MEV Bots in Crypto: How They Work & Make Profits

What is a MEV Bot in Crypto?

Blockchain is an incredibly useful technology in many industries. However, it found its most lucrative and effective application in finance. Bitcoin was the first herald of change that was happening during the fallout of the 2008 financial crisis. The implementation of a new monetary system capable of shifting the paradigm was long overdue by that point.

Bitcoin operates as an immutable digital ledger that can be verified and inspected by anyone within the network. It is not “money”, but a list of transactions in historical order written by a complicated algorithm that prevents any tampering with data. It is a rigid system that does not allow for meaningful improvements.

Ethereum was created as an alternative that provides a sprawling infrastructure that can be used to deploy other tools in a decentralized environment. While tools like smart contracts changed the way we interact with blockchains, the main principle remains the same: the information is written in historical order and cannot be altered in any way.

Some smart users decided to exploit the rules of the infrastructure by deploying a MEV bot, meaning that they are using mining (back in 2018, Ethereum was a Proof-of-Work network) rules to intercept data about queued transactions or otherwise tamper with the order of transactions. The name Miner Extractable Value refers to this particular method of using automation.

Early robots were obscure and did not catch the public's attention. Some of them have been making massive profits, with one of the confirmed bots amassing over $35 million in profits. During the DeFi Summer in 2020, many developers started catching on and experimenting with different ways of taking advantage of blockchain rules.

Slowly, MEV turned into a new trend among developers and proactive DeFi investors. By analyzing on-chain data and decentralized exchanges, new programs quickly identified valuable transactions and made a profit by various ways of obstructing their normal execution within the network. In some cases, similarly designed robots actually benefited retail traders. For instance, JIT Liquidity ran several of them to reduce prices for buyers.

How Does a MEV Bot Work?

While developers have a wide range of tools at their disposal when building one, a typical robot from this category operates in the same way regardless of how it was created. Here are some basic steps during its development stage:

• Choosing the right coding language. While Rust and Solidity are the main candidates, some developers may use other languages like C and C++.
• Building a transaction scanner. It will monitor the mempool, where pending transactions are stored, to seek opportunities for execution.
• A stimulus agent is used to test various methods of execution (sandwiching, arbitrage, etc.) locally before it executes it on the chain.
• The gas optimization system will estimate the optimal gas price to outbid any competition while maintaining a certain level of profitability.
• The executor is the part of the program that interacts with the chain by sending out transactions to validators and miners via RPCs, such as Flashbots, to eliminate any frontrunning.

These are components that must be developed and implemented before any other operation may take place. Note that contemporary design approaches and instruments simplify the development phase. For instance, JITO Foundation is a great destination for investors interested in this particular technology. The protocol operates on Solana and allows users to deploy their versions of robots quickly.

MEV bot development requires advanced algorithms and a deep understanding of blockchain mechanics and smart contracts to optimize transaction execution and maximize profitability.

Any robot from this particular category will operate in a similar fashion:

• Searching for any opportunities in the mempool. Some of them appear on DEXes like Uniswap. Some are created by liquidations on lending protocols like Aave. Sometimes, robots are designed to frontrun large traders by sandwiching and extracting value.
• Simulating the potential profitability. A simulation in a local environment is used to calculate potential profits with the inclusion of gas costs and the risk of critical errors like slippage or aggressive competition.
• Creating a transaction. To extract calculated returns, a robot must craft a transaction or a bundle of them. For instance, it may buy low on one DEX while selling high on another. It may repay a debt using a lending protocol to acquire the collateral.
• Frontrunning. It can be beaten to the market by competition. To avoid that, such robots may use private channels to secure a transaction. Flashbots relay is often used to send it to a validator directly. PGA (Priority Gas Auction) can be exploited to outbid the competition.
• Capturing the profit. It can be done by sandwiching transactions, acquiring bonuses for successful liquidations, or securing a spread between decentralized exchanges used for an arbitrage trade.

How to Get a MEV Bot?

There are several ways to use this particular strategy. Depending on the level of technical knowledge and experience, different methods will be accessible to you. However, it must be noted that using these robots is associated with relatively high initial investments and large capital requirements that act as entry barriers for newcomers. One must be prepared to dish out more than pocket change to run a strategy with these robots.

At the same time, the benefits of using them are quite strong. These are relatively safe operations that produce excellent returns that are amplified by any bullish movements in the market. During downtrends, you can simply hold on to assets until prices go up again.

