Reference : High-Frequency Trading on Decentralized On-Chain Exchanges
Scientific congresses, symposiums and conference proceedings : Paper published in a book
Engineering, computing & technology : Computer science
High-Frequency Trading on Decentralized On-Chain Exchanges
Zhou, Liyi [Imperial College London]
Qin, Kaihua [Imperial College London]
Ferreira Torres, Christof mailto [University of Luxembourg > Interdisciplinary Centre for Security, Reliability and Trust (SNT) > SEDAN >]
Le, Duc v [Purdue University - Purdue]
Gervais, Arthur [Imperial College London]
IEEE Symposium on Security and Privacy, 23-27 May 2021
42nd IEEE Symposium onSecurity and Privacy
from 23-05-2021 to 27-05-2021
[en] Decentralized exchanges (DEXs) allow parties to participate in financial markets while retaining full custody of their funds. However, the transparency of blockchain-based DEX in combination with the latency for transactions to be processed, makes market-manipulation feasible. For instance, adversaries could perform front-running — the practice of exploiting (typically non-public) information that may change the price of an asset for financial gain.
In this work we formalize, analytically exposit and empirically evaluate an augmented variant of front- running: sandwich attacks, which involve front- and back-running victim transactions on a blockchain-based DEX. We quantify the probability of an adversarial trader being able to undertake the attack, based on the relative positioning of a transaction within a blockchain block. We find that a single adversarial trader can earn a daily revenue of over several thousand USD when performing sandwich attacks on one particular DEX — Uniswap, an exchange with over 5M USD daily trading volume by June 2020. In addition to a single-adversary game, we simulate the outcome of sandwich attacks under multiple competing adversaries, to account for the real-world trading environment.

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