Great summary of one of the major problems with trading (and related financial activities) on public blockchains. The root of this particular issue is that transactions are not processed sequentially but ordered by how much someone is willing to pay.
Having spent much of my professional life designing and building trading systems, and despite the problems with current blockchains, I’m convinced there’s something here and blockchain technology can massively improve finance in a number of areas (cost, pace of innovation and openness/fairness of access being the big ones). What we’re looking at now on Ethereum and other platforms is a set of early experiments, and some weird (and often unsavoury) artefacts of the fact that technical research and experiments are intertwined with, and creating, financial assets and economic systems.
At my company, we’re working on the hard problems required to do this properly, and one particular area of research that we’ve contributed is a “fairness” protocol that can be added to the consensus layer of decentralised systems to provide a better alternative to ordering by fee for financial trading and that would prevent this sort of issue. We’ve published a paper describing this research at [1] if you’re interested, and a more accessible talk by the author, Klaus Kursawe, on the topic can be found at [2].
Disclaimer: my company is building a decentralised trading protocol for serious, professional use cases, and the linked research is part of our effort to achieve this mission.
[1] https://eprint.iacr.org/2020/885
[2] https://www.crowdcast.io/e/defi-discussions/85