Introduction

The MEV market has been expanding steadily over the last few years. When Flash Boys 2.0 came out back in 2019, it shined a light into the practice, and by the start of DeFi Summer (when DeFi TVL was around $1bn), the cumulative value of MEV extracted on Ethereum had reached around $3.5m. Today that value has increased to over $680m. This report tries to gain insight into this market by looking at some of the most active wallet addresses identified by Nansen labels.

A look Into MEV Wallets Using Nansen Labels

In order to gain insight into the MEV market, this report looked at the on-chain activity of wallet addresses that have been identified as executing these types of transactions. Mainly, three different types of wallet addresses were included in the analysis: wallet addresses labeled MEV, wallet addresses labeled Flash Boy, and wallet addresses labeled Sandwich Attacker. These were included in order to obtain a comprehensive overview of all wallets that have taken advantage of such trades.

The definition for Flash Boy and Sandwich attacker labels can be seen in the table below. A full description of all Nansen Labels can also be found here.

The analysis looks into the on-chain activities of these wallet addresses to understand their strategy and profitability. Some metrics analyzed include the number of trades these wallets have made, the total amount of realized profit generated, the total amount spent per wallet address, and the return on investment for each wallet address.

MEV Wallets Profitability

The table below presents the top 20 wallet addresses that have been identified in conducting such trades, ranked by the profits they were able to generate.

In total, 1,194 wallet addresses were identified as wallets belonging to at least one of the three main categories that were analyzed. Out of these only ~43% were able to generate a profit.

These 520 wallet addresses were able to extract a combined total of over $349m from their on-chain activities. Together, they spent around $116bn chasing profits. The average number of trades taken by a wallet address was around ~5400, while the median was a lot lower at around ~350. This shows that a few wallet addresses were transacting significantly more than the rest.

Looking at the table above, it can be seen that the wallet address that generated the most profit (in USD terms) is this MEV bot. This wallet spent a staggering $22.5bn and conducted over 216k trades. From this, it managed to extract profits amounting to around $61m and recorded an ROI of ~0.3%.

Looking at its transaction history, it can be seen that the wallet address is extremely active and is involved in a lot of arbitrage trades.

Although the rankings are dominated by MEV bot wallets, there are three wallet addresses on the table that are assigned to Flash Boys. It can be seen that these wallets typically conduct significantly lower amounts of trades in comparison to the MEV bots, however, they have also been able to generate a considerable amount of profit. The Flash Boy wallet ranked the highest was able to secure a profit of around $19m with an ROI of 1.3%.

From comparing the activities of both wallets it can be seen that the Flash Boy wallet switches from being very active to dormant during certain periods of time, suggesting that it is more actively managed, while the MEV bot has been constantly on. The Flash Boy wallet address has also not been active for a significant amount of time.

Looking at the other two Flash Boy wallets in the table, the distinction between their strategy and the MEV bot is also more evident. Both wallets have significantly lower numbers of trades taken (at 1,590 and 3,166), and some of their activity suggests that they are also actively managed.

Concentration

Furthermore, what the data also revealed is the significant concentration of the market. The chart below shows that the top 1% of wallets were able to capture almost 50% of all the profit that was generated. This shows that the market is extremely competitive and that a very small number of wallet addresses have winning strategies that outperform consistently.

Profitability Based on ROI

Interestingly looking at the wallet addresses that have recorded the highest ROI based on the amount spent, shows a slightly different outcome. The following table lists the top 20 wallets ranked by ROI.

Top 20 wallets ranked by ROI, Source: Nansen Query

When ranking wallet addresses based on ROI it can be seen that the ones that achieved the best results are Flash Boy, Sandwich Attacker and some non-bot MEV labeled wallets. Wallets labeled MEV bots, which perform numerous automated trades per day, are not even present in the top 20 rankings.

This shows that while wallet addresses executing MEV bot strategies have been able to extract the most profits (in absolute USD value), wallets that are actively managed perform better in terms of ROI.

The top wallet in this table had an ROI of over 107%. This dwarfs the return on investment generated by the wallet address ranked first in the previous table (although it generated 61m, its ROI was only ~0.3%). The rest of the wallet addresses on the table ranked by net profit extracted have also recorded very low ROIs ( ranging from 0.03%- 14%).

The average ROI for wallets that generated a positive return is around 2.79%.

Most Profitable Protocols and Pools

EigenPhi, a data platform, has also conducted analysis on the most active protocols and pools for MEV trading. The analysis found that Uniswap V3 had the highest volumes for both arbitrage and sandwich trading. Additionally, the rankings for arbitrage trading pools were dominated by Uniswap V3 and Curve pools. While Uniswap V3 pools were the main destination for sandwich trading, DODO, Curve, and Sushiswap pools were also active, indicating that sandwich trading opportunities were spread across a wider range of protocols and pools compared to arbitrage opportunities.

The following tables show the top protocols and pools for Arbitrage Trading:

The tables below show the top protocols and pools for Sandwich Trading:

Growth

As the number of applications and chains grows, the market for MEV will grow with it. For example, if we look at the number of Sandwich Attack Victims per day (figure below), it is possible to see that a significant rise was recorded at the start of DeFi Summer, right after a wave of DeFi applications were introduced into the space. With the growing use of Defi, more avenues for value extraction become available, providing attackers with more opportunities to carry out such attacks.

