Backrunner

Backrunners rely on real-time monitoring of the public mempool to identify profitable opportunities. They use sophisticated bots to scan for specific transaction patterns, such as large DEX swaps or liquidations, that are likely to move market prices.

• Key Targets: Large swaps on Uniswap, SushiSwap, or other AMMs; oracle-based liquidations on lending protocols.
• Detection: They parse pending transactions for calldata, identifying the contract, function, and parameters to assess profit potential.

The core mechanic is ensuring the backrunner's transaction is included in the next block, directly after the target transaction. This requires outbidding other searchers for block space.

• Priority Gas Auction (PGA): Backrunners engage in bidding wars, submitting their transactions with progressively higher gas prices to incentivize a validator/block builder to place theirs immediately after the target.
• Bundle Submission: Advanced backrunning often involves submitting a bundle of transactions (target + profit-taking) directly to block builders via private channels like Flashbots, ensuring atomic execution.

Profit is extracted by capitalizing on the price impact or state change caused by the target transaction. Common strategies include:

• DEX Arbitrage: Buying an asset on a DEX where a large swap is about to increase its price, then selling it on another venue at the new, higher price.
• Liquidation Cascades: Triggering or benefiting from a series of liquidations after an initial price update.
• Oracle Manipulation: Profiting from trades that rely on an oracle price that is about to be updated by the target transaction.

Successful backrunning requires a high-performance technical stack to compete in a sub-second environment.

• Low-Latency Nodes: Direct connections to multiple Ethereum node providers or running dedicated infrastructure to minimize mempool observation delay.
• MEV-Boost Integration: Integration with MEV-Boost relays to submit transaction bundles directly to proposers.
• Simulation: Every opportunity is run through a local transaction simulator (e.g., using Tenderly or a custom EVM fork) to verify profitability and avoid failed transactions that incur costs.

Backrunning operates on thin margins and carries significant execution risks.

• Gas Costs: High gas bids during PGAs can erode profits; failed transactions still pay gas.
• Competition: Fierce competition from other searchers can turn profitable opportunities into loss-making ones through gas auctions.
• Sandwich Attacks: A backrunner can themselves become the target of a sandwich attack, where another searcher front-runs their backrun transaction.
• Protocol Risk: Smart contract vulnerabilities in the target protocol can lead to total loss of capital.

Backrunning is one strategy within the broader Maximum Extractable Value (MEV) landscape. Key distinctions:

• Frontrunning: Executing before the target transaction (often illegal in TradFi, common in DeFi).
• Sandwich Attack: A specific, aggressive form of frontrunning/backrunning that traps a user's swap between two malicious transactions.
• Arbitrage: A broader category; backrunning is often a time-sensitive form of arbitrage.
• Searcher: The general term for an entity (bot or person) that identifies and extracts MEV opportunities.

A backrunner identifies a pending DEX trade that will move an asset's price and places their own trade to profit from the imbalance.

• Example: A large pending swap of ETH for USDC on Uniswap will raise the price of ETH. A backrunner buys ETH on a different DEX (like Curve) before the original trade executes, then sells it after the price rises.
• This strategy capitalizes on price discrepancies across liquidity pools.

A backrunner monitors pending transactions that will trigger a loan liquidation on a lending protocol (like Aave or Compound).

• When they detect a pending transaction that will make a position undercollateralized, they front-run it by being the first to call the liquidate function.
• The reward is a liquidation bonus (e.g., 5-10%) paid by the protocol, making this a race for the right to execute.

This strategy targets pending transactions in NFT markets.

• A backrunner watches for a pending purchase of an NFT listed below its perceived market value.
• They submit a transaction with a higher gas fee to buy the NFT before the original buyer, intending to resell it immediately for a profit.
• This is common on marketplaces like OpenSea and Blur where listings are public.

A specialized, aggressive form of backrunning that involves two transactions: one placed before and one after the victim's.

1. Front-run: The attacker buys the same asset the victim is buying, driving the price up.
2. Back-run: After the victim's trade executes at the worse price, the attacker sells the asset for a profit.

• The victim is "sandwiched" between the two malicious trades, incurring maximum slippage.

A formalized ecosystem where searchers (backrunners) bid for the right to reorder transactions within a block.

• Searchers submit bundles of transactions to block builders via relays.
• Builders assemble the most profitable bundle and propose it to validators.
• This creates a competitive market for Maximal Extractable Value (MEV), with profits shared between searchers, builders, and validators.

A more complex strategy using algorithms to identify and exploit temporary pricing inefficiencies between correlated assets.

• Unlike simple DEX arbitrage, this may involve multi-leg trades across several protocols or derivatives.
• It relies on predictive models to anticipate price movements from pending transactions and market structure.
• This is often executed by sophisticated bots monitoring the mempool and on-chain data feeds.

A backrunner is a network participant who submits a transaction with a higher gas fee to ensure it is included in the next block immediately after a target transaction they have observed. This is a form of Maximum Extractable Value (MEV) extraction that relies on mempool surveillance and transaction ordering to capture value from predictable on-chain outcomes.

• Process: 1) Monitor pending transactions in the public mempool. 2) Identify a profitable opportunity (e.g., a large DEX swap). 3) Immediately submit a competing transaction with a higher priority fee. 4) Profit from the price impact or arbitrage created by the initial transaction.

Backrunning is employed in several predictable financial strategies on decentralized exchanges and lending protocols.