Here are the aforementioned approaches:

• You can build a robot yourself. There are various tutorials, and GitHub is full of working examples. Most commonly used languages are Solidity (Ethereum) and Rust (Solana). Rust can also be used for EVM (Ethereum Virtual Machine) applications. If you are into technological challenges, using C or C++ is also an option.
• Use specialized protocols. JITO is one of the biggest Solana protocols aimed at producing profits for users interested in deploying MEV systems. Mempools for them were closed a couple of years ago to reduce the negative impact of proliferating automated solutions. However, it is still an excellent destination for users without any technical know-how.
• If you lack the time and resources to build one from scratch, you can find a good solution on GitHub and adjust it. For instance, a good open-source program is created by JITO LABS and can be copied from the repo called MEV-BOT. It is a nice program that has everything you need to get started without inventing the wheel.

Note that it can be quite difficult to go through an unfamiliar onboarding process. Using MEVs is a rewarding experience for many investors, but it also has its weaknesses and downsides.

How to Use a MEV Bot?

Drawing on rarely used knowledge can be quite challenging. Unfortunately, it is exactly what you will need to do to successfully use a robot like this. If you understand how they work in principle (see the overview above) and can choose an approach that suits your preferences, get busy researching a wide range of topics while hunting for knowledge that will be useful.

Here are the steps you need to take:

• Set up a wallet, top it up with the necessary funds, and connect to a chain. You can use Node Providers like Alchemy or Infura. Running your own node can be quite expensive. Accessing mempools is another issue. It can be done via Flashbots or BloxRoute.
• Install a MEV bot. Some open-source solutions work well. Basic MEV setups can be found on GitHub, and Flashbots offers the Inspect bundle that can be effortlessly installed and adjusted according to your strategy. Purchasing the software from established providers like Bonzo is a good idea, too.
• Configure the software. This step often becomes the last for many unprepared newcomers. It seems easy to get the setup going, but many fail to finish what they started. There are many things that you must do: install relevant dependencies for Python or Rust, set up simulation environments with things like Foundry, set dynamic gas fees, and adjust the code before launching.
• Track the bot's performance. Tracking performance is difficult if you do not have any technical know-how or feel overconfident while browsing polished summary tables crafted by paid platforms and portfolio trackers. Here, you will need to use tools like EigenPhi or similar platforms to track profits and losses.

It can be quite difficult to stay up to date with all of the chaos occurring within the DeFi ecosystem. The vast majority of successful users of the technology are experienced developers who can quickly change code and adjust their strategies to match current trends, new blockchain rules, and competition.

MEV Arbitrage Bot: How It Works

As in the case with any other endeavor, the one who wins the popularity contest often becomes the norm and default. In the world of decentralized finance automation, the go-to solution is using an arbitrage strategy.

While it is somewhat possible to conduct arbitrage trades manually when interacting with centralized platforms, in the world of decentralization, it becomes almost impossible. The information across the chain is instantly processed by a myriad of competing ATS, and all potential profits are grabbed within seconds.

If you are interested in this particular strategy, the only viable way to do it is by automating the vast majority of operations and decision-making to ensure that you can extract the maximum value from each transaction.

So, what does an Ethereum arbitrage bot do? The process is as follows:

• It will closely monitor the market. Decentralized exchanges are protocols that can be publicly monitored by anyone. However, transactions happen between parties without any intermediaries. It means that they are also public. Usually, they are stored in mempools.
• When a difference between prices is spotted, especially for the same asset across different liquidity pools or exchanges, the robot is thrown into action. It will immediately run a simulation using a local environment to calculate potential outcomes and optimal gas prices that should be used to secure a profit.
• A transaction is formed and sent to validators directly, using one of the methods explained above. It will contain optimized gas prices and will be prioritized. The difference between the two operations is secured on a wallet attached to the robot. Bots often create a bundle of transactions with specific ordering and high gas fees to ensure their transaction execution in the next block and maximize profit. In many cases, MEV bots will outbid competitors by increasing gas fees, ensuring their transactions are processed without delay.

Additionally, flash loan arbitrage allows MEV bots to borrow large amounts of funds through flash loans and execute trades within a single transaction, exploiting arbitrage opportunities and increasing their profit potential. Liquidation bots, another type of MEV bot, monitor lending platforms for undercollateralized loans and execute liquidation transactions to claim rewards, employing sophisticated liquidation strategies as part of their broader approach to profitable transactions.

It seems easy enough. Some may not even realize that DeFi trading is dominated by these elaborate setups. In 2020, many experts blamed the proliferating arbitrage power users for the early end of the DeFi Summer. It is true that the increase in the number of such ATS systems has significantly reduced the quality of life and profitability for many regular DeFi users.

Some may wonder why more people do not enter this chaotic environment and try doing the same. The short explanation is that they do, but we are too consumed by survivor bias and do not hear endless stories of failure. Another explanation is that running MEV bot strategies is not absolutely safe.

