Vulnerability: Front-Running Attacks

Description:

Front-running is a type of attack where a malicious actor exploits knowledge of pending transactions in a blockchain network to gain an unfair advantage. This is particularly prevalent in decentralized finance (DeFi) ecosystems. Attackers observe the mempool (a list of pending transactions) and strategically place their own transactions with higher gas fees to ensure they are processed before the target transaction. This can lead to significant financial losses for the victim and disrupt the intended functionality of the smart contract.

Example :

// SPDX-License-Identifier: MIT
pragma solidity ^0.8.0;

contract VulnerableSwap {
    address public pancakeRouter;
    address public ssToken;

    constructor(address _pancakeRouter, address _ssToken) {
        pancakeRouter = _pancakeRouter;
        ssToken = _ssToken;
    }

    function swapBNBForSSToken(uint256 amount) private {
        address[] memory path = new address[](2);
        path[0] = IPancakeRouter02(pancakeRouter).WETH();
        path[1] = ssToken;

        IPancakeRouter02(pancakeRouter).swapExactETHForTokensSupportingFeeOnTransferTokens{
            value: amount
        }(0, path, address(this), block.timestamp);
    }
}

Note: In the example above, a user wants to swap BNB for SSToken. However, the function lacks proper slippage checks, making it vulnerable to front-running. An attacker can observe a large swap transaction and insert their own transaction with a higher gas fee to be processed first, causing the victim’s transaction to execute at a less favorable rate.

Impact:

• Victims can end up paying significantly more for a token or receiving much less than expected due to the manipulated order of transactions.
• Front-runners can artificially inflate or deflate token prices by executing large trades ahead of others.

Remediation:

• Implement slippage restrictions between 0.1% and 5%, depending on network fees and swap size, to protect against front-runners exploiting higher slippage rates.
• Use a two-step process where users commit to an action without revealing details, then disclose the exact information later, making it harder for attackers to anticipate and exploit transactions.
• Bundle several transactions together and process them as one unit to make it more difficult for attackers to single out and exploit individual trades.
• Continuously surveil for automated bots and scripts that might exploit front-running opportunities, aiding in early detection and mitigation.