"Crypto's Hidden Threat: Sandwich Attacks Exposed"

Sandwich attacks in crypto, explained: How to stay safe

Sandwich attacks are a form of market manipulation that targets users on decentralized exchanges (DEXs), exploiting price movements to profit off of a victim’s trade. This type of front-running exploit involves an attacker placing two orders around a victim’s trade, profiting from price slippage. In a typical sandwich attack, a malicious actor monitors the transaction mempool for large trades that might affect the price of a cryptocurrency. After identifying a potential target, the attacker executes a “back-running trade” by placing a “sell” order immediately following the victim’s trade and a “buy” order just before it. The victim’s trade contributes to the manipulated price, which is intentionally inflated or deflated to the attacker’s benefit. The attacker then sells their coins once the victim’s transaction is completed, making a profit.

Sandwich attacks matter significantly for crypto traders, especially beginners, due to their impact on maximal extractable value (MEV). MEV refers to the additional value that can be extracted from block production beyond standard block rewards. In essence, it allows miners or validators to strategically order transactions within a block to maximize their own profits. Sandwich attacks are a prime example of MEV exploitation, as attackers manipulate transaction order to front-run and back-run trades, profiting from the price slippage they induce. This can erode trust in the security and integrity of the decentralized finance (DeFi) ecosystem, reduce traders’ profitability, and undermine the perceived fairness of DEXs.

The mechanics of a sandwich attack involve manipulating the price of an asset before and after a victim’s trade, using buy and sell orders strategically placed in the transaction queue. Let’s break down how a sandwich attack happens, using a simple example. Imagine you’re a crypto trader looking to buy 100 Ether (ETH) on a DEX like Uniswap. Your large order will likely move the market and raise the price of ETH temporarily. An attacker who has been monitoring the network sees your trade. Attackers predict large incoming orders by monitoring the mempool, a public waiting area for unconfirmed blockchain transactions. Automated bots scan the mempool for large trades or high slippage tolerances, signaling opportunities for profit. If a transaction looks profitable to manipulate, the attacker can act on it by submitting their own transaction with a higher gas fee, ensuring it’s processed first