What are Front running bots and how to avoid them?
If you made a transaction on a DEX and noticed that you received less money than expected upon completion, you may have received a Front run. This article explains what front running is and how to avoid it.
Table of contents:
- What is front-running?
- How do you recognize front runners?
- Is it legal to front-run with cryptocurrencies?
- How to prevent front running?
What is a cryptocurrency front running?
Front-running bots are a common problem that can occur when trading cryptocurrencies. Front-runner bots are designed to scan the blockchain for pending transactions, pay higher gas prices to force miners to process transactions, and facilitate large-scale transactions that influence market prices increase.
Transactions are typically machine-to-machine on the Ethereum platform, but front-running bots typically operate in millisecond timeframes, making it virtually impossible for manual operators to match and respond to the process. Front-running, formed by the traditional stock market, has also entered the crypto space. Traditionally, it is illegal to use inside or non-public information to profit from upcoming price changes.
How do you recognize front runners?
To identify front-running, look for long liquidity with the same tool to find potential front-running tactics. Analysts can also monitor user trading data such as B. A user’s wallet address and a series of transfers detect buy and sell orders close to the user. Suspicious activity should be suspected when there is a lot going on over there. Since Ethereum is a public blockchain ledger, all transactions can be easily verified.
Is front-running in cryptocurrencies legal?
The cryptocurrency market is unique in that all transactions are stored on a distributed ledger. This makes front-running one of the most common scams legal. Investors can check their wallet history to see when trade orders were placed. Most cryptocurrency trading platforms do not allow future assets to be deposited into wallets and return coins or assets each time a position is attempted to be paid out without going through standard exchange orders. As a result, you can buy Bitcoin with your debit card and enjoy a smooth experience.
However, not all exchanges are the same. While front-running is prohibited in traditional markets like the NYSE, crypto traders using DEXs — decentralized exchanges can do so simply because this data is there. Technically, this means that investors and traders do not actually profit from inside information.
How to prevent Front running?
For one thing, breaking transactions into smaller chunks means that they are more difficult to manage. As a result, the value of the tokens traders hold in their smart contracts will not immediately diminish in value, leaving new transactions to take over and early entrants to wait to be mined. In this way, regular traders are “under the radar” and otherwise undetected by fast-reacting frontline bots. Here are three techniques to follow.
Strategy 1) Avoid low liquidity pools:
Low-liquidity pools are a front-runner’s dream. Finally, there is less chance of competition from other top performers and less chance of disrupting transactions by suddenly changing pool weights before large orders occur.
Strategy 2) Set low Slippage:
Most DEXs allow you to set a maximum slippage tolerance. This is the maximum allowed deviation from the expected return. For example, 0.5%.
Strategy 3) Gas overpayment:
Slow trading gives top performers more time to create orders to extract value from their trades. If you underpay your gas bill, your transaction is more likely to wait in line longer, allowing the front runner to spend more time.
Conclusion:
The problem of front-runner bots and scammers is a big problem in cryptocurrency trading. Many transactions are inherently flawed from the start, so it’s important to be aware of this issue and take steps to avoid it. Since it is not technically illegal (all transactions are recorded on a ledger), you should be very careful with cryptocurrency transactions, especially large amounts, and verify the NFT seller’s wallet before entering the NFT market.