Wash trading is where an investor sells and purchases the same asset to artificially increase the security’s value. A front-running attack against a blockchain is when a malicious user discovers a Swap transaction after it has been broadcast but before it has been completed and reorders transactions in their favor.
Wash trading is a popular practice in the NFT marketplace. NFT trading platforms offer the ability to trade without having to identify themselves. Users can connect their wallets to any of these platforms. This means that a single user can establish many wallets and link them to a platform.
After that, a person is able to control both sides of an NFT trading, buying and selling it from one wallet. As more transactions are completed, the trade volume will increase. This makes the underlying asset in high demand.
Similar to sandwich attacks, front-running tactics such as sandwich attacks are focused on exploiting DeFi protocol and services. Sandwiching refers to when two orders have been placed before and after the trade. In this scenario, the attacker will simultaneously front-run and backrun, sandwiching the original pending transaction in between.
A victim trades a cryptocurrency asset X, for example, Cardano (ADA), for another crypto-asset Y, for example, Ether (ETH), which is used to make a significant purchase.
Before the hefty trade is approved, a bot detects the transaction and front-runs the victim by purchasing asset Y, i.e., ETH.
This purchase action increases slippage (based on volume to be traded, liquidity availability, projected price increase/fall) and boosts the asset-Y price for the victim trader. Because of the high purchase of asset Y, its price rises, and the victim purchases asset Y at a higher price, which the attacker then sells at a higher price.
A displacement attack is another way to front-run. The miner’s transaction will replace the original transaction. However, the result will not be the one intended.
Source: Coin Telegraph