What is Front Running Bot?
The fact that users are front-run is a painful problem in Crypto and has no solution, the main reason for this is that the front-running bots make the value that the user receives not equal to the real value that the user receives. they should accept.
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The following article is intended to explain What is Front Running Bot?, related impacts, and solutions for both users and projects for Front Running Bot.
What are bots?
Before diving deeper into front-running bots, let’s learn the basics of bots.
Simply put, bots are just pre-programmed programs to automate trading. Instead of having to monitor every movement in the market, and watch for a good time to buy and sell, the bot will automatically synthesize and evaluate the information available in the market and make asset purchases for users. use.
Most current bots have the following basic characteristics:
Analyze data from the market: Synthesize and evaluate information from multiple sources and decide whether to buy or sell a particular asset class. (Simplified example if SUSHI price reaches $5 execute a buy order).
Risk prediction: Calculate the risks in the market and decide how much to buy/sell.
Ability to buy and sell assets tài: Use APIs to buy and sell strategically (sometimes buying many small orders, sometimes all in market price).
Bots are an effective tool because they are fully automated, capable of processing a lot of information at once, free from emotions, and completely dependent on data to function. But of course, they are not perfect, completely depending on the parameters that reveal the disadvantages of bots in an unknown market, at this time human experience will have the advantage to help preserve capital or help create capital. make better profits.
There are many types of bots with different uses in the market such as trading bots used to test different trading strategies, arbitrage bots used to buy and sell arbitrage, and the type of bot that we will learn about, front run bots.
What is a front-running bot?
Front-running concept
Front-running is taking advantage of KNOWING that a future transaction will affect the price and placing an order right before that transaction to make a profit for yourself.
Example: In traditional finance, if a trader or a fund knew that Tesla’s TLSA stock was about to be bought by someone in volume up to $10M, they could place a buy order right before that, and when $10M is bought and causes the price to pump, they will immediately place a sell order and enjoy the profit.
Example of Front-running in Traditional Finance
Front-running Bot in Crypto
The ability to anticipate an impending transaction is a very important part of front-running. So why in Crypto, do front-run cases happen so often and so much?
This is in the design of Ethereum or the blockchain Similar in design to Ethereum, all submitted transactions must stop in a mempool (roughly the place where transactions are waiting to be processed). Now miners or bots can scan the mempool. Bot scanning the mempool will find suitable transactions to front-run (X).
The second feature of Ethereum’s design is that miners have the power to choose the order in which transactions are processed, and of course, they will prioritize transactions that pay higher fees (this is what causes the problem). MEV). So when bots finish scanning and find X, they just need to:
Place buy order with gas fee slightly higher than X’s gas.
Then place a sell order with gas slightly lower than X.
And profit from the front-run.
Placing a two-headed order as above is one of the most popular front-run forms today, also known as the “sandwich attack”.
Common types of front-runs and their effects
Some common types of front-runs:
Basic front-run: Place orders on potentially profitable opportunities.
Displacement attack: The miner replaces the original transaction with his or her own transaction, the replaced transaction can still be performed but the effect will not be as originally planned.
Insertion attack (sandwich attack): Place trades on either end of the original trade and enjoy profits without holding assets, trades that get sandwiched will usually suffer higher slippage.
Suppression attack: Delay the original transaction, a potential transaction where the slippage is low, the miner can completely delay the transaction, if the transaction wants to be executed, the slip must be adjusted higher.
The solution to prevent bot front-run in crypto
From the user’s perspective
From a user’s perspective, a few basic ways that we can apply to limit front-run include:
Split transaction: Instead of doing many large transactions at the same time, users can split them into many smaller transactions, which will reduce the attractiveness of transactions with front-running bots because of the value they can be mined. it will go.
Adjust low slippage: The bot itself when placing trades will also affect the price, so the adjustment slippage low will prevent unnecessary loss of users. However, adjusting the low slippage can make the trade more difficult to execute.
Front-running is part of MEV (miner-extractable value) or the profits that miners make by exploiting their power. Currently, there is no solution to remove MEV, below are a few outstanding ideas and measures to minimize the damage that MEV brings to users.
From a developer perspective
Developers can divide measures to reduce the impact of MEVs into three main branches:
Infrastructure change: Blockchain eliminates the ability of miners to re-order transactions and takes measures to increase the efficiency of transaction ordering.
There are measures to make transactions more private: Causing bots not to have enough information to make transactions
Develop straight from the top and give Dapps the ability to minimize the impact of front-runs
Closing thought
Front-running in particular and MEV, in general, is inevitable and will grow with the growth of the Ethereum network.
The types of front-running attacks can be much more diverse and complex, taking their impact to the next level.
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