The Rise of Sandwich Attacks on the BNB Smart Chain

Sandwich attacks are becoming a real issue in the crypto landscape, and it's crucial to understand what they are and how they can affect your trades. As we see the BNB Smart Chain (BSC) being targeted more frequently, it's worth taking a closer look at these attacks and how they exploit the blockchain's transparency and immutability.

What Are Sandwich Attacks?

In a nutshell, sandwich attacks are malicious front-running tactics. A bad actor places an order just before and just after a large transaction, effectively "sandwiching" it. They buy the asset at a lower price before the victim's transaction is processed and sell it at a higher price immediately after, pocketing the difference.

How Do They Work?

The mechanics are relatively simple. Attackers scan the mempool, where unconfirmed transactions sit before being validated. With an eye for profitable opportunities, they can pay higher gas fees to ensure their transactions are prioritized. This way, they can exploit the time before a transaction is confirmed, since blockchain transactions are immutable.

The BNB Smart Chain Situation

Recent stats reveal a concerning trend on the BNB Smart Chain. Almost 36% of the blocks in BSC were manipulated by sandwich attacks last month, setting a record high for the network. The attackers are taking advantage of the blockchain's transparency and decentralized nature.

In a week, over 43,000 DEX traders on BSC were hit by sandwich attacks, the highest number in nine months. There are 645 bots actively executing these attacks on BSC, all while DEX volume reached $9.2 million last week.

Market Context

Interestingly, this rise in sandwich attacks comes with a 17% increase in the value of BNB, now trading at $656 with a market cap of $94.5 billion. The correlation is hard to ignore, but it leaves us wondering about the sustainability of such growth.

Comparing BSC and Ethereum

While BSC is facing a surge in sandwich attacks, Ethereum has seen a decline. Since July, sandwich attacks on Ethereum have dropped from over 60% to about 40%. Just over 12,000 DEX users on Ethereum encountered sandwich attacks in the last month.

There are several factors at play here. Higher gas fees on Ethereum make sandwich attacks more expensive, while the network's congestion can slow transaction times, complicating the execution for attackers. BSC's faster transaction times offer fewer opportunities for manipulation but also make it easier to execute attacks quickly.

The Role of Bots

Bots are the backbone of sandwich attacks, continuously monitoring the mempool for large or high-slippage trades. Once they spot a target, they buy the asset right before the victim’s transaction, increasing the price. Immediately after the victim's trade is executed, they sell the asset at this inflated price, securing a profit.

These bots act quickly, allowing them to respond to opportunities faster than a human trader could.

Mitigation Strategies

How can traders protect themselves against these attacks? Reducing slippage tolerance is one strategy, as it makes it less enticing for attackers. Using DEX aggregators can spread trades across multiple pools, minimizing the price impact. Employing custom RPC endpoints with MEV protection can keep transactions off the public mempool, decreasing visibility to potential attackers.

Lastly, advanced monitoring tools can help identify unusual transaction patterns, while partnerships with miners may help execute trades without exposing them to the mempool. However, the latter raises concerns about centralization and trust.

Summary

Sandwich attacks are a growing concern in the cryptocurrency landscape, particularly on the BNB Smart Chain. With the right knowledge and strategies, traders can better protect themselves against these manipulative tactics.