Interchain MEV

This is the most fundamental Interchain MEV strategy. It involves buying an asset on one blockchain where its price is low and simultaneously selling it on another where its price is higher, profiting from the price discrepancy. This activity relies on cross-chain bridges or atomic swap protocols to facilitate the transfer. For example, a searcher might exploit a price difference for Wrapped Bitcoin (WBTC) between Ethereum and Avalanche.

Searchers monitor lending protocols across multiple chains to identify undercollateralized positions. When a position becomes eligible for liquidation, they race to execute the liquidation transaction, often using flash loans on the target chain to provide the necessary capital. This strategy requires sophisticated monitoring of oracle prices and health factors on chains like Aave on Ethereum and its deployments on Polygon or Avalanche.

This advanced strategy involves a sequencer (e.g., from a rollup) observing pending transactions and MEV opportunities not just on its native chain (L2) but also on the settlement layer (L1) and other connected chains. The sequencer can reorder, insert, or bundle transactions to capture value across these domains. This is a core concern in rollup architectures and shared sequencing models, where control over transaction ordering has multi-chain implications.

Searchers attempt to profit by manipulating the price feeds that oracles (like Chainlink) supply to DeFi protocols on one chain, based on activity originating on another. For instance, a large trade on a decentralized exchange (DEX) on Polygon could temporarily skew the price reported by an oracle, creating a mispricing opportunity on a lending protocol on Ethereum that uses the same feed. Searchers may front-run the oracle update.

This encompasses strategies that target the validation mechanisms and liquidity pools of cross-chain bridges. Searchers might perform arbitrage between bridge liquidity pools, exploit delays in fraud-proof windows on optimistic bridges, or engage in MEV extraction from bridge transaction ordering. Validators or relayers for bridges like Axelar or LayerZero can also have MEV opportunities through their role in attesting to cross-chain messages.

Executing Interchain MEV requires specialized infrastructure:

• Cross-Chain Searcher Bots: Software that monitors and submits transactions across multiple networks simultaneously.
• Interchain Block Builders: Entities that construct blocks or bundles considering opportunities across connected chains (e.g., building a rollup block and a mainnet bundle together).
• MEV-Sharing Protocols: Systems like SUAVE that aim to create a decentralized, cross-chain block building market.

The core mechanism of Interchain MEV, where price discrepancies for the same asset on different blockchains are exploited. This requires atomic execution to ensure the trade completes on all chains or fails entirely, preventing losses. Key infrastructure includes cross-chain messaging protocols (like IBC or Wormhole) and relayers to facilitate the transaction bundle.

• Example: Buying ETH on Ethereum's mainnet and simultaneously selling it at a higher price on an L2 rollup.

Specialized automated agents that continuously scan multiple blockchains for profitable opportunities. These searchers run complex algorithms to model state across chains and construct cross-chain transaction bundles. They compete to have their bundles included by validators or block builders who operate on the interconnected networks.

Entities that construct blocks across multiple chains, often in parallel, to optimize for Interchain MEV capture. They aggregate transactions from searchers and arrange them to maximize value extraction while ensuring cross-chain atomicity. This role is critical in ecosystems like Cosmos (with IBC) and for bridges connecting Ethereum to its L2s.

Bridges designed with MEV considerations, often incorporating auction mechanisms for ordering cross-chain transactions. Instead of being a passive liquidity conduit, these bridges can act as a sequencer for the destination chain, allowing them to capture and potentially redistribute MEV generated from bridge interactions, such as arbitrage between bridge liquidity pools.

A single sequencing layer that orders transactions for multiple rollups or app-chains. By having a unified view of pending transactions across several chains, a shared sequencer can identify and efficiently capture Interchain MEV opportunities that exist between those chains, such as arbitrage between different L2s. This consolidates MEV market power but can improve cross-chain user experience.

