How Does a Trader’s Slippage Tolerance Enable a Sandwich Attack?
Slippage tolerance is the range a trader allows the final executed price to deviate from the quoted price. A high slippage tolerance signals to a front-running bot that the trader is willing to accept a significant price change.
The bot exploits this by executing a trade that pushes the price to the edge of the victim's tolerance before the victim's trade, and then executes a trade after the victim's trade to profit from the manipulated price range.
Glossar
Front-Running Bot
Bot ⎊ A front-running bot is an automated trading program designed to monitor the public transaction pool, or mempool, for pending orders that will predictably impact the price of an asset, particularly in decentralized exchange liquidity pools.
Slippage Tolerance
Mechanism ⎊ Slippage tolerance, within cryptocurrency, options, and derivatives trading, defines the maximum acceptable difference between the expected price of a trade and the price at which the trade is actually executed.
Large Order Size
Order ⎊ Large order size denotes a transaction volume significantly exceeding the typical market depth of a decentralized exchange's liquidity pool, often representing a substantial block trade or a major position adjustment in a derivatives protocol.
High Slippage Tolerance
Tolerance ⎊ High slippage tolerance, within cryptocurrency and derivatives markets, signifies an investor’s or trading system’s capacity to accept price discrepancies between order execution and the anticipated price.
Mev Protection Services
Service ⎊ MEV protection services are specialized middleware solutions designed to shield user transactions from predatory Maximal Extractable Value (MEV) extraction, primarily front-running and sandwich attacks, in decentralized finance markets.
Setting Slippage Tolerance
Tolerance ⎊ Setting slippage tolerance within cryptocurrency derivatives represents a predetermined acceptable deviation between the expected execution price and the actual price realized during trade execution.