How Does the Public Mempool Enable Front-Running in DeFi?
The mempool is a public waiting area for pending blockchain transactions. Attackers monitor this pool for large, profitable transactions, like a big buy order.
By observing a pending order, a bot can quickly submit its own transaction with a higher gas fee. This higher fee incentivizes validators to prioritize the bot's transaction, ensuring it executes first and profits from the price movement caused by the original order.
This transparency is a core vulnerability exploited by front-runners.
Glossar
Transaction Ordering
Sequencing ⎊ Transaction ordering within cryptocurrency, options, and derivatives markets establishes the chronological execution of trades, critical for maintaining systemic integrity and preventing manipulation.
Gas Fees
Mechanism ⎊ Gas fees represent the computational cost required to execute transactions on a blockchain network, functioning as a deterrent against denial-of-service attacks and incentivizing miners or validators to process transactions.
Public Mempool
Visibility ⎊ The public mempool, within cryptocurrency ecosystems and increasingly relevant to derivatives markets, represents a transparent, broadcast ledger of pending transactions awaiting confirmation on a blockchain.
Waiting Area
Location ⎊ The waiting area, formally known as the memory pool or mempool, is the distributed, temporary storage location where all unconfirmed, valid transactions reside after being broadcast to the network but before being selected for inclusion in a block.
Transaction Batching
Aggregation ⎊ Transaction batching, within cryptocurrency, options trading, and financial derivatives, represents a method of consolidating multiple individual transactions into a single, larger unit for processing.