Front-running is a type of attack where a malicious actor takes advantage of the transparent nature of public blockchains to gain an unfair advantage in a transaction. This practice, while known in traditional financial markets, is particularly prevalent and even systemic in blockchain due to the public and visible nature of the mempool, a waiting area for all pending transactions.
How Front-Running Works
When a user broadcasts a transaction (e.g., a large trade on a decentralized exchange), it first goes into the mempool. Here, it waits to be selected by a miner or validator to be included in the next block. Because the mempool is public, anyone can see the details of this pending transaction—including the wallet addresses, the type of transaction, and the amount.
A front-runner, often an automated bot known as a “searcher,” constantly monitors the mempool for profitable transactions. If a searcher spots a large buy order that is likely to move the price of an asset, they can:
- Place their own transaction: The searcher submits a buy order for the same asset.
- Pay a higher gas fee: They offer a higher transaction fee (gas) to the miner or validator to incentivize them to process their transaction first.
- Execute the transaction: The front-runner’s transaction is included in the block before the original transaction.
- Profit: The front-runner’s buy order drives up the price of the asset. When the original user’s transaction is then executed, they pay a higher price than they intended. The front-runner can then sell their holdings immediately afterward for a profit.
MEV: The Broader Problem
Front-running is a key example of a broader and more systemic issue known as Maximal Extractable Value (MEV). Originally called “Miner Extractable Value,” the term has evolved to “Maximal Extractable Value” to reflect the fact that this practice is not limited to just miners but applies to all block proposers, including validators in a Proof-of-Stake (PoS) network.
MEV is the total value that can be extracted from a block by including, excluding, or changing the order of transactions. Front-running is a type of MEV, but the concept also includes other forms of extraction:
- Sandwich Attacks: This is a combination of a front-running and a “back-running” attack. The attacker places a small buy order right before a large user transaction to drive up the price, and then a sell order right after it to capture the profit from the price movement. The user’s transaction is “sandwiched” between the attacker’s two transactions.
- Arbitrage: Searchers can profit from price differences for the same asset across different decentralized exchanges. They find a profitable arbitrage opportunity and pay a high gas fee to ensure their transaction is executed before another bot, capturing the profit.
Solutions and Mitigations
The MEV problem presents a significant economic and ethical challenge to the blockchain ecosystem. While MEV can be a source of network revenue, toxic MEV, like front-running and sandwich attacks, harms the user. The industry is actively working on several solutions:
- Private Transaction Pools: Users can submit their transactions to a private pool, or “dark pool,” that is not visible to the public mempool. This prevents searchers from seeing and front-running their trades.
- Decentralized Exchanges with MEV Protection: Some DEXs and protocols are designed to be more resistant to MEV by using a different transaction model. For example, some use a system of “batch auctions” where multiple transactions are bundled together and executed at a single uniform price, making it impossible to front-run individual trades.
- Proposer-Builder Separation (PBS): On the Ethereum network, the development of PBS is a long-term solution to MEV. This mechanism separates the role of the “proposer” (the validator who proposes a new block) from the “builder” (the entity that creates the contents of the block). The builder assembles the most profitable block, which includes MEV, and the proposer simply accepts the best-paying one without seeing the underlying transactions. This makes MEV more transparent and less harmful to users.
- User-Side Protections: Users can take steps to protect themselves, such as setting a low slippage tolerance on their transactions and splitting large trades into smaller ones.
