Sandwich Trading Summary
- A type of front-running attack in the cryptocurrency and DeFi markets.
- Involves placing two orders around a target transaction to manipulate the market price.
- Aimed at exploiting price slippage to make a profit.
- Common in decentralized exchanges (DEXs) where transaction times are public.
- Can result in financial losses for unsuspecting traders.
Sandwich Trading Definition
Sandwich trading is a malicious trading strategy used in the cryptocurrency and decentralized finance (DeFi) markets where an attacker places two orders around a target transaction to manipulate the market price and exploit price slippage for profit.
What Is Sandwich Trading?
Sandwich trading is a type of front-running attack in the crypto and DeFi markets.
It involves placing a buy order before a target transaction and a sell order immediately after.
This strategy allows the attacker to manipulate the market price, thereby profiting from the price changes caused by the target transaction.
Who Is Involved In Sandwich Trading?
Sandwich trading typically involves malicious actors, also known as “sandwich attackers.”
These attackers actively monitor the transaction pool for large trades that can be exploited.
The victims are usually unsuspecting traders who place orders without realizing they are being sandwiched.
When Does Sandwich Trading Occur?
Sandwich trading occurs primarily in decentralized exchanges (DEXs) where transaction times and details are publicly visible.
It can happen at any time but is more frequent during periods of high trading activity.
The transparency of blockchain transactions makes it easier for attackers to identify and execute their strategies.
Where Does Sandwich Trading Happen?
Sandwich trading is most commonly observed in decentralized exchanges (DEXs) such as Uniswap, SushiSwap, and PancakeSwap.
These platforms operate on blockchain networks like Ethereum and Binance Smart Chain.
The open nature of these exchanges makes them susceptible to such front-running attacks.
Why Is Sandwich Trading Significant?
Sandwich trading is significant because it can lead to financial losses for unsuspecting traders.
It undermines the fairness and integrity of the trading environment on DEXs.
Addressing sandwich trading is essential for maintaining trust and security in the DeFi ecosystem.
How Does Sandwich Trading Work?
To execute a sandwich trade, an attacker first identifies a large pending transaction in the transaction pool.
The attacker then places a buy order just before the target transaction, driving up the price.
Once the target transaction is executed at the inflated price, the attacker immediately places a sell order at the new higher price.
This sequence allows the attacker to profit from the price difference while the victim incurs a loss due to price slippage.
