Fair Value of Tokens Received from Swaps on Decentralized Exchanges
A brief post about the effect of sandwich attacks on the fair value of tokens received from swaps executed on decentralized exchanges
When reading the “Roadmap: Digital Asset” by Deloitte, I noticed that on page 15, the firm states that the purchase costs are presumed to be the fair value of the digital assets on the purchase date. I know companies that followed this very approach, and it does not appear unreasonable. But what about the effect of “sandwich attacks”?
The sandwich attack involves two transactions sent to the blockchain to be executed immediately before and after your transaction, to manipulate exchange rates and recapture a portion of the swap value. After slippage, MEV, gas, and exchange fees, the value of tokens received is often less than the value of tokens surrendered. How common are sandwich attacks, and how big of an impact might they have on an individual swap transaction?
In the last 24h on Solana alone, 2,344 victims were sandwiched. It is easy to learn more details by visiting the website https://sandwiched.me.
One of the most recent transactions I see at the time of writing this post extracted about 30% of the swap value (the victim sent 0.584 SOL worth of tokens and received only 0.404 SOL worth of tokens as a result of one attack).
For businesses that are not sophisticated in managing security threats and are unaware of how to protect themselves from a sandwich attack, the impact might be significant.
It is interesting how cybersecurity issues can directly affect fair value measurement.