Front-Running Arbitrage

Front-running arbitrage is a trading strategy where an entity observes an incoming transaction in the mempool and executes a competing transaction with a higher gas fee to ensure it is processed first. In the context of decentralized finance, this is often used to capture price discrepancies between different liquidity pools before the original transaction can be finalized.

By front-running, the arbitrageur benefits from the information contained in the victim's transaction, effectively profiting from the user's intent to trade. This practice is considered predatory because it relies on the transparency of the public mempool to gain an unfair advantage.

It increases the overall cost of trading for users and can lead to significant slippage. While arbitrage is generally necessary for maintaining price parity across markets, front-running specifically exploits the ordering of transactions to extract value that would otherwise accrue to the original trader.