High-Frequency Trading and Front Running Risks

[c4-bot-3]

Lines of code

https://github.com/code-423n4/2024-03-dittoeth/blob/91faf46078bb6fe8ce9f55bcb717e5d2d302d22e/contracts/facets/BidOrdersFacet.sol#L40

Vulnerability details

Impact

High-frequency trading and front-running practices can significantly impact the fairness and integrity of the trading platform in several ways:

• Entities with the ability to perform transactions more quickly due to technological advantages or network positioning can manipulate market prices to their benefit before others have a chance to react.

• Regular users may lose confidence in the trading platform if they perceive it to be dominated by high-frequency traders who can consistently outmaneuver them.

• The exploitation of order hint mechanisms and transaction sequencing can create an uneven playing field, where only a few participants can consistently secure profitable positions.

Proof of Concept

These functions are designed to optimize the order placement and matching process by utilizing hint arrays, which can potentially be exploited by entities engaging in high-frequency trading strategies, aiming to preempt other transactions for advantageous positions.

• createBid
• createForcedBid
• _createBid
• bidMatchAlgo

Tools Used

Manual

Recommended Mitigation Steps

Implementing privacy-preserving mechanisms for transactions could help obscure the details of pending transactions, making it more difficult for front-runners to anticipate and exploit other users' trades. Techniques such as commit-reveal schemes or zero-knowledge proofs can be explored.

Assessed type

MEV

[c4-pre-sort]

raymondfam marked the issue as insufficient quality report

[c4-pre-sort]

raymondfam marked the issue as primary issue

[c4-judge]

hansfriese marked the issue as unsatisfactory: Insufficient proof