May 15, 2024 - Economy

DOJ busts two brothers for complex $25M Ethereum exploit

Illustration of a crypto block sitting in the dark, with a red and blue light rotating over it.

Illustration: Brendan Lynch/Axios

Two brothers have been charged with wire fraud for manipulating transactions for their own benefit on the Ethereum blockchain.

Why it matters: It shows the U.S. Department of Justice has learned how to make sense of extremely complex blockchain attacks and track down their perpetrators.

Flashback: A little over a year ago, traders on Ethereum using bots to make arbitrage trades were tricked into giving up $25 million in crypto assets to a very sophisticated exploit of how the original smart-contract blockchain operates today.

  • The alleged scheme utilized a system called maximal extractable value (MEV), in which arbitrage traders help blockchain validators compose blocks, and in doing so, shave little bits of profit off the impact of large trades on prices.
  • The attackers allegedly spun up their own blockchain validators so they could pull bait-and-switches on these bots.
  • Shortly after the exploit was discovered, Flashbots, the team that makes the MEV software used by most participants, pushed an update to shut it down.

Context: Most Ethereum traders use private pools now so their trades are not exposed to arbitrage bots.

Driving the news: Federal prosecutors Wednesday announced the indictments of Anton and James Peraire-Bueno, brothers trained in mathematics with advanced abilities in crypto trading.

  • They were indicted for conspiracy to commit wire fraud, wire fraud, and conspiracy to commit money laundering.
  • They were arrested Tuesday in Boston.

Fun fact: According to the indictment, following the trade the brothers looked for a bank safe deposit box that could hold a laptop and performed searches about the statute of limitations for wire fraud.

What they're saying: "This alleged scheme was novel and has never before been charged," U.S. Attorney Damian Williams said in a statement.

  • "No matter how sophisticated the fraud or how new the techniques used to accomplish it, the career prosecutors of this Office will be relentless in pursuing people who attack the integrity of all financial systems."
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