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Optimal MEV Extraction Using Absolute Commitments

Daji Landis, Nikolaj I. Schwartzbach

Abstract

We propose a new, more potent attack on decentralized exchanges. This attack leverages absolute commitments, which are commitments that can condition on the strategies made by other agents. This attack allows an adversary to charge monopoly prices by committing to undercut those other miners that refuse to charge an even higher fee. This allows the miner to extract the maximum possible price from the user, potentially through side channels that evade the inefficiencies and fees usually incurred. This is considerably more efficient than the prevailing strategy of `sandwich attacks', wherein the adversary induces and profits from fluctuations in the market price to the detriment of users. The attack we propose can, in principle, be realized by the irrevocable and self-executing nature of smart contracts, which are readily available on many major blockchains. Thus, the attack could potentially be used against a decentralized exchange and could drastically reduce the utility of the affected exchange.

Optimal MEV Extraction Using Absolute Commitments

Abstract

We propose a new, more potent attack on decentralized exchanges. This attack leverages absolute commitments, which are commitments that can condition on the strategies made by other agents. This attack allows an adversary to charge monopoly prices by committing to undercut those other miners that refuse to charge an even higher fee. This allows the miner to extract the maximum possible price from the user, potentially through side channels that evade the inefficiencies and fees usually incurred. This is considerably more efficient than the prevailing strategy of `sandwich attacks', wherein the adversary induces and profits from fluctuations in the market price to the detriment of users. The attack we propose can, in principle, be realized by the irrevocable and self-executing nature of smart contracts, which are readily available on many major blockchains. Thus, the attack could potentially be used against a decentralized exchange and could drastically reduce the utility of the affected exchange.

Paper Structure

This paper contains 5 sections, 2 theorems, 4 equations, 2 figures.

Table of Contents

  1. Introduction
  2. Related Work
  3. Our Scenario: MEV and Popsicles
  4. Formal Model
  5. A Stackelberg Attack

Key Result

theorem thmcountertheorem

Let $S^* = (p_1,p_2,\cdots,p_n;\,i^*)$ be a subgame perfect equilibrium of the popsicle game without contracts, for $0 < \alpha < 1$ and $n\geq 2$. We can characterize $S^*$ depending on the value of $d$ as follows:

Figures (2)

  • Figure 1: Schematic illustration of the boardwalk. The popsicles represent the blocks in which the buyer can have their transaction included, and $p_i$ is the price to the buyer for having their transaction included in the $i^{th}$ block, or in this case, the $i^{th}$ popsicle. Length along the boardwalk represents the passage of time.
  • Figure 2: Computing the expanded tree $C^2(G)$ for a simple game $G$. The contract move for player 2 is depicted as a square node. To expand, we compute all cuts in the game for player 2 and attach them to a node belonging to player 2.

Theorems & Definitions (5)

  • theorem thmcountertheorem: Vanilla Setting
  • proof
  • definition thmcounterdefinition: Stackelberg Resilience, stack_attack_aamas
  • theorem thmcountertheorem: Main Result
  • proof