How Do DeFi Derivatives Contracts Create MEV Opportunities for Miners/validators?
DeFi derivatives, such as perpetual swaps or options, often require liquidations when collateral falls below a certain threshold. Miners/validators can monitor the mempool for liquidation transactions and strategically include them in their blocks to collect the liquidation fee, which is a form of MEV.
They may even front-run or bundle liquidations for maximum profit.
Glossar
DeFi Derivatives Contracts
Mechanism ⎊ DeFi derivatives contracts represent synthetically created financial instruments whose value is derived from underlying cryptocurrency assets or other decentralized finance (DeFi) primitives, facilitating exposure without necessitating direct asset ownership.
MEV Opportunities
Instance ⎊ MEV Opportunities represent transient instances within the blockchain's transaction flow where a specific ordering or inclusion of transactions can yield a profit greater than the standard transaction fee.
Funding Rate Influence
Mechanism ⎊ The Funding Rate Influence describes the periodic payment exchanged between the long and short positions in a perpetual cryptocurrency futures contract, acting as a mechanism to tether the derivative price to the underlying spot price.