Frontrunning

Frontrunning in crypto refers to the unethical practice of placing orders ahead of large trades to capitalize on the price movement that the large trades are expected to cause. This can occur in decentralized exchanges (DEXs) or centralized exchanges (CEXs). Frontrunners typically exploit their knowledge of impending transactions to profit at the expense of the original trader.

Examples:

1. Decentralized Finance (DeFi) Platforms: In decentralized exchanges running on smart contracts, frontrunning can occur when a trader submits a transaction to buy a large amount of a token. Frontrunners can observe this pending transaction and execute their own trades with slightly higher gas fees to ensure their transactions get confirmed first, thus benefiting from the subsequent price movement caused by the large buy order.
2. Initial Coin Offerings (ICOs): Frontrunning can also occur in ICOs, where investors anticipate significant demand for a newly issued token. Frontrunners may purchase the token in advance and then sell it at a higher price once the ICO begins, taking advantage of the expected price surge.
3. Centralized Exchanges (CEXs): Frontrunning can occur on centralized exchanges when insiders or high-frequency traders exploit their privileged access to order flow information. They may place their own orders to buy or sell ahead of large customer orders, profiting from the subsequent price movement.