Why First Ethereum MEV Case Is Seen as a Double Standard

The U.S. DOJ has charged two brothers for fraud in an MEV-related exploit in a first of its kind lawsuit.

Two evil brothers extracting money from an Ethereum machine.
Created by Gabor Kovacs from DailyCoin
  • The U.S. DOJ has charged two brothers for fraud in an MEV-related exploit.
  • The Ethereum MEV case is the first of its kind.
  • The case has sparked heated debates on potential double standards.

MEV operators can front-run you, but front-running them is a crime?

That’s the debate that has followed the U.S. Department of Justice’s (DOJ) decision to sue two brothers for fraud for orchestrating an attack on Ethereum trading bots called MEV (maximum extractable value) bots, programs designed to scour the blockchain for profitable front-running opportunities, that earned them $25 million in April 2023.

A First of its Kind Case

On Wednesday, May 15, the DOJ unsealed an indictment charging 24-year-old Anton Peraire-Bueno and 28-year-old James Pepaire-Bueno for conspiracy to commit wire fraud, wire fraud, and conspiracy to commit money laundering for a “novel scheme” targeting MEV bots that saw them make off with $25 million.

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“This alleged scheme was novel and has never before been charged,” U.S. Attorney Damian Williams for the Southern District of New York noted in a statement, highlighting that the case was the first of its kind.

As alleged in the DOJ filing, the exploit was a months-long plot that saw the duo create 16 validators and exploit the MEV boost relay, software that would have typically prevented them from viewing and front-running MEV transactions. In simple terms, the duo baited MEV bots they targeted to place buy orders, pumping the price of illiquid tokens they held only to dump on the bots, leaving them holding the bag while making off with a $25 million loot. The entire exploit took only 12 seconds.

While the DOJ argues that the brothers’ actions amount to fraud, several crypto community members have been left wondering how MEV can be tolerated while the brothers’ actions are dubbed fraud.

How MEV Works

MEV refers to the profit market participants can make from reordering transactions on the Ethereum network before they are processed. Essentially, these network participants, typically autonomous software called searchers, leverage the transparency of the mempool (a waiting room for transactions on the blockchain) to identify high-value transactions and front-run them for profit. 

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They execute a similar transaction to the target transaction before it is processed, pumping the price so they can then quickly sell for a profit. The catch: this profit is usually at the expense of users who are forced to complete orders at a higher price than planned.

“Thieves Stealing From the Thieves?”

For many in the Ethereum community, the actions of MEV operators can be likened to theft, as their business is essentially making a profit at the expense of users.

"If you steal from regular users, then you're just a sandwich attacker. If you steal from the sandwich attackers, you get criminally charged by the DOJ. Huh?" asserted "Fishy Catfish."

Chiming in, Ethereum developer Lefteris Karapetsas quipped: “Please make it somehow make sense.”

DeFi Analyst Chris Blec added, “thieves stealing from the thieves.. gotta love it.”

Brookwood P.C. Managing Partner Collins Belton noted that the key differentiator between MEV operators and the indicted brothers was the latter’s use of false signatures to exploit the MEV relay boost to see the typically private MEV transactions. His statements suggested that this exploit may be what the DOJ’s case may hinge on.

At the same time, per the DOJ’s filing, the indicted brothers appeared to know they were breaking the law. Their web search history allegedly included “how to wash crypto,” “cefi exchanges with no kyc,” “top crypto lawyers,” and “wire fraud statute/wire fraud statute of limitations.”

On the Flipside 

  • The MEV boost relay vulnerability that made the exploit possible has since been patched.
  • The DOJ filing suggests that prosecutors have a good grasp of how the Ethereum network functions.

Why This Matters 

The DOJ’s Ethereum MEV case is the first of its kind. It will likely have significant impacts on how the network is viewed.

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This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
Okoya David

David Okoya is a crypto news reporter at DailyCoin based in Nigeria. He covers various topics related to the cryptocurrency industry, including exchanges, regulations, and price movements, and strives to bring fresh angles to breaking news. With experience as a freelance crypto news writer, David upholds the highest journalistic standards, telling complete stories and answering lingering questions whenever possible.