How Does an Off-Chain Order Book Prevent Front-Running on a Centralized Exchange?
A centralized exchange (CEX) uses an off-chain order book, meaning the record of all pending buy and sell orders is maintained internally on the exchange's private servers, not on a public blockchain. This prevents front-running because external malicious actors cannot view the large, market-moving orders before they are executed.
The lack of public transparency eliminates the information asymmetry that front-running exploits. Orders are only broadcast to the public blockchain for settlement after matching and execution.
Glossar
Order Book
Depth ⎊ An order book represents a listing of buy and sell orders for a specific cryptocurrency, option contract, or derivative, displaying price and quantity at various levels.
Centralized Exchange
Custody ⎊ Centralized Exchanges function as custodians for digital assets, managing private key infrastructure and providing a regulated framework for asset holding, a critical component for institutional adoption within cryptocurrency markets.