What is a sandwich attack in Crypto?

A “sandwich attack” in the context of cryptocurrency refers to a manipulative trading strategy that takes advantage of the order book and transactional vulnerabilities on decentralized exchanges (DEXs). It involves an attacker placing two large and strategically timed orders on either side of a specific transaction.

Here’s how a sandwich attack typically works:

  1. The attacker monitors the order book on a DEX and identifies a pending transaction they want to exploit.
  2. The attacker places a large buy order slightly above the target transaction’s price and a large sell order slightly below it.
  3. When the target transaction is executed, the attacker’s orders are triggered, resulting in a price movement that disadvantages the target.
  4. As a result, the attacker can either profit by buying the target’s tokens at a lower price or selling their own tokens at a higher price.

The sandwich attack relies on exploiting the lack of liquidity and the time delay in processing transactions on DEXs, where trades are settled on-chain. By placing strategically timed orders, the attacker aims to manipulate the price in their favor and execute a profitable trade.

To mitigate the risk of sandwich attacks, DEXs and users can employ various countermeasures such as implementing anti-front-running mechanisms, optimizing transaction sequencing, and increasing liquidity depth. Additionally, traders should exercise caution and carefully consider the potential risks when participating in decentralized trading environments.

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