Solana removed several validators after learning about dark mempool information. The data allows MEV bots to know about DeFi transactions and front-run them, causing traders to lose money.
The Solana Foundation removed its financial support from several validators, showing that it had a modicum of control over its network. The validators can choose to continue securing the network, but can no longer participate in the Solana Foundation Delegation Program.
Read: World’s First EVM compatible L2 for Solana set to launch in 2024, Solana VM Raised Over $1,000,000 in $SVM Presale
Some reacted negatively to the event, showing that the Solana Foundation had outsized influence in subsidizing validators. The Solana Foundation supports validators with part of the $65,000 annual operations cost to grow the safety of its network.
The Solana Foundation delegates to the vast majority of validators on Solana, who all need to KYC to qualify, and many of whom could not afford the $65K annual costs of operating a Solana validator without the delegation.The Solana validators, which number approximately 2,000,… https://t.co/WTxzZ893Cf
— AminCad Ξ🐬🔊 (@AminCad) June 10, 2024
Solana validators still have to perform KYC, but gaining SOL tokens and securing the network are permissionless. Even with validators removed, front-running bots are still advertised, even for small-scale users.
After the news, SOL dropped to $153.18, following a market-wide correction.
Solana aims to decrease bot activity, exploits
The Solana blockchain provides one of the fastest ways to engage with DeFi, meme tokens and NFT. However, most of the activity is impossible for human-level traders. Some bots have been used to quickly grab profits from the hottest assets.
Also read: Why Bot Activity is Key to Solana Trading
However, frontrunning is seen as the most unfair practice. Maximum extractable value (MEV) practices mean miners or validators can rearrange the transactions waiting in line to make the best possible profits.
Some of those transactions, however, may contain data on DeFi trades. This has allowed bots or other actors to perform a “sandwich attack”, which ensures the retail trade would get the worst deal.
Solana has no public mempool, although pending transactions have been visible and used in the past. However, the Solana Foundation actively aimed to discourage this practice. Until March 2024, Jito Labs offered a data service that revealed the Solana mempool. After that, the potential for attacks against retail traders led to removing the pool.
Jito Labs has decided to suspend the mempool offered through the Jito Block Engine due to negative externalities impacting users on Solana.The decision has been made after deliberate conversations with the Jito Labs team and key Solana ecosystem stakeholders.
— Jito Labs (@jito_labs) March 8, 2024
The recent decision by the Solana Foundation showed that some of the validators still exchanged data, which were not only used for gas-sparing practices, but to front-run DeFi. Even a few months ago, users predicted that a branch of the Jito Labs mempool technology may exist. Even without frontrunning, validators may choose some MEV activity to optimize their earnings.
The attacker can place a transaction before and after the victim’s own DeFi trade, thus profiting from the price. In meme token trading, since all orders are happening on the blockchain, even a small difference can erase retail profits. Bots can also go as far as buying up the supply of new meme tokens and reselling for profit. DEX bots can also front-run deals and let retail traders absorb the slippage. End users also have no recourse in setting priority fees to ensure their transaction is approved first, and miners can ignore some transactions.
The drive to remove sandwich attacks arrived relatively late, with the first discussions starting in May. Other MEV attacks include frontrunning, backrunning or otherwise rearranging the order of transactions in the mempool.
Solana blockchain allows for bot activity, dark mempool data
Solana validators are also in competition with each other, offering rewards to users that stake SOL with them. Validators like Solana Compass, Chinu or Blocksmith offer annualized returns between 6.82% to 7.76%, again using MEV technology to ensure optimal fees. Some of the validators have also ensured significant deposit pools. An estimated 70% of SOL tokens are staked in some form.
Since 2020, the Solana network has grown to over 3,400 validators and 2,400 consensus nodes. Coordination between the nodes and achieving consensus are also important parts of Solana transactions. Additionally, on days of high traffic, Solana has a up to 76% transaction failure rate.
Based on user counts, Solana also carried up to 75% of DEX trading bot traffic in the past two weeks.
The Solana activity is mostly driven by cross-chain DEX trading bots, which may benefit from mempool pricing information. The Solana network remains highly active, bringing in more than $2M daily fees on average, with 50% retained as revenues.
Cryptopolitan reporting by Hristina Vasileva
