Transaction Simulation

A simulation is a stateful execution that uses a copy of the blockchain's current state. It processes the transaction's logic—calls, transfers, and contract interactions—exactly as the network would, but without committing any changes. This allows developers to see the precise outcome, including:

• Final token balances and NFT ownership
• Contract state changes
• Generated events and logs
• Any potential errors or reverts

Simulation acts as a dry run to validate transaction logic and catch errors that would cause a real transaction to fail and waste gas. Key validations include:

• Revert Detection: Identifies transactions that will revert due to insufficient funds, failed conditions, or invalid parameters.
• Gas Estimation: Provides an accurate gas estimate by measuring the computational steps the simulated transaction actually consumes.
• Slippage Checking: For DeFi swaps, it can show the exact output amount given current pool reserves, helping to set appropriate slippage tolerances.

Beyond basic validation, simulation is critical for security analysis and compliance. It enables proactive detection of:

• Malicious Interactions: Previewing which contracts a transaction will interact with helps identify potential phishing or drainer addresses before signing.
• Authorization Scopes: For wallet providers, it reveals the exact token approvals or permissions a dApp is requesting.
• Regulatory Compliance: Institutions can simulate transactions to ensure they comply with internal policies or jurisdictional regulations before execution.

Sophisticated simulation enables complex developer and user experiences:

• Bundle Simulation: Simulating a sequence of dependent transactions (a bundle) to ensure the entire atomic operation will succeed.
• What-If Analysis: Testing portfolio impacts by simulating trades, loans, or stakes under different market conditions.
• MEV Exploration: Searchers use simulation to model the profitability and net effect of potential arbitrage or liquidation transactions.
• Fork Testing: Running simulations on a forked version of mainnet state to test strategies or interactions in isolation.

It's crucial to distinguish simulation from simple RPC calls:

• eth_estimateGas: Provides a gas estimate but does not return detailed execution results, state changes, or revert reasons.
• eth_call: Executes a call in the current state and returns the result, but is limited to view/pure functions and cannot simulate transactions that would alter state (it's read-only).
• Full Simulation: A superset that provides the complete execution trace, final state diff, logs, and gas used, acting as a perfect preview of the real transaction.

On-chain insurance protocols and risk assessment tools use simulation for coverage underwriting and payout verification.

• Protocols like Nexus Mutual can simulate hack scenarios to model potential claims and set premium rates.
• Oracle failure scenarios are simulated to stress-test DeFi protocols and determine safe collateral ratios.
• This allows for data-driven risk modeling based on the actual code and state of protected protocols.

Wallets and dApps use simulation to check for common failure states before a user signs. This prevents wasted gas fees on transactions that would revert, such as:

• Insufficient funds for the transaction value + gas.
• Slippage tolerance being exceeded in a DEX swap.
• Allowance or permission errors with smart contracts.

Advanced users and bots simulate complex, multi-step DeFi transactions to maximize yield and minimize cost. Key uses include:

• MEV (Maximal Extractable Value) searching: Simulating bundle profitability for arbitrage or liquidations.
• Yield farming: Testing the outcome of depositing, compounding, or withdrawing from liquidity pools.
• Flash loan feasibility: Verifying the entire arbitrage path is profitable before taking the loan.

Wallet providers integrate simulation to show users a human-readable preview of a transaction's effects, a critical security feature known as a transaction decoder. This helps users identify:

• Asset approvals: Seeing exactly which tokens and amounts a dApp is requesting permission to spend.
• Destination addresses: Confirming the recipient is the expected contract or wallet.
• State changes: Previewing estimated token balances after the transaction.

Developers rely on forking a network and simulating transactions in a local environment to:

• Test interactions between multiple contracts without deploying to a testnet.
• Estimate gas costs accurately for different function calls and input parameters.
• Debug reverts by inspecting the exact state and call trace that caused a failure.

Custodians, funds, and protocols use simulation for internal risk management and compliance. Applications include:

• Pre-signing checks: Automatically screening for interactions with sanctioned addresses or risky smart contracts.
• Portfolio impact analysis: Modeling the effect of a large trade on portfolio valuation and slippage.
• Stress testing: Simulating extreme market movements to assess protocol or strategy resilience.

The process of predicting the computational gas a transaction will consume before it is executed. While simulation provides a full execution trace, gas estimation focuses on the final gas cost. It is a critical user-facing feature to prevent transactions from failing due to out-of-gas errors.

• Key Input: Transaction data and current network state.
• Key Output: A single gas limit and gas price recommendation.
• Relation to Simulation: Often uses a simplified simulation to measure resource usage.

The profit that can be extracted by reordering, including, or censoring transactions within a block. Simulation is a fundamental tool for searchers and validators to identify and capture MEV opportunities.

• Use Case: Searchers simulate complex arbitrage and liquidations to craft profitable transaction bundles.
• Frontrunning: Simulating pending mempool transactions to anticipate price movements.
• Defense: Wallets use simulation to detect if a user's transaction is vulnerable to MEV exploitation.

The deterministic core logic of a blockchain that defines how the global state changes when a transaction is applied. Transaction simulation is essentially the execution of this function in a sandboxed environment.

• Formal Definition: S_{t+1} = STF(S_t, T) where S is state and T is a transaction.
• Simulation's Role: Runs the STF with a given starting state and proposed transaction, returning the resultant state and execution trace.
• Consensus Critical: All nodes must compute identical results from the same inputs.

The pool of pending, unconfirmed transactions broadcast to the network. It is the primary data source for pre-execution simulation, allowing users and services to analyze transactions before they are included in a block.

• Simulation Input: Transactions are pulled from the mempool for risk analysis (e.g., wallet security).
• Searcher Activity: Bots scan the mempool, simulating potential trades and MEV strategies.
• Network State: Represents the most recent, unconfirmed intended state changes.

A synonym for transaction simulation, emphasizing its non-committal nature. It executes a transaction against a specified blockchain state without broadcasting it or modifying the canonical chain.

• Key Characteristics:
  • Read-Only: Does not persist any state changes.
  • Deterministic: Given the same block hash and inputs, the output is identical.
  • Diagnostic: Returns full execution traces, logs, and revert reasons.
• Common Usage: Debugging smart contracts and estimating precise gas costs.