Impact and User Perception of Sandwich Attacks in the DeFi Ecosystem

Title of the Paper

Impact of Sandwich Attacks in the DeFi Ecosystem and User Perception

Paper Information

• Subject Area: Blockchain, Decentralized Finance (DeFi), Information Security
• Keywords: DeFi Security, Sandwich Attacks, User Perception, Blockchain Transparency, User Protection, Miner Collaboration, Attack Mitigation

Research Background and Problem Statement

• Problem Identification: The transparency and permissionless nature of Decentralized Finance (DeFi) bring innovation and convenience, but the public visibility of all transactions makes transaction information susceptible to exploitation, leading to security issues such as "sandwich attacks." For example, attackers observe unconfirmed transactions and manipulate market prices through front-running and back-running transactions to profit, causing financial losses to users.
• Significance of the Problem: With the rapid development of DeFi, the total value locked in the DeFi market reached $133 billion in 2021. Sandwich attacks have gradually become a significant security challenge affecting the sustainable development of the market.
• Research Motivation and Related Work:
  • Sandwich attacks have garnered attention in academia and the blockchain community, but their actual impact has yet to be fully quantified.
  • User perception and overall understanding of these attacks are limited, necessitating in-depth research into user behavior and awareness.
  • The research aims to quantify the impact of sandwich attacks, explore the gap in user awareness of such attacks, and propose mitigation strategies and community recommendations.

Solution

• Research Methods:
  1. Quantitative Analysis:
     • Analyze sandwich attack behavior on mainstream DEX (Decentralized Exchange) platforms Uniswap V2 and Sushiswap using Ethereum blockchain data.
     • Assess the frequency of attacks, the economic losses of victims, and changes in the probability of attacks.
  2. Qualitative Analysis:
     • Conduct interviews with members of the DeFi community, including industry insiders (e.g., developers, researchers, and investors) and non-professional users. Explore users' understanding of sandwich attacks and their attitudes toward mitigation strategies.
  3. Technical Tool Development:
     • Develop an online tool to simulate and evaluate the risk of sandwich attacks, helping users understand and mitigate risks.
• Innovative Contributions: The study not only quantifies the impact of attacks on the market and users but also constructs a comparative framework between user perception and the actual harm caused by attacks, providing systematic mitigation recommendations.

Research Findings

• Specific Findings:
  1. Quantified Impact of Sandwich Attacks:
     • As of April 2021, over 84,000 sandwich attacks occurred monthly, with victims incurring cumulative annual losses exceeding 90,000 ETH (approximately $300 million).
     • The probability of transactions being attacked increased from 10% to 40%.
  2. User Perception and Knowledge Gap:
     • Non-professional users generally lack awareness of sandwich attacks, with most unaware of whether they have been attacked. Even professional users tend to overestimate or underestimate the overall impact of attacks.
     • Users are more inclined to focus on visible individual losses rather than systemic or long-term risks.
  3. Effectiveness of the Tool:
     • The tool provides specific methods to predict whether transactions are vulnerable to attacks and proposes strategies to secure transactions (e.g., setting lower slippage rates or splitting transactions into smaller batches).
• Comparative Advantages:
  • Compared to other literature, this study is the first to reveal the long-term impact of security issues on ordinary users in the DeFi market from the perspective of "user perception."
  • The integration of the developed tool into real-world scenarios enhances the practical value of the theoretical research.
• Experimental and Evaluation Results:
  • Over 55% of users acknowledged the effectiveness of the research tool, with some suggesting direct integration of the tool into DEX interfaces.
  • The study highlights trends of collaboration between attackers and miners, such as executing attack transactions through mechanisms like Flashbots, further reducing attack costs.
• Limitations and Future Directions:
  1. Sample Representativeness:
     • The study's interview sample size is relatively small, with only 15 participants. Future research should expand the sample to cover a broader user base.
  2. Complexity Challenges:
     • Current mitigation strategies may not be applicable to all emerging DEX platforms, such as Uniswap V3. The scalability of the tool requires further exploration.
  3. Recommendations:
     • Promote the dissemination of basic security knowledge to educate users.
     • Further develop customized protection tools for different DeFi platforms.
     • Explore more community collaboration mechanisms to address information asymmetry and complex attacks.