Zhou, Liyi;
Qin, Kaihua;
Torres, Christof Ferreira;
Le, Duc V;
Gervais, Arthur;
(2021)
High-Frequency Trading on Decentralized On-Chain Exchanges.
In:
2021 IEEE Symposium on Security and Privacy (SP).
(pp. pp. 428-445).
IEEE: San Francisco, CA, USA.
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Abstract
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.
| Type: | Proceedings paper |
|---|---|
| Title: | High-Frequency Trading on Decentralized On-Chain Exchanges |
| Event: | 2021 IEEE Symposium on Security and Privacy (SP) |
| Dates: | 24 May 2021 - 27 May 2021 |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1109/sp40001.2021.00027 |
| Publisher version: | https://doi.org/10.1109/SP40001.2021.00027 |
| Language: | English |
| Additional information: | This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions. |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > Dept of Computer Science |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10182332 |
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