What is front running in crypto and NFT trading?

Wash trading is when an investor sells and buys the same asset to artificially inflate the value of a security. On the other hand, a front-running attack on a blockchain occurs when a malicious user spots a swap transaction after it’s sent but before it’s completed, and rearranges transactions in their favor.

The NFT market is particularly prone to a practice known as wash trading. Several NFT trading platforms allow users to trade without identifying themselves by connecting their wallets to the site. This means that a single user can set up many wallets and link them to one platform.

After that, a person can control both sides of an NFT trade, selling them from one wallet and buying them from another. Trading volume increases when numerous similar transactions are completed. As a result, the underlying seems to be in high demand.

Similarly, front-running tactics like sandwich attacks focus on exploiting DeFi protocols and services. Sandwiching occurs when two orders are placed, one before and the other after the trade. In this case, the attacker front-runs and back-runs at the same time, pushing the original pending transaction in the middle.

A victim trades a cryptocurrency asset X, for example Cardano (ADA), for another crypto asset Y, for example Ether (ETH) used for a significant purchase.

Before the massive trade is approved, a bot detects the transaction and runs ahead of the victim by buying asset Y i.e. ETH.

This buying action increases slippage (based on volume to be traded and available liquidity, projected price rise or fall) and increases the price of asset Y for the victim trader. Due to the high purchase of asset Y, its price increases and the victim buys asset Y at a higher price, which the attacker then sells at a higher price.

Example of a sandwich attack

Another type of front-running involves a displacement attack, where the miner’s transaction replaces the original transaction; The superseded transaction can still be completed, but the outcome will not be as intended. What is front running in crypto and NFT trading?

Fry Electronics Team

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