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Miners and arbitrage bots

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Written by   205
5 months ago
Topics: Cryptocurrency

Since the development of Ethereum to this day, the price of the currency has been rising, the ecology has become more and more prosperous, and the pace of running towards the grand goal of the world computer is also getting faster and faster.

The good development of Ethereum can make a lot of money not only for speculators, but also for miners. After all, mining don't need to worry too much about the currency price, it is nothing more than extending the return time. Fortunately, since the second half of last year, the market has been very strong, and it can be regarded as the sweetest moment for miners. At that time, when a mine machine is also more than 10,000 points, the daily production of coins in the form of 0.02.

Calculated by the current currency price, you can pay back in a month. By this year, many miners who are preparing to enter the market will be very anxious. One is that the price of mining machine has tripled, and the amount of currency produced has doubled, but the currency price It has risen ten times. From my point of view, I am still optimistic about Ethereum mining. I think it is a good opportunity to enter the market.

Because the real value of Ethereum was discovered this year, especially last year’s Defi, and then this year’s layer2, which established Ethereum’s status as the king of blockchain application ecosystems, there is still a lot of room for currency to rise. This is also despite the increase in the computing power of the entire network, the decrease in coin production, and the high price of premium mining machines, there will still be a steady stream of miners coming in. Most people are optimistic about the future value of Ethereum.

Although we are all miners and we just buy mining machines hosted to mining farms, but those big mines in the dark forest of Ethereum can not only provide computing power services, but also play the role of housebreaking.

Today I’m talking about this with you. In fact, after understanding it, it’s very interesting. The world of Ethereum is like a river and lake. There are people who are heroic, and some are robbing houses. As long as the smart contract allows, no one can restrain you.

The economic model of Ethereum is actually like an auction. The product of the auction is the block space where transactions can be processed. The miners are the producers of the block space, the mining pool is the auction house, and the users are the bidders. Under normal circumstances, miners are sorted and packaged according to the level of miner fees given by the transaction, and the order of these transactions has no effect on a single transfer transaction.

But the situation changed when Defi developed. Because the sequence of transactions will generate huge profits, the market has begun to be flooded with a large number of arbitrage robots. How do arbitrage robots rob in the world of Ethereum.

Before I talk about this, I would like to talk about the trading rules of DEX, taking UNISWAP as an example, we know that its price model is x*y=k (constant)

We make an assumption:

x=100, y=100, then k=10000.

x and y are a trading pair. Under the premise of this formula,

If user A buys y with 10 x,

At this time x=110 and y=90.9 (divide the constant k10000 by 110), then user A can get 100-90.9=9.1 ys.

At this time, user B also uses 10 x to buy y, then x=120, and y=83.33, user B can only buy 90.9-83.33=7.568 y at this time with 10 x.

When B buys, A immediately sells all the y he obtained and replaces it with x, so what will happen to the situation?

A has sold all 9.1 ys, at this time y=83.33+9.1=92.43, x=108.19, A can obtain 120-108.19=11.81 x.

Back to the beginning, A paid 10 x. After this operation, A got 11.81 x and netted 1.81x.

This is how the arbitrage robot works. It is almost risk-free to trade first.

The arbitrage robot will constantly monitor the Ethereum network. When it finds that a large transaction is queued, it immediately increases the gas fee to make the transaction before the large transaction, and then sells after the large transaction is completed for arbitrage , The robot will calculate. As long as the gas fee given can finally be earned back from arbitrage, this operation will be performed.

This is like a robbing of a big account, and two transactions are used to hijack the big account. It is a bit more difficult to carry out arbitrage in the same DEX. Arbitrage robots will also roam between different exchanges and always carry out brick arbitrage.

The result of this is that these robots calculate through the program, as long as they can make money, they will desperately increase gas fees to preempt transactions, which has never congested the entire network, allowing ordinary users to spend more gas fees for their operations.

Because of the existence of arbitrage robots, some service providers have begun to have "dark pool" services, that is, these transactions bypass the public memory pool of Ethereum to avoid being discovered by arbitrage robots.

The performance of arbitrage robots is also divided. Those with weak performance may be knocked out by strong performance. After all, early trading also requires speed, and weak arbitrage robots may also be stronger. The robot preempts the transaction, and the transaction has not been completed without the loss of gas fees.

But in this game, the arbitrage robot seems very cool, but it also faces the resistance of the dark pool and the crush of arbitrage robots that are more brutal than him. But there is a character, the miner, who is definitely at the top of the food chain, because Following the rules of gas ordering, miners can arbitrarily allocate the order of transactions of the same gas. Miners can also directly package a transaction into a block without broadcasting the transaction.

Someone made an analogy. In this game, ordinary users are closed-eye players, arbitrage robots are open-eye players, and miners are from the perspective of God. It is clear that in such cases, arbitrage robots and miners are making a lot of money, and it is users and the ETH ecology that are really hurt, because a large number of arbitrage transactions have also increased the congestion of Ethereum. However, with the completion of layer2 to solve the congestion problem and smooth transactions, the arbitrage space will be greatly compressed, so every user is looking forward to layer2, because it can make the ecology of Ethereum more fair.

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Written by   205
5 months ago
Topics: Cryptocurrency
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