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<h2 id="header-0"><strong>Understanding Sandwich MEV Attacks</strong></h2><p>A sandwich attack is a strategy used by attackers on blockchain networks to manipulate transaction orders for their benefit. This occurs when a user&#39;s transaction is &#34;sandwiched&#34; between two transactions initiated by an attacker. The attacker benefits at the expense of the victim, who suffers an implicit loss.</p><h3 id="how-sandwich-attacks-occur">How Sandwich Attacks Occur</h3><p><strong> 1. The Mempool and Slippage</strong></p><ul><li>Transactions first go to the blockchain’s mempool, a holding area for unconfirmed transactions.<br /></li><li>If a user sets a high slippage (price change tolerance) for a transaction, it becomes vulnerable to exploitation.<br /></li></ul><p><strong> 2. The Attacker&#39;s Strategy</strong></p><ul><li>The attacker, also known as a searcher, spots a victim&#39;s transaction in the mempool.<br /></li><li>The searcher then executes two strategic transactions with carefully chosen gas fees:</li></ul><p><strong>            First Transaction</strong>: The attacker sends a transaction with higher gas fees than the victim&#39;s, <br />           ensuring it&#39;s processed first by miners. This transaction alters the market price in a liquidity pool.</p><p><strong>           Second Transaction</strong>: After the victim&#39;s transaction is processed, the attacker sends another <br />          transaction with equal or lower gas fees to sell back the assets at the new, more favorable rate.<br /></p><h3 id="3-example-sandwich-attack-on-uniswap">3. Example: Sandwich Attack on Uniswap</h3><ul><li><strong>Bob&#39;s Trade</strong>: Bob, a regular investor, wants to swap 1000 $WETH for $USDC on Uniswap. His transaction is waiting in the mempool.<br /></li><li><strong>Alice&#39;s First Move</strong>: Alice, the attacker, notices Bob’s intended swap. She quickly sells 650 $WETH for $USDC, receiving 1,842,200 $USDC. This transaction changes the exchange rate of $WETH to $USDC.<br /></li><li><strong>Bob&#39;s Transaction Processed</strong>: Bob&#39;s transaction is processed next. Due to the rate change caused by Alice, he receives less $USDC than expected.<br /></li><li><strong>Alice&#39;s Second Move</strong>: Finally, Alice buys back $WETH with her $USDC, taking advantage of the new exchange rate.<br /></li></ul><h3 id="the-outcome-and-profit">The Outcome and Profit</h3><ul><li>Alice&#39;s profit comes from the difference in $WETH value before and after Bob&#39;s transaction.<br /></li><li>Her total revenue is the additional $WETH she ends up with, minus the gas fees and miner tips she paid.<br /></li><li>In our example, Alice gains a net profit of 1.7 $WETH after accounting for her costs.</li></ul><h3 id=""></h3><h3 id="broader-implications">Broader Implications</h3><p>While sandwich attacks are a form of arbitrage on the transaction level, other forms of arbitrage exist at higher blockchain levels, which offer various exploitation opportunities.</p><p>Understanding these mechanisms is crucial for users engaging in blockchain transactions, especially in decentralized finance (DeFi) platforms.<br /><br />By Ed</p>

Understanding Sandwich MEV Attacks

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