Can a Block Builder Manipulate the Execution Price of a Derivatives Trade? ⎊ Path

Can a Block Builder Manipulate the Execution Price of a Derivatives Trade?

Yes, a block builder can manipulate the execution price of a derivatives trade if the trade is executed on-chain and is vulnerable to MEV. If a decentralized derivatives exchange (DEX) uses an on-chain smart contract for trade execution, the block builder can observe a large trade in the mempool.

The builder can then strategically order their own trades (a sandwich attack) around the victim's trade within the block to push the execution price to a less favorable level for the victim, profiting from the price difference.

What Is the Difference between MEV and a Standard Transaction Fee?

How Does the “Proposer-Builder Separation” (PBS) Model Enhance Security?

How Do Batch Auctions Eliminate the Transaction Ordering Advantage?

What Is the Relationship between a Block Builder and a Validator?

What Is the Economic Incentive for a Block Builder to Use a Private Transaction Relay?

How Do Different Consensus Mechanisms (E.g. PoS Vs. PoW) Influence Transaction Ordering Manipulation?

What Is a ‘Builder’ and a ‘Proposer’ in the Context of MEV and Transaction Ordering?

Define the Term “Priority Fee” in the Context of Transaction Ordering