Sandwich Attack Podcast
Understanding Sandwich Attacks and How to Mitigate Them
A sandwich attack is a type of blockchain attack where an attacker manipulates the price of a token to make a profit by sandwiching a user’s swap transaction between two of their own transactions. This results in a financial loss for the user.
How Does a Sandwich Attack Work?
- User Submits a Swap:
- A user initiates a swap transaction, which is then pending confirmation on the blockchain.
- Front-Running:
- A blockchain attacker detects the pending transaction and anticipates that the token price will increase. They then submit their own swap transaction to buy the token at the current lower price before the user’s transaction is confirmed.
- User’s Transaction:
- The user’s transaction is processed next, but due to the attacker’s prior transaction, the token price has already increased. As a result, the user receives fewer tokens than expected.
- Back-Running:
- The attacker immediately sells the tokens they bought at the now higher price, completing the sandwich attack and securing a profit.
Result
The attacker profits from the price increase between their front-running and back-running transactions, while the user suffers a loss due to receiving fewer tokens at a higher price.
Why Are Attacks Possible?
Sandwich attacks exploit two main aspects:
- Price Slippage: The difference between the expected and actual price due to market movements.
- Blockchain Transparency: The visibility of pending transactions allows attackers to predict and manipulate token prices.
Ways to Reduce the Risk of Sandwich Attacks
Use Large Liquidity Pools
- Advantage: Larger liquidity pools are less susceptible to price manipulation because individual transactions have a smaller impact on the overall token price.
- Action: Always opt for swaps in pools with high liquidity to minimize the effects of slippage and reduce the risk of sandwich attacks.
Use Swap Protection
- MEV Blocker: If your wallet supports swap protection through a Maximum Extractable Value (MEV) Blocker, it can shield your transaction from front-running and sandwich attacks.
- Action: Enable swap protection features if available in your wallet to safeguard your transactions.
Additional Tips and Considerations
- Monitor Transaction Fees: Higher fees can deter attackers by making sandwich attacks less profitable.
- Limit Slippage Tolerance: Setting a lower slippage tolerance can help ensure your transaction fails rather than being exploited, but it might increase the likelihood of transaction failure in volatile markets.
- Stay Informed: Keep up-to-date with the latest security measures and tools that can help protect against such attacks.
Conclusion
Sandwich attacks take advantage of blockchain transparency and price slippage to profit at the expense of unsuspecting users. By using large liquidity pools and enabling swap protection, you can significantly reduce the risk of falling victim to such attacks. Always remain vigilant and proactive in managing your transactions to ensure the highest level of security.