Here are some risks associated with using them:

• Extreme competition. The DeFi ecosystem is full of developers running these robots, making it hard to compete as people try to outbid each other on each transaction.
• Failed transactions. Sudden changes in prices and gas fees may negatively affect your operations and lead to unexpected losses, often ruining any profits acquired previously.
• Proposer-Builder Separation Upgrade in Ethereum made it more block-builder-centric, reducing accessibility and raising the entry barrier.
• The open seas. With many regular users trying to enter the market, scammers and fraudsters started building fake MEV bot products.

One aspect of using these strategies is somewhat obscure. Many people consider them unethical. As mentioned previously, these are tools that may severely affect the user experience for the vast majority of regular users. Blockchain inefficiencies have been exploited so aggressively and by so many people that many protocols started rolling out measures to prevent the rapid proliferation of robots. For instance, the JITO Foundation closed the mempool several years ago.

MEV Bots on Ethereum vs. Solana MEV Bots

Ethereum has and will always have its first-mover advantage. The network was proposed over 10 years ago and implemented in 2018. It is the backbone of the whole decentralized finance ecosystem, with the combined TVL of over 51 billion, over 460 thousand active addresses, and a massive 51.5% TVL share. The closest pursuer is Solana, which has way smaller numbers and TVL share (roughly, 8%).

While Binance Smart Chain, Bitcoin, and Tron also have significant shares of the combined TVL of the whole DeFi ecosystem, they are not suited for smart contract deployment in the same way as Ethereum and Solana.

There are many differences between these two systems, as architecture, execution, optimal strategies, and tools vary depending on where you want to run a robot.

Here are some crucial technological differences:

These are some of the apparent differences between different components of any strategy that employs maximal extraction value. However, people who want to focus on such strategies must remember about other core differences.

Technology and Tools for Ethereum

If you want to deploy a robot on Ethereum and its layer-2 networks, you have to use the following tools:

• Alchemy, Infura, and Flashbots for remote procedure call (RPC).
• EigenPhi and MEV-Explore for advanced analytics and data processing.
• Foundry, Ethers, and Web3.py as frameworks for application development.
• Tenderly and Ganache for simulating live on-chain processes.

Here, you must focus on outplaying the competition and optimizing your participation in the gas auction. It is a chaotic place with thousands of competing parties and huge capital requirements. It is possible to run a strategy without putting in much money, but it will be eaten by cash-loaded wallets that can outbid you on every turn.

The complexity of writing code for EVM is another issue. Solana is slightly more user-friendly in this regard, but Solidity has more tools and tutorials.

Technology and Tools for Solana

Solana developers often talk badly about frameworks and instruments that feel inferior to what the Ethereum ecosystem has to offer. However, the complaint is unjust as the network simply has fewer users and developers.

Here are the tools that you might be interested in exploring:

• QuickNode, Helius, and Triton as RPC providers for data gathering.
• SolanaFM and JITO Labs for analytics and overall data processing.
• Anchor and Solana-Web3.js as frameworks for development.
• Solana local validator as a simulation environment for testing.

The network is designed in a way that prevents oversaturation with automated solutions. However, the competition is defined by high transaction speed and very low latency, making the performance of hardware and network deciding factors. On the other hand, the opportunities for arbitrage and liquidation-based strategies are endless. Orca, Raydium, Solend, and Marginfi are great protocols that have high volumes of operations.

Solana is a relatively low-value environment for various strategies focused on extracting value from transactions. However, it is less congested, and the quality of competition is different. The market has room for growth, with saturation being a very minor issue. The peak of activity happened in 2024 when the DeFi market grew by a significant margin. We are past that period now. It seems that preparing for an inevitable expansion of the sector in the future by learning how to use these robots now is a good idea.

MEV Bots: Risks and Rewards

It is important to use strategies that produce consistent results over long periods. While the crypto industry looked like a place to make a quick buck just a decade ago, it turned into a mature market by 2020. It is still dominated by speculation, pump-and-dumps, and unexplained price action dynamics, but overall returns for many investors have been much better and more consistent compared to traditional markets, with stocks jumping up and down just as strangely.

Some conservative investors, who want to focus on fixed-income assets like US Treasury bonds or real estate, have noticed dips in profitability caused by the frantic economic policies in the US. The stability of long-standing fiat systems is under threat. We have seen recessive contractions in many stock markets, with AI-focused and tech companies growing against the backdrop of many other industries losing any firm ground to stand on.

It seems like a perfect moment to enter the crypto market and start allocating capital to various tokens. However, the issue here is the unpredictable and chaotic price action within the sector. It is impossible to make long-term bets if you do not work with mainstream coins like Bitcoin and Ethereum.

