bowed to the pressure, after Arbitrum community lead named eli_defi conceded in a Discord post late on Sunday that AIP-1 “likely will not pass” and committing to addressing the concerns of its community.

“AIP-1 is too large and covers too many topics. We will follow the DAO’s advice and split the AIP into parts. This will allow the community to discuss and vote on the different subsections,” wrote eli_defi.

Arbitrum, an Ethereum Layer 2 scaling project, is the hot ticket in DeFi circles at present, having airdropped its prized tokens to nearly 300,000 users a few weeks ago — a transfer of value worth close to $1.5 billion at current market prices. The airdrop helped create the Arbitrum DAO, a decentralized autonomous organization that in theory gives holders a say, as well as a stake, in the development of the project. The events of this weekend cast some doubt on that, as well as on just how decentralized the outfit is.  

Arbitrum attempted damage control late on Sunday. Its lengthy Discord post also addressed critics who had highlighted on-chain transfers of 50 million ARB tokens, which appeared to represent sales. Arbitrum’s eli_defi said that 10 million tokens were sold by the Arbitrum Foundation to “fund pre-existing contracts and to pay for near-term operating costs.” That was a necessary step because the foundation is a separate entity from Offchain Labs, the New York-based developer of Arbitrum, they claimed, and needed to fund itself.  

“The Foundation does not exist to sell tokens, only sold enough to fund its current operating expenses and has no near-term plans to sell more tokens,” eli_defi wrote.

Arbitrum’s community lead added that, to address community feedback, the allocation of 750 million ARB tokens to the foundation would now be voted on in a separate proposal, and that transparency reports covering how funds are spent over time will be published.

Blockchain sleuths first raised concerns over the transfer of the 750 million ARB tokens, as well as the sale of 50 million tokens without DAO approval, in mid-March. It is not clear exactly what Arbitrum’s promise of a separate proposal on that transfer means, given that the tokens have seemingly already been sent to the foundation.

The community lead conceded that the so-called “special grants program” — which the 750 million ARB transfer was originally part of — is vague and “lacks DAO involvement.” It will be renamed the Ecosystem Development Fund, providing more information on use of funds, they added.

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Exactly 200 days after Ethereum switched from the energy-intensive proof-of-work consensus mechanism to proof of stake, the impact of the network’s tokenomics change have been made clear.

When The Merge took place it lowered the amount of rewards given to those running the network. Combined with the previously introduced burning mechanism — that burns a portion of fees generated through transactions — this has had the effect of reducing the supply of ether.

Since The Merge, the total supply of ether decreased by 75,000 ($134.5 million), representing an annual decrease of 0.114%. For comparison, were The Merge never to happen, the total supply of ether would have increased by 2.2 million — worth more than $4 billion at current prices.

The total supply of ether has decreased steadily over recent months. Source: ultrasound.money

Ethereum’s Shanghai upgrade to unlock staked ether

With The Merge, however, came the temporary inability to unstake staked ether — an action that will become available shortly when Ethereum’s Shanghai upgrade is implemented on April 12.

Shanghai will allow those who staked ether to withdraw their staked coins — but not all at once — and staking pools will be able to determine when they release the rewards.

Coinbase, for example, stated that it would begin accepting unstaking requests 24 hours after Shanghai completes. However, the exchange also noted that “demand for unstaking will be high soon after the upgrade and it may take the protocol weeks to months to process unstaking requests.”

Ether staking behemoth Lido Finance shared its expectations that stETH withdrawals won’t launch on the mainnet until around mid-May — after code audits are complete and a two-week safety margin has been observed.

The potentially lengthy wait times are primarily due to technical on-chain limitations. Only 16 partial withdrawal requests — which comprise only staking rewards — can be processed every approximately 12 seconds. Because of this, the queue to withdraw when Shanghai goes live may become lengthy. Full withdrawals — when a validator completely removes itself from the Ethereum blockchain — may also take a relatively long time.

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.