To prevent these types of attacks, it’s vital to submit swaps that have access to knowledge about the “fair” price their swap should execute at. In other words, swaps need access to an oracle, to be sure that the best execution they can get from SWOOP is close enough to what the oracle considers the “true” price. While this may sound complicated, the oracle can be as simple as an off-chain observation of the current market price of a pair. Because of arbitrage, it’s typically the case that the ratio of the intra-block reserves of a pair is close to the “true” market price. So, if a user submits a trade with this knowledge in mind, they can ensure that the losses due to front-running are tightly bounded. This is how, for example, the SWOOP frontend ensure trade safety. It calculates the optimal input/output amounts given observed intra-block prices, and uses the router to perform the swap, which guarantees the swap will execute at a rate no less that
x% worse than the observed intra-block rate, where
x is a user-specified slippage tolerance (0.5% by default).