MEV bot strategies look like a great choice for people who want to make money consistently within the DeFi sector. The biggest problem is that people who want to work with these programs must have technical know-how, experience, and capital.

Money-making Opportunities

There are several advantages to using these robots for profit in the DeFi ecosystem:

• Multiple forms of value extraction. You can focus on arbitrage between decentralized exchanges, loan liquidations on lending protocols like Aave, or Just-in-Time liquidity opportunities.
• Efficient operation. Manual trading is a thing of the past. In technology-centric ecosystems like blockchain, it is imperative to use automation for around-the-clock monitoring, fast execution, and gas fees optimization.
• Advanced DeFi strategies. You may focus on liquidity pool positions and prevent impermanent loss by exploiting Just-in-Time liquidity. Alternatively, NFT mints and token launches can be profitable if you time the execution correctly.
• Better rewards for validators and stakers. Since the merge, Ethereum validators can make some extra tokens by using the PBS. Solana also allows users to get fees thanks to its leader-based validation mechanism.
• A slight competitive edge. Many retail traders and capital holders engage in market-neutral activities because they do not want to increase the exposure of their portfolios. Arbitrage is a perfect example of a system that does not have any inherent risks.

These are benefits enjoyed by people who run MEV robots consistently. However, one must be mindful of the significant effort and time requirements. While it is true that such systems can operate autonomously and do not require intense overseeing, maintaining excellent performance is quite difficult. Investors must constantly monitor the market and technological trends, be ready to make instant adjustments, and regularly update their knowledge of coding languages and development frameworks.

Risks Associated with MEV Robots

We have already covered some of the dangers of running these strategies. It is a great point in our article to expand on these risks:

• High competition is a significant issue for both Ethereum and Solana. The former is known for the proliferation of such ATS, preventing individual users from enjoying better prices and engaging in manual trading. The latter is ultra-fast and requires adequate technological infrastructure from investors. The issue of competition is the same, but manifests itself differently.
• Failed transactions can lead to losses. Gas wars create an unhealthy environment where people are trying to outbid each other. The competition is very restrictive and prevents new players from entering the sector without large investable capital. Arbitrage may also fail due to sudden price action changes.
• Regulatory issues are non-existent yet. However, the scrutiny of sandwich attacks, which are considered unethical by the vast majority of DeFi users, and the harmful nature of many strategies may lead to some issues in the future. For some people, the very idea of taking advantage of fellow retail traders can be off-putting.

In general, many people consider MEV strategies risk-free. The premiums here are nothing to write home about. However, with sufficiently large capital, an investor can extract outstanding profits with an incredible level of consistency. It means that many people are interested in exploring this gray territory.

The problem with ethics is one that is easily ignored when consistent profits are on the line. We do not encourage any behavior that may harm the DeFi ecosystem at large, but we have to acknowledge that many investors completely disregard morality when it comes to money-making. In a capitalist world, this particular behavior is rewarded.

Should you use this strategy?

When it comes to the general effectiveness of a MEV bot system, we have to say that it is a very safe method of money-making that has some minor risks. Experts, for example, estimate that over $675 million in MEV profits have been generated on the Ethereum blockchain between 2019 and 2022, highlighting the significant opportunities in this space. However, you should consider the downsides and the entry barrier, which is quite high. For instance, newcomers must have at least some technical know-how and experience with Web3. At the same time, capital requirements for these strategies are increasingly restrictive as competition grows.

Entering this field without any of the aforementioned prerequisites is not entirely impossible, but difficult enough to prevent the vast majority of DeFi enthusiasts from even trying it. However, it may be a good idea to start learning coding languages and relevant platforms now as the crypto ecosystem prepares for the next DeFi growth spurt.

All in all, professionals and tech geeks will explore this exciting sector without any additional motivation from us. At the same time, novices should focus on learning as much as possible before even contemplating the possibility of launching their first MEV crypto trading bots.

The main takeaway

The technological complexity of any MEV system is one of the biggest entry barriers. While Solidity, Rust, Python, and other applicable coding languages have been around for a long time, they are still not popular enough to be known by the general public. This means that many newcomers will avoid these systems, while people who run them will disrupt markets and reduce the level of user experience for regular participants in decentralized finance.

In conclusion, MEV bots play a significant role in the DeFi ecosystem, offering both benefits such as increased efficiency and liquidity, and potential risks including market manipulation and fairness concerns. We strongly encourage all DeFi users to educate themselves on the topic of MEV systems and their impact on ecosystems like Ethereum, Solana, and others. Even if you do not plan to engage in these strategies, they represent a very important aspect of decentralized trading and can affect your portfolio.