Front-Running

Front-running occurs when traders or automated bots detect pending transactions and insert their own orders with a higher gas fee to ensure they are processed first. This tactic allows them to profit from price movements before the original transaction is executed. It is prevalent in Decentralized Exchanges (DEXs) and NFT marketplaces where order sequencing plays a critical role.

💡 Types of Front-Running

• Traditional Front-Running – Traders or brokers use privileged information to place trades ahead of others in traditional finance.
• MEV (Maximal Extractable Value) Front-Running – Bots scan blockchain mempools and reorder transactions to maximize profits.
• Sandwich Attacks – A specific front-running strategy where an attacker places buy and sell orders around a target transaction to manipulate the price.

🏛 Example 1: MEV Bots on Ethereum

MEV bots monitor pending transactions on Ethereum and execute trades that take advantage of price shifts before others.

🏛 Example 2: Sandwich Attacks on DEXs

A trader places a large buy order on Uniswap, and an MEV bot detects it, executing a buy order first and a sell order after to capitalize on price changes.

📚 References

• Ethereum.org – Understanding MEV
• Binance – What Is Front Running?
• Flashbots – Research

⚠️ Controversies & Misconceptions

• "Front-running is illegal in crypto" – Unlike traditional finance, front-running is not explicitly illegal on public blockchains but is seen as an exploitative practice.
• "Only bots front-run transactions" – While bots dominate MEV front-running, sophisticated traders can also manually execute similar strategies.

🚀 Conclusion

Front-running is a controversial yet common phenomenon in DeFi and crypto trading. While it can lead to unfair advantages, various solutions such as private transactions, MEV-resistant protocols, and improved order execution mechanisms are being developed to mitigate its impact.

Related Terms

• MEV (Maximal Extractable Value)

  Maximal Extractable Value (MEV) refers to the maximum profit that miners or validators can extract from a blockchain network by manipulating the order, inclusion, or exclusion of transactions within a block.

• DEX (Decentralized Exchange)

  A decentralized exchange (DEX) is a platform that facilitates peer-to-peer trading of cryptocurrencies without a central authority. DEXs operate through smart contracts and decentralized liquidity pools, allowing users to trade assets without intermediaries.

• NFT (Non-Fungible Token)

  An NFT is a unique digital asset verified on the blockchain, representing ownership of a specific item or piece of content, such as art, music, videos, or virtual goods. Unlike cryptocurrencies like Bitcoin or Ethereum, NFTs are non-fungible, meaning each token is distinct and cannot be exchanged on a one-to-one basis with another.