Risks

In order to get a picture of the risks involved in employing MEV strategies, the analysis also looked at the wallet addresses in this category that have not been profitable (profitability here implies realized profits only).

The table below shows some metrics recorded by wallet addresses that have incurred losses labeled MEV, Sandwich Attacker, or Flash Boy.

The table provides insights into the investment activity of various investors that have incurred negative returns (in this segment), from their on-chain activity. The data presented include metrics such as the number of trades taken, the loss made, the profit percentage, and the total amount spent for this subgroup of investors.

Out of all the MEV-labelled wallets, Sandwich Attacker, and Flash Boy wallets identified in the market, 398 of them incurred losses, and the table above provides a way to understand their profiles better.

The mean number of trades taken by an investor is around ~9532. Furthermore, the high standard deviation observed in the table highlights the variability in the number of trades taken by investors. The minimum number of trades taken by a wallet address was 3 while the highest was 1.6m, showing that there are traders who incurred losses in the very few first trades that they made (resulting in them stopping their activity), while others continued to make a considerable amount of trades but still have zero realized profits.

The mean net loss recorded by the average investor is around ~$318,713 with an average return on investment of -5.97%. This subgroup of investors lost $126m combined. The median number of trades taken was around 36.

The data presented in the table can serve as a reference to the losses that can potentially be incurred in this market. Furthermore, by comparing it with the table below (showing metrics for profitable wallets in the space), some differentiation can be made about the strategies that work best in this segment. For example, the median number of trades for profitable wallets (~350) is significantly higher than for those that suffered losses (36). Additionally, the median amount spent is also considerably more at $1.15m versus $54k.

Mev and censorship

The Merge brought about the emergence of Mev-Boost. MEV-Boost is a free and open-source implementation of the Proposer-Builder Separation (PBS) concept, developed by Flashbots, that is offered to Ethereum POS Validators. MEV-Boost enables validators to enhance their staking rewards by offering blockspace to an open marketplace of builders.

Block builders are tasked with creating full blocks while aiming to maximize the extraction of MEV. These are then submitted to relays which gather blocks from several builders and select the one with the highest fees. This enables validators to access blocks from a pool of builders. Furthermore, this separation of responsibilities between proposers and block builders ultimately leads to increased competition, decentralization, and increased censorship-resistance on the Ethereum network.

Relay providers

At the moment some of the top relay providers include Flashbots, BloXroute Max Profit, BloXroute Ethical, BloXroute Regulated, BlockNative, Manifold, Ultra Sound, Eden, etc. A breakdown of their dominance based on the % of total slots can be seen in the figure below.

It can clearly be seen from the figure above that Flashbots is by far the most dominant, although its percentage share has been steadily declining since November 2022.

On the 8th of August 2022, OFAC released a statement, effectively sanctioning Tornado Cash and several Ethereum addresses associated with it. Since then talks about keeping the Ethereum network censorship-resistant have gained a lot of traction.

The Office of Foreign Assets Control (OFAC) is a division of the United States Department of the Treasury responsible for enforcing economic and trade sanctions against targeted individuals and entities. OFAC can enforce sanctions by freezing assets, restricting transactions, and other measures aimed at isolating designated individuals and entities from the financial system. Companies not complying with OFAC's sanction regulation are at risk of incurring significant civil penalties.

According to this tweet from August, Flashbots filters out OFAC-sanctioned addresses.

The following table shows a list of the MEV relays and their compliance levels.

Of all the relays in the table below, only five do not apply censorship in accordance with OFAC compliance requirements. OFAC-compliant relays will not process transactions that involve the Tornado Cash smart contract or any other wallet addresses designated as sanctioned by OFAC.

It's worth noting that not all blocks built by OFAC-compliant relays are censored. However, all blocks constructed by OFAC-compliant relays will apply censorship if non-compliant transactions are transmitted to the network.

MEV Relay List for Mainnet (scroll to the right for full view)

Post Merge OFAC Compliant Blocks

The two figures below show a breakdown of blocks that are OFAC compliant vs ones that are not since the Merge. It can be seen that overall roughly 60% of blocks are OFAC compliant.

However, the figure below shows that OFAC-compliant blocks have been going down since around November 21st, and are at around 52% currently. This is a good sign and if the trend continues, the risk of censorship at the protocol level will diminish.

Censorship Offenders Leaderboard

On the validator level, certain entities running censoring MEV relays on their validators can also be considered as entities undermining the credibility and impartiality of the Ethereum Network.

A leaderboard of the top offenders can be seen in the table below.

It can be seen that Stakehound leads the rankings by % censored (98%), Celsius is in second place (95%), Binance is in 6th (83%) and Lido is in the 8th position (72% censored).

It is important to highlight that staking Ethereum is not just an investment opportunity, but also the mechanism by which the network is secured. As a result, stakers should carefully evaluate their options and consider more than just the return on investment when making a decision about where to stake their ETH. Supporting validators who increase network health and decentralization should also be prioritized as this will promote the development of a stronger and censorship-resistant Ethereum. By making informed choices, and incentivizing the right behaviors, each staker can contribute to increasing Ethereum's credibility and neutrality.