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Summary

If you do not pass the minAmountOut parameter in the swap function of Uniswap Router, it can lead to potential security problems, mainly related to front-running attacks and unexpected slippage.

Vulnerability Details

Front-running attacks:
Front-running is a type of manipulation where an attacker observes pending transactions on the blockchain and anticipates a trade with more favorable terms. In the context of Uniswap, the attacker could monitor the transaction pool and, if they see a large trade with an unfavorable rate (for example, selling a significant amount of tokens for ETH at a low price), they can quickly submit a transaction with a slightly higher gas fee and a more favorable rate to execute the trade before the original one takes place.

Slippage:
Uniswap and other decentralized exchanges rely on automated market-making algorithms, which means that the price of tokens can change as the trade size increases due to the constant product formula (x * y = k) used in Uniswap liquidity pools. If you do not set a minAmountOut, you are not providing a tolerance for price slippage, and the actual execution price might deviate significantly from the expected price.

Impact

By not specifying a minAmountOut, you risk accepting any amount of the desired token without enforcing a minimum rate, leaving your trade vulnerable to front-running attacks. The attacker can execute the trade before you and potentially cause you to receive less than the expected amount of your desired token.

If the trade size is large or if there is limited liquidity for the tokens you're trading, the price slippage could be substantial, resulting in receiving fewer tokens than you anticipated. This can lead to financial losses or unmet trade objectives.

Tools Used

Manual

Recommendations

To mitigate these security problems, it's essential to always set a reasonable minAmountOut when calling the swap function of Uniswap Router. By setting a minimum acceptable amount, you reduce the risk of being front-run and ensure that your trade executes within an acceptable price range, protecting yourself from significant slippage.