Front-running is a deceptive practice in decentralized exchanges and other blockchain applications where a transaction is submitted and executed ahead of another known pending transaction. This is typically achieved by observing pending transactions in the mempool and then submitting a similar transaction with a higher gas fee to ensure it is processed first. The front-runner profits by exploiting the price impact of the original transaction, often leading to unfavorable outcomes for the victimized user. This practice undermines market fairness and can result in financial losses.
Context
Front-running remains a persistent concern within decentralized finance, particularly on networks like Ethereum where transaction ordering can be influenced by gas fees. News reports frequently highlight the impact of sophisticated bots engaging in this practice, leading to increased transaction costs and reduced profitability for legitimate users. Efforts to mitigate front-running include the development of private transaction relays, commit-reveal schemes, and batch auctions, which are often subjects of technical discussions and protocol updates.
This research formally models MEV as a multi-stage game, revealing competitive dynamics that degrade welfare and quantifies mitigation through commit-reveal schemes.
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