Daniel Francis

Auditing A Solidity Contract: Episode 6 - Frontrunning

Smart contracts are self-executing codes that form the backbone of the Web3 ecosystem. Smart contracts serve as the foundational threads of the Web3 ecosystem, delicately balancing billions on an open network. Today, we'll discuss the front running, one of the most common vulnerabilities that affects smart contracts. This is a great place to start if you want to learn about Solidity and how to audit smart contracts. This is one article in a series on auditing Solidity smart contracts. The series will cover vulnerabilities and resources that smart contract auditors use.

What is Frontrunning

Frontrunning is done by exploiting knowledge of pending transactions to profit at the expense of others.

Fontrun Attack

Traders who use Decentralized Exchanges (DEX) may be vulnerable to this particular type of attack. The DEX's smart contract relies on oracles for price information, which can delay pricing updates. As a result, the smart contract's status can be altered based on the transactions listed in pending.

Attackers often monitor the transactions yet to be processed and target transactions with lower gas fees. They achieve this by submitting a similar transaction with a higher gas fee, which bumps the original transaction out of place. This ensures that their transaction is processed before the unsuspecting users' transactions. This change changes the state of the smart contract price; the attacker manages to get their transaction processed at a lower price and then sells at a higher price to unsuspecting users, which allows the attacker to profit from the difference caused by the frontrunner.

Fontrun Solution 

Several approaches can help mitigate the risk of frontrunning in smart contracts:

Smart Contract Format: Employ techniques like commit-reveal schemes and secret auctions to mitigate front-running

Slippage: Set a low maximum slippage to prevent front runners from taking advantage of the order. A range of 0.5% to 2% is suitable for larger orders. High slippage benefits front-runner attacks.

Decentralized Order Books: By controlling transaction order, decentralized order books can be implemented to make them resistant to manipulation.

Liquidity Pools: Minimize the risk of manipulation by using large liquidity pools; smaller pools increase risk.

Gas Price: Underpaying for gas leaves you vulnerable to front-run exploitation, whereas overpaying incentivizes miners to validate transactions more quickly, reducing the risk of exploitation.

Layer 2: Use Layer 2 scaling solutions like zk-Rollups for faster, cheaper, and more secure transactions.

In Conclusion 

Frontrunning is a significant challenge for smart contracts and DeFi. As blockchain tech evolves, devs must implement strategies to protect users from such exploits. This is why smart contract audits, bug bounties, and reviews are crucial in every stage of development. They increase the number of eyes scouting for vulnerabilities and decrease the chance of critical vulnerabilities slipping through.

Stay safe. 

Related Articles:

  1. Auditing A Solidity Contract: Episode 1 - Re-entrancy Attack 
  2. Auditing A Solidity Contract: Episode 2 - Delegatecall 
  3. Auditing A Solidity Contract: Episode 3 - Security Analysis 
  4. Auditing A Solidity Contract: Episode 4 - Testing
  5. Auditing A Solidity Contract: Episode 5 - Automated Tools
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  7. Auditing A Solidity Contract: Episode 7- Documentation and Reporting