Mempool Snooping

Snooping tools parse pending transactions to analyze their intent and potential market impact before they are confirmed on-chain. This includes:

• Decoding calldata to identify function calls (e.g., swaps, liquidations, large transfers).
• Simulating execution to preview the outcome, such as a token's post-swap price.
• Identifying counterparties by analyzing from and to addresses to gauge institutional or known trader activity.

A primary application is identifying profitable opportunities for Maximal Extractable Value (MEV). Searchers detect pending transactions they can exploit, typically through:

• Front-running: Submitting a transaction with a higher gas fee to execute a similar trade ahead of the target.
• Back-running: Executing a transaction immediately after a target (e.g., buying a token right after a large DEX purchase is seen).
• Sandwich attacks: Placing orders both before and after a large swap to profit from the price slippage it creates.

Protocols and users monitor the mempool for transactions that pose immediate threats, enabling proactive defense. Key use cases include:

• Liquidation warnings: Detecting transactions that would trigger a loan liquidation, allowing the borrower time to add collateral.
• Attack detection: Identifying malicious transactions targeting smart contract vulnerabilities before they are mined.
• Governance attacks: Spotting surprise governance proposals or votes submitted with high gas to minimize community visibility.

By analyzing the volume and gas bids of pending transactions, snooping provides real-time metrics on network state.

• Gas price estimation: Observing the gas prices of similar pending transactions offers a more accurate fee prediction than standard estimators.
• Congestion alerts: A sudden spike in transaction volume or gas bids signals impending network congestion.
• Priority fee analysis: Determining the "tip" required to get a transaction included in the next block versus later blocks.

Snoopers identify price discrepancies across decentralized exchanges (DEXs) or between CEXs and DEXs visible in the mempool.

• Cross-DEX arbitrage: Spotting a pending large swap on Uniswap that will move price, creating an arbitrage opportunity on Sushiswap.
• CEX/DEX arbitrage: When a large off-chain trade is inferred (e.g., via oracle updates), a corresponding on-chain arbitrage trade can be front-run.
• Statistical models: Building signals based on the frequency, size, and origin of pending swap transactions.

A cryptographic technique that separates the intent of a transaction from its execution. A user first submits a commit transaction containing only a hash of their intent, which is meaningless to observers. Later, they submit a reveal transaction with the actual details, which can only be matched and executed by the original committer. This prevents front-running because the valuable information is hidden during the initial broadcast phase.

These protocols use cryptographic techniques like threshold encryption to obfuscate transaction content until it is too late to act on it. In an FSS, transactions are encrypted before entering the mempool. A decentralized network of sequencers then agrees on the order of these ciphertexts. The transactions are only decrypted and executed after the order is finalized, eliminating the opportunity for front-running based on content inspection.

A specific anti-front-running technique where a transaction's critical parameter (like a swap amount) is hidden using a cryptographic puzzle or a future reveal. For example, a user might send funds to a contract that can only be claimed by providing the solution to a puzzle after a certain block. This makes the transaction's economic intent opaque in the mempool, neutralizing sandwich attacks and other predatory strategies.

Some blockchain designs incorporate rules at the consensus layer to enforce fair transaction ordering, reducing the impact of mempool snooping. Approaches include:

• First-Come-First-Served (FCFS): Enforcing the order in which transactions are received by the network.
• Timestamp Ordering: Using a verifiable timestamp to sequence transactions.
• Randomized Ordering: Introducing randomness to the final block order to disrupt predictable MEV extraction strategies.

The most common malicious use of mempool data. Searchers detect pending swap transactions on decentralized exchanges (DEXs) and place their own transactions with higher gas fees to execute first. In a sandwich attack, they place one transaction before and one after the target trade to profit from the price impact.

• Process: Detect trade → Front-run to buy asset → Target trade executes, pushing price up → Back-run to sell at higher price.
• Impact: Increases slippage and cost for the original trader.

Searchers use mempool monitoring to identify price discrepancies across different exchanges or liquidity pools in real-time. By seeing large pending trades that will move prices, they can calculate and execute profitable arbitrage strategies before the market adjusts.

• Cross-DEX Arbitrage: Buying an asset on one DEX where it's cheaper and instantly selling it on another where it's more expensive.
• Requires: Fast bots, optimized smart contracts, and high gas bids to ensure priority execution.

Mempool snooping is a fundamental input for MEV extraction. Searchers run sophisticated algorithms to scan for profitable opportunities like liquidations, arbitrage, and front-running. They bundle these opportunities into transactions and bid in block builder auctions (e.g., via Flashbots) to have them included in the next block.

• Tools: Searchers use clients like Flashbots Protect or proprietary software to access private transaction relays and avoid being snooped on themselves.

To counter mempool snooping, several privacy-preserving protocols have been developed. These aim to hide transaction details from the public mempool until they are included in a block.

• Private Transaction Relays: Services like Flashbots SUAVE, Taichi Network, and BloXroute allow users to submit transactions directly to builders/validators.
• Encrypted Mempools: Protocols like Shutter Network use threshold encryption to encrypt transactions until block inclusion.
• Commit-Reveal Schemes: Users submit a commitment hash first, revealing the full transaction only later.

The ecosystem professionalized around mempool data. Searchers are entities that identify profitable opportunities. Block Builders are specialized nodes that construct full blocks, often incorporating searcher bundles. They compete in a builder market to have their block accepted by the validator.

• Flow: Searcher finds opportunity → Creates bundle → Sends to Builders via relay → Builder constructs block → Validator proposes block.
• This separation creates a more efficient but complex market for block space.