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

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

What Is the Difference between a Block Proposer and a Block Builder in Ethereum’s PoS?

What Is ‘Miner Extractable Value’ (MEV) in the Context of Transaction Ordering?

What Is the “Proposer-Builder Separation (PBS)” Model in PoS and How Does It Affect MEV?