Front-Running Risk

The root cause of front-running is the public mempool (memory pool), where pending transactions are broadcast before being included in a block. Attackers monitor this pool for profitable opportunities, such as large DEX swaps or liquidations, and submit their own transaction with a higher gas fee to be processed first.

Front-running is the most basic form of Maximal Extractable Value (MEV). Validators or block producers have the power to order transactions within a block. They can exploit this to:

• Sandwich attack a large trade (front-run and back-run it).
• Extract arbitrage profits from price differences.
• Liquidate positions they identify as undercollateralized.

Attackers use specific techniques to successfully front-run:

• Gas Price Bidding: Submitting a transaction with a significantly higher maxPriorityFeePerGas or maxFeePerGas.
• Transaction Replacement: Using the nonce and higher gas to replace a pending transaction from the same account.
• Flashbots & Private RPCs: Bypassing the public mempool entirely by sending transactions directly to validators via private channels.

Certain on-chain activities are highly vulnerable:

• Decentralized Exchanges (DEXs): Large swaps with visible slippage tolerance.
• Lending Protocols: Liquidatable positions visible in the mempool.
• NFT Minting: Bots snipe limited-edition mints.
• Impact: Results in worse execution prices (slippage) for the victim and increased network congestion due to gas wars.

Protocols and users employ several defenses:

• Commit-Reveal Schemes: Hiding transaction intent until it's too late to front-run.
• Fair Sequencing Services: Using a trusted sequencer for FCFS (First-Come, First-Served) ordering.
• Private Transactions: Using services like Flashbots Protect RPC to submit transactions directly to builders.
• In-protocol Solutions: TWAP (Time-Weighted Average Price) orders or batch auctions.

With Ethereum's transition to Proof-of-Stake, the structure of MEV and front-running evolved:

• Proposer-Builder Separation (PBS): Block building and proposing are separated. Block builders (specialized searchers) construct profitable blocks and sell them to validators.
• This has professionalized MEV extraction, often consolidating profits to sophisticated actors rather than eliminating the risk for end-users.

A sandwich attack is the most prevalent front-running vector in decentralized finance (DeFi). An attacker places one transaction before and one after a victim's large trade in a liquidity pool.

• Mechanism: The first transaction buys the asset, artificially inflating its price for the victim's trade. The second transaction sells the asset at the new, higher price, profiting from the spread.
• Impact: The victim receives worse execution (slippage), while the attacker extracts value from the trade.
• Example: Commonly targets large swaps on Automated Market Makers (AMMs) like Uniswap.

A time bandit attack (or consensus-level front-running) targets the blockchain's consensus mechanism itself, typically Proof-of-Work (PoW).

• Mechanism: A miner with the power to reorder blocks can reorganize the chain to insert, exclude, or reorder transactions after they have been initially included. This allows them to front-run transactions from a previously accepted block.
• Impact: Undermines blockchain finality and can be used for double-spending or stealing arbitrage opportunities.
• Context: This is a higher-level attack than mempool snooping and requires significant hash power.

A displacement attack occurs when an attacker forces a victim's transaction to fail or become invalid, allowing their own transaction to take its place.

• Mechanism: The attacker submits a transaction with an identical nonce as the victim's pending transaction but with a much higher gas price. Miners/validators prioritize the higher-fee transaction, "displacing" the original.
• Common Use: Used to outbid victims in NFT minting wars or to seize specific positions in token sales. It can also be used to invalidate a victim's transaction by making it fail (e.g., via a smart contract call that drains gas).

Mempool snooping is the foundational surveillance technique that enables most front-running. The public mempool is a goldmine of pending transaction data.

• Mechanism: Bots and nodes monitor the public mempool for lucrative transactions, such as large trades or arbitrage opportunities. They analyze transaction data like function calls, amounts, and destination addresses.
• Tooling: Attackers use sophisticated infrastructure, including dedicated RPC nodes and Flashbots bundles (on Ethereum), to gain a latency advantage in seeing and reacting to pending transactions.

This vector involves manipulating the order book on a centralized exchange (CEX) or a decentralized order book to front-run large orders.

• Mechanism: On a CEX, an attacker detects a large market buy order. They quickly place a buy order ahead of it at a slightly higher price, then sell the acquired asset back to the victim's large order for a profit.
• Key Difference: Relies on the visibility of order book depth rather than the public mempool. It is a classic form of front-running that predates DeFi but is still relevant in hybrid or order book-based DEXs.

This advanced vector exploits the latency between an oracle price update and its on-chain use in a DeFi protocol.

• Mechanism: Attackers monitor oracle networks (e.g., Chainlink) for pending price feed updates. When a significant update is detected, they front-run the oracle transaction to interact with a protocol (like a lending platform) that will use the new price.
• Example: If an oracle update will increase the collateral value of an asset, an attacker can front-run it to borrow more funds against that collateral before the price increase is reflected, creating an undercollateralized position.

