Front-running attack is a type of blockchain attack that occurs when an attacker exploits their knowledge of pending transactions to gain an unfair advantage over other users. The attacker intercepts and modifies a transaction before it's confirmed on the blockchain, often by placing their own transaction before the target transaction. This can be done by offering a higher gas price, which prioritizes the attacker's transaction with miners and validators
"Bonding curves are susceptible to front-running attacks. This is when an adversary watches for a big buy order coming in and sends her own buy order with more gas to cut ahead of the original order. Once the original order is executed, the attacker sells her tokens at a guaranteed profit."
Attackers can exploit the predictable nature of bonding curves to place their buy orders just before a large buy order, snatching tokens at a lower price and then selling them at a profit when the price increases due to the larger order.
Mitigation Strategies:
Gas Limits: Setting a maximum gas limit for transactions prevents attackers from outbidding legitimate buyers with excessive gas fees.
Batch Auctions: Implementing batch auctions, similar to the DutchX model, groups orders together and executes them at a single price determined by the auction. This eliminates the opportunity for front-running within the batch period. This is how the Gnosis DutchX Decentralized exchange works:
"Hence, with batched orders entering the block at the time the auction clears with the same price for all bidders and sellers, neither miners nor the exchange itself, or other participants will be able to game the system."
Such a system would not penalize liquidity much if the price fixing is regular enough (every 6 hours in the case of DutchX) and has the huge advantage of preventing front-running.
One simple solution to these attacks is to set an upper limit on the amount of gas buyers and sellers can use in their transaction. Another, more robust (but also more complex to implement) solution, would be to implement a regular price fixing: Instead of the orders being executed immediately, they are instead batched into a pool of orders and every hours the contract executes the trades taking into account the orders registered in the order book. It means that the trades are not executed immediately but it has the immense advantage of preventing front-running attacks.
"Hence, with batched orders entering the block at the time the auction clears with the same price for all bidders and sellers, neither miners nor the exchange itself, or other participants will be able to game the system."
Such a system would not penalize liquidity much if the price fixing is regular enough (every 6 hours in the case of DutchX) and has the huge advantage of preventing front-running.
It is also important to note that, most likely, investors in cOrgs will have to be KYCed so it will be easy to trace back potential front-running attacks to the individual responsible for them.
Malicious actors with significant resources could try to artificially inflate or deflate the token price through large, coordinated buy or sell orders. This could manipulate the market and harm regular investors.
Mitigation Strategies:
Anti-Whale Measures: The bonding curve formula itself can be designed to disincentivize large buys by making the price increase exponentially with each additional token purchased.
Decentralized Governance: cOrgs often have decentralized governance structures. The community can vote on proposals to adjust the bonding curve parameters or implement other measures to prevent manipulation attempts.