Frontrunner Jones and the Raiders of the Dark Forest: An Empirical Study of Frontrunning on the Ethereum Blockchain (2102.03347v2)

Abstract: Ethereum prospered the inception of a plethora of smart contract applications, ranging from gambling games to decentralized finance. However, Ethereum is also considered a highly adversarial environment, where vulnerable smart contracts will eventually be exploited. Recently, Ethereum's pool of pending transaction has become a far more aggressive environment. In the hope of making some profit, attackers continuously monitor the transaction pool and try to frontrun their victims' transactions by either displacing or suppressing them, or strategically inserting their transactions. This paper aims to shed some light into what is known as a dark forest and uncover these predators' actions. We present a methodology to efficiently measure the three types of frontrunning: displacement, insertion, and suppression. We perform a large-scale analysis on more than 11M blocks and identify almost 200K attacks with an accumulated profit of 18.41M USD for the attackers, providing evidence that frontrunning is both, lucrative and a prevalent issue.

• The paper proposes a novel methodology to detect frontrunning attacks on Ethereum, identifying 199,725 attacks across 11 million blocks, resulting in $18.41 million in attacker profits.
• The study categorizes frontrunning into displacement, insertion, and suppression attacks, finding insertion attacks on DEXs like Uniswap and SushiSwap to be the most prevalent.
• The research highlights that Ethereum's architecture, including transaction visibility and gas-based ordering, facilitates frontrunning, creating inefficiencies and increased costs for users.

An Empirical Study of Frontrunning on the Ethereum Blockchain

The paper "Frontrunner Jones and the Raiders of the Dark Forest: An Empirical Study of Frontrunning on the Ethereum Blockchain" provides a comprehensive exploration of frontrunning within the Ethereum ecosystem. The focus lies on understanding how attackers intercept transactions to gain financial advantage through displacement, insertion, and suppression strategies. The research offers valuable insights into the prevalence, mechanisms, and economic implications of these attacks.

Overview

Ethereum, a platform central to decentralized finance (DeFi), smart contracts, and other blockchain applications, presents a highly adversarial environment. Transactions in Ethereum are susceptible to frontrunning—a method by which attackers manipulate transaction order for profit. Unlike regulated financial markets where frontrunning is illegal, Ethereum's architecture enables miners to capitalize on frontrunning without centralized oversight.

Methodology and Results

The authors propose a novel methodology to detect and classify frontrunning attacks, analyzing over 11 million blocks and identifying 199,725 attacks, accumulating $18.41 million in profits for attackers. The paper systematically categorizes:

• Displacement Attacks: In these attacks, the attacker places a transaction with a higher gas price before the victim’s transaction, effectively claiming a reward or benefit intended for the victim. The authors identified 2,983 such attacks.
• Insertion Attacks: Common in decentralized exchanges, this involves placing two attacker transactions around the victim's transaction to exploit arbitrage opportunities. The analysis reveals 196,691 insertion attacks, highlighting their prevalence on platforms such as Uniswap and SushiSwap.
• Suppression Attacks: These involve filling block space with high-gas transactions, preventing the inclusion of victim transactions. The paper describes detection of 50 suppression attacks targeting contracts where the block stuffing increases the chance for attackers to win lotteries or benefit from delayed executions.

Each type of attack is analyzed in detail, considering attacker strategies, costs, and profits. The investigation into displacement attacks highlights the attack's low cost but potential high profits, with attackers leveraging bot contracts to automate and obscure their operations.

Implications and Analysis

Frontrunning poses significant challenges in blockchain environments. Miners and attackers both profit from the transaction fees associated with frontrunning attempts, indirectly incentivizing such behavior. The paper underscores that while some users might benefit from frontrunning (e.g., liquidity providers on decentralized exchanges), the broader impact leads to increased transaction costs and slower transaction times for non-malicious users.

The architecture of Ethereum—with unrestricted visibility of pending transactions and prioritization based on gas price—exacerbates the potential and profitability of frontrunning. The lack of transaction confidentiality and deterministic miner-driven transaction sorting are central to these vulnerabilities.

Future Directions and Mitigations

Despite the detailed analysis, the paper emphasizes the limitations of current mitigation strategies like slippage tolerance and commit-and-reveal schemes, which either fail to address the problem adequately or introduce prohibitive costs. Effective solutions must ensure transaction confidentiality and fair transaction ordering while balancing incentives for all stakeholders.

The paper sets a foundation for further exploration into more robust defenses against such exploits, suggesting that changes at the consensus protocol level or integration of technologies like trusted execution environments may offer pathways to reducing the occurrence of frontrunning.

Conclusion

Through a data-driven approach, the research illuminates the economic motives and operational simplicity behind frontrunning. It calls attention not only to the financial implications but also to the systemic inefficiencies introduced into Ethereum’s transaction processing. This paper significantly advances the understanding of frontrunning attacks in decentralized systems, setting the stage for new strategies aimed at safeguarding transaction integrity within blockchain-based platforms.