Front-running targets high-value NFT drops and marketplace transactions. During a popular mint, bots monitor for mint transactions and submit identical transactions with higher gas fees to ensure their mint is processed first, securing a rare or low-ID token. On marketplaces like OpenSea (prior to Seaport 1.5), bots could front-run a user's purchase of a listed NFT by buying it themselves and reselling it to the original buyer at a markup in the same block.

In protocols like Aave and Compound, undercollateralized positions become eligible for liquidation. Liquidator bots compete to be the first to repay the debt and seize the collateral, earning a liquidation bonus. This creates a classic front-running race: bots copy pending liquidation transactions, increase the gas price, and execute them first. This competition is necessary for protocol health but results in extracted value from the liquidated user.

Transactions that trigger critical oracle price updates (e.g., on Chainlink) can be front-run. If a large trade or oracle update will significantly move an asset's price on a DEX, a bot can front-run the update itself. They take a position based on the knowledge that the official price feed is about to change, profiting from the arbitrage between the old and new price across different systems.

Front-running can disrupt decentralized governance and token distributions. In governance, a malicious actor might front-run a proposal execution transaction if they can profit from the state change it causes. For token airdrops or claims, bots can monitor for claim transactions from eligible wallets, front-run them to steal the claim signature, and redirect the tokens to themselves, especially if the claim function is poorly implemented.

Front-running occurs when a searcher or bot observes a pending transaction in the mempool (the pool of unconfirmed transactions) and submits their own transaction with a higher gas price to ensure it is mined first. This is often done to arbitrage price differences or sandwich attack the original user.

• Key Targets: Large trades on DEXs, liquidations, and NFT mints.
• Primary Vector: The transparent nature of public blockchain mempools.

The most common and damaging form of front-running. An attacker sandwiches a victim's large DEX trade between two of their own transactions.

1. Front-run: The attacker buys the asset before the victim's trade executes, driving the price up.
2. Victim Execution: The victim's trade executes at the worse, inflated price.
3. Back-run: The attacker immediately sells the asset at the new higher price, profiting from the victim's slippage.

This extracts value directly from the victim's transaction.

Several strategies and technologies exist to reduce front-running risk:

• Commit-Reveal Schemes: Users submit a hashed commitment first, revealing the transaction details later, hiding intent.
• Submarine Sends: Sending transactions directly to miners/validators via private channels, bypassing the public mempool.
• Fair Sequencing Services (FSS): Protocols that cryptographically guarantee transaction order fairness.
• DEX Design: Use of automated market makers (AMMs) with high liquidity and features like TWAP orders or on-chain limit orders.

Front-running directly harms end-users by increasing transaction costs and reducing expected output.

Common Impacts:

• Slippage: Receiving less of the desired token than quoted.
• Failed Transactions: Transactions may revert if price impact is too high, still costing gas.
• Erosion of Trust: Users may avoid on-chain systems perceived as unfair.

Best Practices for Users:

• Use lower slippage tolerances for stable pairs.
• Break large trades into smaller transactions.
• Utilize DEX aggregators with built-in MEV protection.

Front-running on public blockchains exists in a regulatory gray area, drawing parallels to illegal practices in traditional finance like insider trading.

• Legal Status: Most jurisdictions have not created specific rules for on-chain MEV extraction. Its legality may depend on the specific method and jurisdiction.
• Protocol Responsibility: There is ongoing debate about whether base layer protocols (like Ethereum) or application layer dApps have a responsibility to mitigate these attacks.
• Ethical Design: The crypto community increasingly views certain MEV forms (like sandwich attacks on ordinary users) as parasitic, driving development of more equitable systems.

A cryptographic technique to prevent front-running by hiding transaction intent until it's too late to exploit.

• Process: 1. Commit: User submits a hash of their transaction data. 2. Reveal: In a later block, they submit the actual data, which must match the hash.
• Effect: Front-runners cannot act on the initial commit because the details are hidden.
• Use Case: Commonly used in on-chain auctions and some DEX designs.

A class of protocols that aim to decentralize transaction ordering to prevent MEV extraction like front-running.

• Core Idea: Use a consensus mechanism among a distributed set of sequencers to determine a fair, canonical order of transactions.
• Contrast to Status Quo: Replaces the first-seen rule with a fair ordering rule.
• Goal: Achieve transaction order fairness, making front-running computationally infeasible.

A specific, common form of front-running that targets large DEX trades.

• Mechanism: 1. Front-run: The attacker places their own buy order before the victim's large buy. 2. Victim's Order Executes: This pushes the price up. 3. Back-run: The attacker sells the asset immediately after at the higher price.
• Result: The victim gets a worse price, and the attacker profits from the artificial price movement they created.
• Dependency: Requires the victim's transaction to be visible in the mempool.