Ethereum's Random Lottery Can Be Rigged by Insiders, Study Finds

Ethereum, the second-biggest cryptocurrency network, doesn't let anyone decide who gets to add the next batch of transactions. Instead it runs an automated coin flip — called RANDAO — that picks a winner roughly every 12 seconds. That winner collects fees and a small reward for doing the bookkeeping. The whole point is fairness: no favouritism, no backroom deals.

But the coin flip isn't perfectly random. Someone running the network can peek at the result and choose to skip their turn if the number isn't to their liking. Why would they care? Because a block-builder can also see pending trades in advance and rearrange them for profit — a practice called MEV, or "profit from ordering transactions." If the coin flip gives them a particularly valuable block, staying silent is worth it.

This paper's new angle is about incentives rather than counting bad blocks. The authors built a general model for every common way a block-builder earns money — carried-over rewards, arbitrage between exchanges, price-feed manipulation — and then computed the optimal cheating strategy for each. Their conclusion: when rewards roll over to the next round, or grow faster than the number of consecutive blocks a builder wins, cheating gets dramatically more attractive. Think of a casino where the jackpot doubles each time you win; you'd happily sit out a round to keep hitting the jackpot.

The catch is that nothing here has happened yet in a way you'd notice — this is a mathematical model, not a hack report, and it was published as an academic preprint. Ordinary users can't personally fix any of it; the fixes would have to come from Ethereum's developers. Still, the paper offers a hopeful finding: a small penalty on the final slot of each cycle, called tail-slot slashing, restores an "honest equilibrium" — meaning doing the right thing becomes the most profitable thing.