What Is the Difference between Front-Running on a CEX versus a DEX?
On a Centralized Exchange (CEX), front-running is typically done by an exchange employee or a high-frequency trader with privileged information about the order book. On a Decentralized Exchange (DEX), front-running is often executed by miners or validators (known as Miner Extractable Value or MEV) who see pending transactions and place their own transaction with a higher gas fee to execute first.
CEX front-running is regulatory/insider risk; DEX front-running is protocol/MEV risk.
Glossar
Block Times Influence
Latency ⎊ Block time, defined as the average interval between the creation of consecutive blocks, directly determines transaction latency on a blockchain.
Decentralized Exchange
Architecture ⎊ A decentralized exchange (DEX) fundamentally diverges from traditional order book exchanges through its reliance on smart contracts and blockchain technology to facilitate peer-to-peer trading, eliminating the need for a central intermediary.
Centralized Exchange
Intermediary ⎊ This refers to a regulated or semi-regulated entity that acts as a trusted third party, facilitating the custody of client assets and the matching of buy and sell orders for cryptocurrency and associated derivatives on a centralized order book.
Miner Extractable Value
Extraction ⎊ Miner Extractable Value refers to the profit a miner or validator can gain by strategically including, excluding, or reordering transactions within a block they are building, often exploiting knowledge of pending transactions in the mempool.
Pending Transactions
Confirmation ⎊ Pending transactions represent unconfirmed instructions within a distributed ledger, existing in a mempool prior to inclusion in a block.