Tutorials:Front-running Bots

Front-Running Bots on Ethereum (and Similar Blockchains)

Front-running bots are automated programs that exploit the transparent nature of blockchain transactions. Since transactions on blockchains like Ethereum are publicly visible in the mempool (a waiting area for transactions before they are included in a block), these bots monitor the mempool for profitable transactions and insert their own transactions ahead of them to gain a financial advantage.

How Front-Running Works:

1. Transaction Monitoring: The bot constantly scans the mempool for large or profitable trades, such as swaps on decentralized exchanges (DEXs) that could affect token prices.

2. Priority Insertion: Once a profitable transaction is detected, the bot creates a similar transaction but offers a higher gas fee to miners. Miners prioritize transactions with higher gas fees, so the bot’s transaction is included in the block before the target transaction.

3. Profit Extraction: By front-running the transaction, the bot can manipulate the price (e.g., by buying before a large order and selling immediately after at a higher price), thereby earning a profit.

Types of Front-Running:

• DEX Arbitrage: Bots front-run large trades on DEXs, causing price slippage and selling at a higher price.
• Sandwich Attacks: The bot places one transaction before and another after a target transaction, effectively "sandwiching" it to profit from the price movement.

Consequences:

• Higher Transaction Costs: Front-running increases network congestion and raises gas fees for regular users.
• Unfair Market Manipulation: It creates an uneven playing field where regular users lose potential profits or suffer from poor trade execution due to slippage.

Mitigation Strategies:

• Private Transactions: Tools like Flashbots allow users to submit transactions privately to avoid exposure in the mempool.
• Slippage Controls: Setting lower slippage limits can reduce the risk of being exploited by front-running bots.
• New Protocol Designs: Some projects are exploring ways to redesign transaction ordering to prevent front-running.

This behavior highlights the importance of privacy and fair transaction ordering in decentralized systems.

Exercise:

When we visit the Buy/Trade tokens page in Seasonal Tokens website we see a red warning:

Due to detected activity of frontrunning bots, we recommend using smart transactions in Metamask for trades larger than $100 worth of Matic.

But more importantly, how to enable smart transactions in Metamask?

1. Click on the 3 dots besides the Account name.
2. Select "Settings"
3. From Settings Select "Advanced"
4. Notice the status of Smart Transactions.

Visit the website explaining how Metamask implements Smart Transactions.

Smart Transactions

Task

This quest will auto-validate when you visit the Introducing Smart Transactions page.