A Sandwich Attack is a common front-running strategy in DeFi used to manipulate token prices. In this article, we will explore its mechanisms and ways to protect against it.
Definition of Sandwich Attack
A Sandwich Attack is a front-running strategy in decentralized finance (DeFi) that exploits the gap between when a user submits a transaction and when it is confirmed on-chain. The attacker places two trades—one before and one after the victim's transaction, effectively sandwiching it.
How a Sandwich Attack Works
The process of a Sandwich Attack involves several steps:
1️⃣ Step 1: The victim submits a swap transaction on a DeFi platform, exchanging Token A for Token B.
2️⃣ Step 2: The attacker detects the pending transaction and quickly places a buy order for Token B with a higher gas fee.
3️⃣ Step 3: The victim's transaction then executes, but at the inflated price.
4️⃣ Step 4: The attacker sells Token B immediately after the victim's trade, capturing profit from the price difference, while the victim incurs losses.
How to Protect Against Sandwich Attacks
There are methods that can help reduce the risks of Sandwich Attacks:
1. Set lower slippage tolerance (0.1%–0.5%) to minimize manipulation possibilities.
2. Split large trades into smaller orders to reduce overall impact.
3. Trade in high-liquidity pools to complicate price manipulation.
4. Use private transactions or MEV blockers to shield trades from visibility.
5. Set competitive gas fees to expedite transaction confirmations.
Sandwich Attacks pose a significant threat to decentralized finance users, but employing protective strategies can greatly reduce risk. Awareness and caution are key in this dynamic space.
