[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.
Disciplines :
Computer science
Author, co-author :
Zhou, Liyi; Imperial College London
Qin, Kaihua; Imperial College London
Ferreira Torres, Christof ; University of Luxembourg > Interdisciplinary Centre for Security, Reliability and Trust (SNT) > SEDAN
Le, Duc v; Purdue University - Purdue
Gervais, Arthur; Imperial College London
External co-authors :
yes
Language :
English
Title :
High-Frequency Trading on Decentralized On-Chain Exchanges
Publication date :
2021
Event name :
42nd IEEE Symposium onSecurity and Privacy
Event date :
from 23-05-2021 to 27-05-2021
Main work title :
IEEE Symposium on Security and Privacy, 23-27 May 2021
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