The crazy BOME craze: interpreting the MEV issues behind the Solana meme heat

Written by: Beosin

Meme tokens in the Solana ecosystem have recently been the focus of the market. BONK, Dogewifhat, and some intentionally misspelled celebrity meme tokens have become targets that crypto users are frantically pursuing, with Dogewifhat even launching on Robinhood Crypto and Binance, boasting a market cap of over $3 billion. On March 15, the BOME token initiated by crypto artist Darkfarms surged over 47 times within 24 hours, with a trading volume exceeding $300 million.

The problem that comes with the meme craze is that users frequently suffer from sandwich attacks when purchasing meme tokens on decentralized platforms on the Solana chain, leading to inflated prices and losses. These bots are part of MEV attacks. What is MEV? What impact does it have on the blockchain ecosystem? How does Solana address the issues caused by MEV? Today, Beosin will analyze these questions one by one.

MEV and Trading Opportunities

MEV stands for Maximal Extractable Value. Initially, MEV referred to Miner Extractable Value, where miners in the BTC network earned rewards beyond block and network fees by reordering transactions within a block. However, MEV is not limited to the type of blockchain network. All public chain networks actually experience similar situations, which is why MEV has expanded from Miner Extractable Value to Maximal Extractable Value.

MEV acts like a tax, collected by the maintainers of the entire blockchain network from ordinary users utilizing that network. While this may seem burdensome, MEV plays an important role in the development of blockchain networks and the stability of the ecosystem economy.

Since miners/validators can reorder transactions within a block, MEV is often used in the following strategies:

1. Atomic Arbitrage

If arbitrageurs discover price discrepancies for the same trading pair across different liquidity pools on-chain, they will use MEV to ensure their transactions exist in the same block to profit. This arbitrage behavior can balance asset prices across different liquidity pools.

2. Liquidation

Involved in on-chain lending services, to avoid bad debts, lending protocols often allow third-party liquidators to participate in liquidating collateral, thus maintaining the stable operation of the protocol by liquidating unhealthy margin positions. For example, in MakerDAO, users collateralize assets like ETH for loans, and MEV bots are responsible for liquidating to profit.

3. Sandwich Attacks

By exploiting the price calculation mechanism of AMMs, attackers can front-run ordinary users' purchase transactions, buying before the victim in the same block and then selling before the victim to profit.

There are also other profitable activities such as pre-purchasing tokens in IDOs and INOs, minting NFTs, etc., that can utilize MEV for profit.

Solana MEV

Similar to public chains like ETH, Solana uses PoS to ensure security. Due to the high operational requirements for Solana nodes, ordinary users cannot run Solana's validating nodes. Most of Solana's validating nodes are located in data centers that handle massive amounts of data. Validating nodes hosted in data centers can leverage network advantages and parallel designs to process more transactions and earn more block rewards.

50% of all transaction fees collected by validators must be burned. The purpose of this is to incentivize validators to process as many transactions as possible during their allocated time.

Transaction fee burn on Solana reaches a new high in recent years: https://dune.com/21co/solana-key-metrics

On Solana, a block is produced approximately every 400 ms. Previously, due to Solana's first-in-first-out transaction processing mechanism, utilizing MEV required competing for low latency rather than high fees. Being able to read the block state first means having a higher probability of executing profitable transactions.

Previously, to utilize MEV on Solana, one needed to run a node to read the latest network state and be a high-stakes validator. This approach required high demands and was costly.

Solana Front-Running Strategies

1. Spam Transactions

Previously, due to Solana's first-in-first-out transaction processing mechanism, the rampant issuance of spam transactions was the most common method for front-running. This method is no longer effective on Solana; many people previously used this method to front-run and profit on the Friend.tech platform on the Base chain. However, this method requires validators to process a large number of failed transactions, which can severely overload the validators' processing capacity, leading to consensus inconsistencies and ultimately forcing the network to halt.

2. Priority Gas Fees

Priority gas fees are part of Solana's recent upgrade, aimed at addressing and reducing spam transactions by creating new incentives for transaction prioritization. Priority gas fees determine the priority of inclusion in blocks based on gas prices (a costlier method), thereby helping to reduce spam transactions.

Introducing this mechanism increases the cost of generating spam transactions. However, priority gas fees need to remain sufficiently high to ensure that they impose actual costs on the senders of spam transactions.

Additionally, the introduction of priority gas fees allows users to express their desire for prioritized transaction confirmations in a fair and competitive manner. This mechanism in Solana is similar to Ethereum, and we can observe Solana's gas war:

Spent 21.78 SOL to confirm a transaction: https://explorer.jito.wtf/bundle/a6fb6ad4f7f4ad1f797c2115f688e6bc178f2609a1a420769af97a17b6dbde4c

3. Jito-Solana

Jito-Solana acts like Solana's Flashbot, introducing a mempool and block space auction mechanism where users submit their desired transaction bundles to validators running Jito-Solana along with bids for these bundles. The highest bidder wins, and their bundles are submitted on-chain, creating an additional revenue source for validators and their stakeholders. The tips paid (Tip) are 100% allocated to validators and their stakers:

https://dune.com/21co/solana-key-metrics

Currently, the Jito-Solana client accounts for 66% of the validating node client market share, becoming the mainstream validating client on Solana. The MEV rewards for validators and the number of validators adopting the Jito client (currently 814) indicate that more and more participants in Solana are considering or have already practiced how to capture/distribute profits using MEV on Solana.

During this meme craze on Solana, sandwich attacks initiated through Jito have caused significant distress for ordinary users. Recently, Jito announced a temporary closure of its mempool to reduce sandwich attacks:

https://twitter.com/jito_labs/status/1766228889888514501

How to Properly View MEV?

MEV is not something that can be truly eliminated. The focus of MEV research should be on how to use MEV to benefit ordinary users and applications within the ecosystem: for example, Jito guides Solana validators to choose its client, increasing the diversity of Solana clients, though currently, due to its network effects, it has led to certain centralization issues; using MEV to rescue users and protocols' assets; redistributing the profits generated by MEV for the network—these are all beneficial aspects of MEV for the entire blockchain network ecosystem.