Imagine placing a trade on a decentralized exchange (DEX), only to realize later that someone manipulated the price just before and after your transaction, making a profit at your expense. This scenario isn’t hypothetical—it's a real risk in the DeFi space. We call this concept a “Sandwich Attack.”
Sandwich attacks may not be as popular as other blockchain attacks, such as Rug Pulls or a 51% Attack, but they’re still as problematic as the others.
In this article, we’ll explain sandwich attacks, how they work, their impact on traders and the DeFi ecosystem, and how to protect yourself from becoming a victim.
What Are Sandwich Attacks?
A sandwich attack is a type of front-running strategy where attackers exploit the transparent nature of blockchain transactions. By observing pending trades in the mempool (a waiting area for unconfirmed transactions), attackers strategically place buy and sell orders around a user’s transaction to manipulate the price and pocket a profit.
Sandwich attacks are a form of market manipulation targeted at decentralized exchanges. For example, a malicious trader could identify a pending transaction on an Ethereum network and place an order before the unsuspecting user’s transaction and a second one right after it. The goal is to manipulate the traded crypto’s price to benefit the attacker.
This tactic is called “Sandwich” because the attacker’s transactions surround the victim’s transaction like slices of bread around the filling. In most cases, the front-run order (the transaction in front) drives up the asset’s price, causing the victim to pay more.
How Do Sandwich Attacks Work?
Here’s a step-by-step look at how sandwich attacks unfold:
1. Your Trade is Detected: When you initiate a trade on a DEX, it becomes visible in the mempool before confirmation.
2. Attacker Places a Buy Order: The attacker sees your pending transaction and places a buy order ahead of yours, pushing the asset’s price up.
3. Your Transaction Executes: Your trade goes through at the inflated price caused by the attacker’s manipulation.
4. Attacker Sells: The attacker immediately sells the asset at the new high price, pocketing the difference.
This tactic is most common in DeFi, where transactions are public, and bad actors can exploit slippage (price changes during a transaction).
Real-World Examples of Sandwich Attacks
In recent years, sandwich attacks have become a growing concern in crypto. For example:
- High-frequency traders have targeted tokens with low liquidity on DEXs, amplifying their price manipulation efforts.
- Individual traders have reported losing significant sums due to sudden price shifts caused by sandwich attacks.
These cases highlight the risks of trading in transparent systems where malicious actors can exploit vulnerabilities.
Why Are Sandwich Attacks a Problem?
Sandwich attacks have two significant implications:
1. For Traders: They lead to financial losses, especially for retail traders who are unaware of such tactics.
2. For DeFi Ecosystems: Frequent attacks erode trust in decentralized systems, making new users hesitant to join.
While blockchain transparency is critical to decentralization, it also opens the door to these manipulative practices.
How to Prevent Sandwich Attacks
While sandwich attacks are tricky to avoid entirely, here are some steps to minimize your risk:
For Traders
Use Private Transaction Tools: Platforms like Flashbots or other private transaction services help obscure your trades from attackers.
Avoid High-Slippage Trades: Reduce slippage tolerance in your trade settings to prevent attackers from exploiting price changes.
Use centralized exchanges like Roqqu to protect yourself from sandwich attacks.
For Developers
Implement MEV-Resistant Mechanisms: Solutions like batch auctions can make it harder for attackers to front-run trades.
Transaction Sequencing Tools: Use advanced algorithms to sequence transactions in ways that reduce exploitation.
Staying informed and using tools designed to enhance DeFi security can go a long way in protecting your assets.
Final Words
Sandwich attacks are a stark reminder of the risks that come with the open and transparent nature of DeFi. However, understanding how they work and taking the proper precautions can help you trade more securely.
And if you’re looking for a secure and easy-to-use centralized exchange to manage your crypto trades so you don’t have to worry about these attacks, then the Roqqu app is your best bet. Roqqu is designed with your safety in mind, offering cutting-edge security features and a user-friendly interface. Download the app today and enjoy peace of mind while trading your favorite cryptocurrencies in this bull market.
