'Backrunning' bots are driving up Ethereum transaction costs as they chase the best trades

Ethereum gas prices — or the cost to transact on the blockchain network — have hit eye-popping levels in recent days. And automated trading bots taking advantage of a quirk in the most-popular Ethereum software are the likely culprits.

At last check, ETH Gas Station, a tool for estimating transaction cost ranges depending on confirmation speeds, recommends a whopping 275 Gwei for a “fast” transaction and 261 for a “safe low” cost transaction. Different kinds of Ethereum transactions require varying levels of gas to compute, so a transaction could run as high as $10 or more at current levels.

Last month, it became apparent that a Geth feature through which transactions with the same gas costs would be ordered randomly had opened the door to bots designed to execute orders at a particular time. Namely, in an order that would follow a “price oracle updates that allow liquidation transactions to be triggered immediately afterwards, or trades on AMM (automated market maker) exchanges such as Uniswap where one trade affects the price offered to subsequent trades,” according to a post by Lev Livnev.

To achieve this, such bots submit numerous transactions to Ethereum’s mempool — where transactions exist before they are included in a block — in an effort to obtain an ideal place being what Livnev called the “target transaction” in the otherwise randomized ordering. The end result: bots loading the network with identical transactions, with an ever-increasing amount of gas spent by such entities.

But why do this? As The Block has reported, the decentralized exchange (DEX) ecosystem has grown significantly, driven by a surge in so-called yield farming and the introduction of new participants. As such, there’s more money moving through this ecosystem, presenting sophisticated traders with the opportunity to leverage the network itself to their advantage.

In the same GitHub thread from July, researcher Philippe Castonguay shared some initial data on the situation, noting that as of the 20th, spammers had spent about $2.5 million in gas, “worth about 38,000.”

New data published by Castonguay showed that figure has grown. As of this afternoon, the entities had spent about $7.1 million in gas. In a message to The Block, he noted that it’s possible the data isn’t tracking new bots that may have come online.

“Spamming transactions is currently the best strategy to backrun a given tx. This is because most miners sort transactions by the way Geth sorts transactions (miners could do the backrunning themselves, but they dont seem to care),” he said.

Ultimately, a change to Geth’s software was added on July 29 to account for the backrunning bots. Certus One co-founder Hendrik Hofstadt noted on Github that the change makes it so that, if implemented, transactions “are sorted by the time that they were added to the mempool in ascending order.”

But the code change will only be effective if miners — which mine blocks of transactions — actually implement the change.

When asked whether he thinks miners will adopt the adjusted software, Castonguay said: “I don't think there was much outreach and I would assume miners tend to be conservative with changing their software.”

“Most likely time is if Geth releases some features that would improve miners life (e.g. faster processing) or when the next hardfork comes, which miners will need to adjust their node for,” he continued.