• DEX Arbitrage: The most common use. A backrunner sees a large swap that will move a market price and places an order to buy the asset before the swap executes, then sell it after the price moves.
• Liquidations: Observing a transaction that will render a loan undercollateralized, a backrunner submits their own liquidation transaction to claim the liquidation fee.
• NFT Minting: Sniping a popular NFT mint by submitting a mint transaction right after the contract-opening transaction is seen.

While profitable for the backrunner, this activity creates several negative effects for general users and network health.

• Increased Gas Costs: Drives up gas prices through competitive bidding, making transactions more expensive for everyone.
• Network Congestion: Floods the network with spam transactions during high-opportunity events.
• User Experience Degradation: Causes failed transactions (reverts) and front-of-block congestion, making user interactions less reliable.
• Centralization Pressure: Favors sophisticated operators with low-latency infrastructure and private mempool access (e.g., Flashbots MEV-Boost relays).

Backrunners are often part of a larger MEV supply chain involving searchers and block builders.

• Searchers: Bots or individuals (including backrunners) who run complex algorithms to discover profitable MEV opportunities.
• Builders: Specialized nodes that construct full block contents by aggregating transactions from the public mempool and private order flows (like from searchers). They compete to have their block chosen by validators.
• Validator/Proposer: The entity that ultimately signs and proposes a new block to the network, typically selecting the most profitable block from builders.

The ecosystem is developing protocols and design patterns to mitigate the negative impacts of backrunning and MEV.

• Fair Sequencing Services: Protocols that use a centralized sequencer or consensus mechanism to order transactions fairly (e.g., Flashbots SUAVE).
• Private Transaction Channels: Services like Flashbots Protect RPC or BloXroute allow users to submit transactions directly to builders, bypassing the public mempool.
• Protocol-Level Design: DEXes can implement mechanisms like CowSwap's batch auctions or Uniswap V3's time-weighted prices to reduce the profitability of simple backrunning.

It is critical to distinguish backrunning from the related, but distinct, practice of frontrunning. Both are forms of MEV but differ in transaction ordering.

• Frontrunning: Submitting a transaction before the target transaction. This typically involves seeing a pending trade and inserting one's own trade ahead of it in the block, often by paying a higher gas fee.
• Backrunning: Submitting a transaction immediately after the target transaction. The profit comes from the state change caused by the target transaction, not from displacing it.

Backrunning is often considered less malicious than frontrunning, as it does not directly displace the user's transaction.

A backrunner operates by scanning the mempool for a profitable target transaction. It then constructs and broadcasts its own transaction with a higher gas fee, ensuring it is mined in the next block immediately after the target. This exploits the predictable outcome of the initial transaction, such as a large DEX swap that moves an asset's price.

Backrunning creates a competitive environment that can have mixed effects:

• For Users: Increases gas costs as bots compete for block space, potentially leading to failed transactions if outbid.
• For Protocols: Can distort on-chain pricing and liquidity, making large trades more expensive.
• For Bots: Represents a zero-sum or negative-sum game where profits for one bot come at the expense of other participants or the original trader.

It is critical to distinguish backrunning from the illegal practice of frontrunning:

• Frontrunning: A validator or insider uses non-public knowledge to place a transaction before a victim's transaction, a clear abuse of position.
• Backrunning: Uses only public mempool data to place a transaction after the victim's, which is generally considered a permissible, though often undesirable, form of Maximal Extractable Value (MEV).

Backrunners deploy automated strategies to identify opportunities:

• DEX Arbitrage: Profiting from price discrepancies between pools after a large swap.
• Liquidations: Snapping up undercollateralized positions immediately after they become eligible for liquidation.
• NFT Minting: Minting a rare NFT from a collection right after a reveal transaction. These strategies rely on low-latency infrastructure and sophisticated transaction simulation.

A transaction ordering strategy where a user, often a bot, places their transaction ahead of a target transaction in the same block to profit from its anticipated price impact. This is typically done by paying a higher gas fee to win priority. It is considered more aggressive and potentially harmful than backrunning.

• Mechanism: Uses priority gas auctions (PGAs) to outbid the original transaction.
• Example: Buying an asset before a large known buy order executes, then selling it after the price rises.

A specific, predatory form of MEV (Maximal Extractable Value) that combines frontrunning and backrunning. An attacker places one transaction before and one after a victim's large DEX swap.

• Process: The first transaction buys the asset, pushing the price up for the victim. The second transaction sells the asset after the victim's trade, profiting from the inflated price.
• Impact: The victim receives worse execution price (slippage), and the attacker profits from the difference.

The pending transaction pool where all broadcasted but unconfirmed transactions wait before being included in a block. This is the data source that searchers and MEV bots monitor to identify profitable opportunities for backrunning, frontrunning, and arbitrage.

• Function: Acts as a public bulletin board for upcoming state changes.
• Key Role: Essential for transaction ordering strategies, as it reveals intent before execution.

An entity (often automated software or a bot) that scans the mempool and blockchain state to identify profitable MEV opportunities. Searchers construct and submit transaction bundles to validators or builders for inclusion in a block.

• Activity: They execute strategies like arbitrage, liquidations, and backrunning.
• Economic Role: They compete on the sophistication of their algorithms and the fees they are willing to pay to validators.

A specialized node in proposer-builder separation (PBS) architectures that constructs full block contents. Builders receive transaction bundles from searchers and assemble them into profitable, valid blocks, which are then auctioned to validators.

• Responsibility: Decides the final transaction ordering within a block.
• Connection to Backrunning: Searchers submit their backrun bundles to builders, competing on the total value (fees + extracted MEV) their bundle offers.