A malicious actor observes a pending transaction on one chain (e.g., a large DEX swap) and executes a correlated transaction on a connected chain (e.g., a lending protocol) to extract value before the original transaction settles. This exploits the latency between block finalization across chains. For example, a profitable arbitrage opportunity spotted on Ethereum can be front-run on Avalanche or Polygon via a cross-chain bridge.

Interchain MEV can incentivize attacks on the bridges and relayers that facilitate cross-chain communication. Key risks include:

• Withholding Attacks: Validators or relayers delay forwarding messages to extract MEV from the information asymmetry.
• Censorship: Selectively censoring transactions to create profitable opportunities on the destination chain.
• Data Availability Attacks: Manipulating the data submitted to a bridge to create false arbitrage signals.

Large cross-chain swaps can be vulnerable to sandwich attacks executed across multiple liquidity pools on different chains. An attacker:

1. Front-runs the initial swap on the source chain, driving up the price.
2. Executes the victim's fragmented swap across several chains at worsened rates.
3. Sells the acquired assets back on the source chain for a profit. This is exacerbated by fragmented liquidity across decentralized exchanges (DEXs) on various Layer 2s and app-chains.

This risk exploits probabilistic finality in some consensus mechanisms. If a chain (e.g., a PoS chain with short finality periods) experiences a reorg, an attacker can revert a cross-chain transaction after assets have been released on the destination chain. This creates a double-spend scenario where the attacker keeps the bridged assets on the destination chain while the original transaction is erased.

Many cross-chain applications rely on oracles for price feeds and data. MEV searchers can:

• Manipulate the price on a smaller, less liquid chain to create a false arbitrage signal for a cross-chain DEX.
• Exploit the latency in oracle updates between chains. This can lead to liquidation cascades in cross-chain lending protocols or incorrect settlement prices in derivatives.

Interchain MEV can amplify systemic risks:

• Congestion Spillover: A profitable MEV opportunity on one chain can cause gas price spikes and network congestion that spills over to connected chains via bridging activity.
• Protocol Insolvency: Exploits targeting cross-chain money markets or stablecoin bridges can lead to insolvency that propagates across the ecosystem.
• Centralization Pressure: The capital and infrastructure required to capture cross-chain MEV may lead to validator/relayer centralization, creating single points of failure.

The core strategy of Interchain MEV, where searchers exploit price differences for the same asset across different blockchains. This involves:

• Atomic execution via bridges or cross-chain messaging protocols.
• Front-running cross-chain transactions to capture price updates.
• Examples: Arbitrage between ETH on Ethereum and WETH on Arbitrum via a cross-chain DEX aggregator.

A strategy to liquidate undercollateralized positions on one blockchain by sourcing liquidity or triggering the liquidation from another chain. This is critical for cross-chain lending protocols where collateral and debt can exist on different networks. Searchers monitor health factors across chains and execute complex transactions to claim liquidation bonuses.

Searchers exploit the latency and design of cross-chain bridges and oracles. Common tactics include:

• Time-bandit attacks: Reorganizing transactions on a source chain to alter the state observed by a bridge.
• Oracle front-running: Capturing value from price updates relayed between chains by protocols like Chainlink CCIP.
• Sandwich attacks on bridge liquidity pools during large asset transfers.

Interchain MEV introduces unique security risks that extend beyond single-chain MEV:

• Weakened Guarantees: Cross-chain transactions break atomicity, increasing settlement risk.
• Amplified Attack Vectors: An exploit on a smaller chain (e.g., a Cosmos app-chain) can be leveraged to extract value from a larger chain like Ethereum via bridges.
• Consensus Manipulation: MEV on a bridge's destination chain can invalidate the economic assumptions of the source chain.

Understanding Interchain MEV requires knowledge of these foundational ideas:

• MEV (Maximal Extractable Value): The overarching concept of profit from block production.
• Cross-Chain Communication: Protocols like IBC, LayerZero, and Wormhole that enable interchain activity.
• Shared Sequencers: Neutral entities that order transactions for multiple rollups, a key future battleground for Interchain MEV.
• Intents: User-defined constraints for cross-chain swaps, which searchers compete to fulfill.