Validator Frontrunning

Validator frontrunning occurs when a validator uses their power to sequence transactions to insert their own trade ahead of a pending user transaction. By observing the mempool, the validator identifies a profitable trade and includes their own transaction in a higher position within the block.

This allows the validator to benefit from the price impact of the user's original trade. This practice is a form of value extraction that undermines the fairness of the transaction ordering process.

It highlights the inherent conflicts of interest within proof-of-stake systems where validators act as both sequencers and participants. To combat this, protocols are exploring methods like encrypted mempools or fair ordering services.

Protecting users from validator-led extraction is a major focus of current blockchain research. It is a critical concern for maintaining trust in decentralized financial systems.