Backruns
Last updated
Last updated
The Merkle Private Pool specializes in capturing backrun opportunities as a type of Maximum Extractable Value (MEV).
A backrun involves placing a transaction immediately after a target transaction to capitalize on the price changes it creates. This strategy is effective for several scenarios:
Large Volume Swaps: Transactions involving large volumes, such as swaps worth tens of thousands of dollars, create significant price movements and are prime targets for backruns.
Rarely Traded Tokens: Swaps involving rarely traded tokens often result in substantial price differences, providing lucrative opportunities for arbitrage as these discrepancies are less frequently corrected by the market.
Backrun bots aim to secure the spot immediately following the target transaction to exploit any price differences created by that transaction. They do this by closely monitoring the blockchain for large or rare token swaps and placing their own transactions to profit from the ensuing price imbalance directly after the target transaction.
Target Transaction: Suppose you buy 100 ETH for 300,000 USDC on Uniswap. This substantial trade will create a significant price imbalance between Uniswap and other exchanges, such as Sushiswap.
Backrun Execution: A backrun bot detects this price imbalance and immediately places a transaction after yours to arbitrage the price difference. By buying ETH at the lower price on Uniswap and selling it at a higher price on Sushiswap, the bot pockets the difference.
The Merkle Private Pool captures these backrun opportunities and transfers the profits to the user or the wallet provider. This allows users to benefit from MEV extraction while protecting their transactions from front-running and sandwich attacks.
