Just to be clear, this would result in significantly more front-running. Yes, maybe the profits would go to a worthier cause, but the average Dex trader would experience much worse slippage.
Right now existing arbitrage bots don’t exploit every opportunity to the max, because there’s execution risk. There’s all kinds of reasons an attempted front-run order might fail, if another bidder wins the auction, if the target is mined before the sandwich propagates, or even if the target cancels their transaction. If that happens the front-runner still pays gas on the “empty transaction”, and possibly even gets filled at unprofitable prices. Many exploitable target slip past, because the bots don’t think the risk is justified.
In contrast, the sequencer would know with 100% certainty, and therefore would exploit every single opportunity, extracting the maximum amount each and every time. More so, the sequencer would have even worse exploits at his disposal. There’s a lot of exploitation opportunity during periods of turbulent trading, when many trades on the same pool occur in the same block, like ICOs.
These happen to be the time that ordinary traders set the highest slippage. Front-runners can tactically insert their own transactions, but they can’t re-arrange third party transactions. The sequencer’s arbitrary ability to re-sequence introduces very large potential attacks in these instances. For example if the normal sequence is Buy->Buy->Sell->Sell, the sequencer could re-arrange to Buy->Sell->Buy->Sell, which lets them front-run twice as much value. Technically miners could do the same, but in practice 95%+ don’t, because running a mining rig requires different core competencies than being an arbitrage trader.
Finally, the two-phase commit nature of the process gives the sequencer a free option. This is equivalent to “last look” that you see in certain traditional markets like FX. The sequencer has N blocks to declare the sequence. He could include two of his own trades in the block- one to buy ETH/USD and one to sell ETH/USD, with the caveat that the first trade cancels the second. If the price of ETH rises in the next N blocks, he sequences it so that he buys ETH/USD. If it falls, he sells ETH/USD. Front running only extracts value from liquidity takers. But this would impose a persistent cost to Dex liquidity providers.