MEV Exploits

The financial system being built on Ethereum creates many ‘pure’ profit opportunities such as liquidations and arbitrages of many kinds. However, these opportunities are finite and episodic, and as such, traders compete to claim them. Right now, this competition is primarily expressed either via frontrunning, or via backrunning:

Frontrunning (also known as Priority Gas Auctions (PGAs)): Transaction A is broadcasted with a higher gas price than an already pending transaction B so that A gets mined before B.

(eg. to snatch a Uniswap price arbitrage trade to rebalance a pool).

Backrunning: Transaction A is broadcasted with a slightly lower gas price than already pending transaction B so that A gets mined right after B in the same block.

(eg. to execute a DyDx liquidation after a price oracle update that triggers a DyDx loan to go under the required collateralization ratio).