Solana Foundation Ousts Validators for Sandwich Attacks Against Retail Traders

Sandwich bots have long been causing disruption on the Solana network.

In response, the Solana Foundation has removed a group of validator operators from its delegation programme.

This decisive action addresses the operators' involvement in executing "sandwich attacks" on Solana users.

Enabling Sandwich Attacks Resulted in Validators being Stricken Off

A cohort of Solana (SOL) validators is facing financial repercussions for allegedly aiding economic attacks against cryptocurrency traders.

Over 30 validator operators were removed from the Solana Foundation Delegation Programme, according to a source with knowledge of the situation.

Although they can still act as validators on the network, they are no longer entitled to receive performance-based incentives for validating transactions on the Solana blockchain.

It has been mentioned that many of these operators were of Russian origin.

This action intensifies a prolonged covert conflict between prominent figures in the Solana validator community and an underground network of validators suspected of exploiting traders for financial gain through a tactic known as a "sandwich attack."

This strategy involves bots executing trades ahead of and immediately after those of unsuspecting traders, a method that falls under the category of maximal extractable value (MEV) tactics on blockchains that utilise mempools—essentially queues for unconfirmed transactions.

Solana does not have a native mempool, but the widely used validator software developed by Jito Labs previously did.

In the Solana Foundation's official Discord channel, Tim Garcia, the Solana Validator Relations Lead, stated that the decisions to remove these validators are final and that enforcement actions will persist as they identify operators engaging in mempool activities that enable sandwich attacks.

Garcia emphasized that such tactics contravene the Solana Foundation's guidelines.

Garcia warned:

“Decisions in this matter are final. Enforcement actions are ongoing as we detect operators participating in mempools which allow sandwich attacks.”

Mert Mumtaz, co-founder of Solana RPC provider Helius, explained that this move is intended to ensure that the foundation does not delegate to validators who engage in malicious attacks against retail users.

Mumtaz clarified that sandwich attacks are a pernicious form of MEV attack that systematically disadvantages retail users by ensuring they receive the least favourable prices, while the attackers reap all the profits.

Mumtaz said:

“A sandwich attack is a malicious form of MEV attack that ensures retail always gets the worst possible price while extracting all the profit for themselves."

Despite Solana's design inherently preventing such attacks, some individuals have modified their validators to permit sandwiching.

He also indicated that stake pools may adopt similar policies against sandwich attacks in the future.

He added:

“Most importantly, these operators can still do whatever they want; it's a permissionless network—it just won’t be Foundation subsidized."

Dummy's Guide to Sandwich Attack & its Connection to MEV

A sandwich attack involves a malicious actor taking advantage of other traders' transactions to make a profit.

Here is a simplified explanation:

Imagine you want to buy some crypto tokens, so you place a transaction on the blockchain.

A malicious actor sees your transaction before it gets processed.

The attacker quickly places a buy order for the same token just before your transaction (this is the first "slice of bread" in the sandwich).

Your transaction goes through, and the demand from your purchase pushes the token's price up.

The attacker then places a sell order immediately after your transaction, selling the tokens they just bought at the now higher price (this is the second "slice of bread").

As a result, the attacker makes a profit from the price increase that your purchase caused, and you end up buying the tokens at a higher price than you would have without the attack.

How is it connected to MEV?

MEV refers to the maximum profit that a validator or miner can extract from transaction manipulation, beyond the standard block rewards and gas fees.

In the case of a sandwich attack, the attacker extracts value from the normal sequence of transactions by placing their own transactions in strategic positions to profit.

Validators or miners who can see the pending transactions in the mempool (a sort of waiting area for transactions) might exploit this by rearranging transactions to maximise their own profit, often at the expense of regular users.

In a nutshell, a sandwich attack exploits the timing and sequence of transactions to benefit the attacker, and MEV represents the profit potential from such manipulations.

Not the First Sandwich Attack

In March, during the peak of Solana's meme coin craze, Jito Labs disabled the mempool function to protect traders from the relentless and costly sandwich attacks.

The CEO of Jito positioned this decision as being for the greater good of the Solana ecosystem, even though it eliminated a potential revenue source for validators, the server operators who maintain the decentralised network's operations.

Rather than eradicating the issue, Jito's action drove it underground.

Rumours soon surfaced of private mempools where operators were earning substantial sums, sometimes hundreds of thousands of dollars, by facilitating sandwich attacks.

One proposal from infrastructure operator DeezNode offered validators who joined its private mempool a 50% share of the profits generated by MEV.

In May, Solana validators' earnings from MEV surpassed those of the Ethereum blockchain.

This revenue has been growing rapidly since mid-March and has recently reached new highs.

Intriguingly, Jito is projected to generate approximately $25 million in revenue over the next year, according to Token Terminal.

Jito's business model involves taking a 5% cut of the MEV tips paid to Solana validators.

A recent Jito Foundation governance post suggests that 10% of the JitoSOL pool is being delegated to validators operating private mempools.

The Jito Foundation has proposed additional economic sanctions against these validators by restricting more staked SOL.

The Solana Foundation's delegation blacklist, which targets a total of 32 operators holding 1.5 million SOL, or about 0.5% of the program's stake, is a small fraction of the delegation programme, as reported by a source.

Crypto Community Displeased with the Resolution

Despite the removal from the Solana Foundation Delegation Programme, these operators can continue their activities on the network, given Solana's permissionless nature.

However, they will forfeit certain advantages: the programme aims to support validators by delegating SOL tokens, enabling operation without the need for a significant token holding, based on performance criteria.

The decision has sparked criticism within the cryptocurrency community, with some suggesting it underscores Solana's centralisation relative to other blockchains.

This debate resurfaces whenever the network experiences downtime, reigniting the argument that the SOL blockchain exhibits centralised tendencies.

Open Nature of Blockchain Might Not Always Be Good

In 2022, a study of transaction data from Uniswap V2 and Sushiswap revealed that in April 2021, sandwich attacks occurred at an average rate of one every 30 seconds, totalling 84,000 for the month.

Source: Impact and User Perception of Sandwich Attacks in the DeFi Ecosystem study

The cryptocurrency realm is a fertile ground for innovative ideas and opportunities, yet these advancements also bring unforeseen risks.

One such risk is the elusive "Sandwich Attack," which can wreak havoc in decentralised finance (DeFi).

Even Ethereum co-founder Vitalik Buterin issued a cautionary note about these deceptive tactics as far back as 2018.

Sandwich bots and MEV, while ethically dubious, highlight the transparency inherent in Web3.

They exemplify the open nature of blockchain technology, where every transaction is visible to all.

This raises a significant question: Is it preferable to have a high degree of freedom in the crypto world, accepting that clever manipulations may occur, or should the focus be on creating an environment that is extremely secure, albeit less free?