Volume
LIPIcs, Volume 316
6th Conference on Advances in Financial Technologies (AFT 2024)
-
Part of:
Series:
Leibniz International Proceedings in Informatics (LIPIcs)
Conference: Advances in Financial Technologies (AFT)
Event
AFT 2024, September 23-25, 2024, Vienna, AustriaEditors
Publication Details
- published at: 2024-09-16
- Publisher: Schloss Dagstuhl – Leibniz-Zentrum für Informatik
- ISBN: 978-3-95977-345-4
- DBLP: db/conf/aft/aft2024
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Document
Complete Volume
LIPIcs, Volume 316, AFT 2024, Complete Volume
Abstract
LIPIcs, Volume 316, AFT 2024, Complete Volume
Cite as
6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 1-704, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@Proceedings{bohme_et_al:LIPIcs.AFT.2024,
title = {{LIPIcs, Volume 316, AFT 2024, Complete Volume}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {1--704},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024},
URN = {urn:nbn:de:0030-drops-209355},
doi = {10.4230/LIPIcs.AFT.2024},
annote = {Keywords: LIPIcs, Volume 316, AFT 2024, Complete Volume}
}
Document
Front Matter
Front Matter, Table of Contents, Preface, Conference Organization
Abstract
Front Matter, Table of Contents, Preface, Conference Organization
Cite as
6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 0:i-0:xxii, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{bohme_et_al:LIPIcs.AFT.2024.0,
author = {B\"{o}hme, Rainer and Kiffer, Lucianna},
title = {{Front Matter, Table of Contents, Preface, Conference Organization}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {0:i--0:xxii},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.0},
URN = {urn:nbn:de:0030-drops-209361},
doi = {10.4230/LIPIcs.AFT.2024.0},
annote = {Keywords: Front Matter, Table of Contents, Preface, Conference Organization}
}
Document
Accountable Secret Leader Election
Abstract
We consider the problem of secret leader election with accountability. Secret leader election protocols counter adaptive adversaries by keeping the identities of elected leaders secret until they choose to reveal themselves, but in existing protocols this means it is impossible to determine who was elected leader if they fail to act. This opens the door to undetectable withholding attacks, where leaders fail to act in order to slow the protocol or bias future elections in their favor. We formally define accountability (in weak and strong variants) for secret leader election protocols. We present three paradigms for adding accountability, using delay-based cryptography, enforced key revelation, or threshold committees, all of which ensure that after some time delay the result of the election becomes public. The paradigm can be chosen to balance trust assumptions, protocol efficiency, and the length of the delay before leaders are revealed. Along the way, we introduce several new cryptographic tools including re-randomizable timed commitments and timed VRFs.
Cite as
Miranda Christ, Kevin Choi, Walter McKelvie, Joseph Bonneau, and Tal Malkin. Accountable Secret Leader Election. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 1:1-1:21, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{christ_et_al:LIPIcs.AFT.2024.1,
author = {Christ, Miranda and Choi, Kevin and McKelvie, Walter and Bonneau, Joseph and Malkin, Tal},
title = {{Accountable Secret Leader Election}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {1:1--1:21},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.1},
URN = {urn:nbn:de:0030-drops-209378},
doi = {10.4230/LIPIcs.AFT.2024.1},
annote = {Keywords: Consensus Protocols, Single Secret Leader Election, Accountability}
}
Document
BoLD: Fast and Cheap Dispute Resolution
Abstract
BoLD is a new dispute resolution protocol that is designed to replace the originally deployed Arbitrum dispute resolution protocol. Unlike that protocol, BoLD is resistant to delay attacks. It achieves this resistance without a significant increase in onchain computation costs and with reduced staking costs.
Cite as
Mario M. Alvarez, Henry Arneson, Ben Berger, Lee Bousfield, Chris Buckland, Yafah Edelman, Edward W. Felten, Daniel Goldman, Raul Jordan, Mahimna Kelkar, Akaki Mamageishvili, Harry Ng, Aman Sanghi, Victor Shoup, and Terence Tsao. BoLD: Fast and Cheap Dispute Resolution. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 2:1-2:19, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{alvarez_et_al:LIPIcs.AFT.2024.2,
author = {Alvarez, Mario M. and Arneson, Henry and Berger, Ben and Bousfield, Lee and Buckland, Chris and Edelman, Yafah and Felten, Edward W. and Goldman, Daniel and Jordan, Raul and Kelkar, Mahimna and Mamageishvili, Akaki and Ng, Harry and Sanghi, Aman and Shoup, Victor and Tsao, Terence},
title = {{BoLD: Fast and Cheap Dispute Resolution}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {2:1--2:19},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.2},
URN = {urn:nbn:de:0030-drops-209389},
doi = {10.4230/LIPIcs.AFT.2024.2},
annote = {Keywords: Optimistic rollups, fraud proofs}
}
Document
CFT-Forensics: High-Performance Byzantine Accountability for Crash Fault Tolerant Protocols
Abstract
Crash fault tolerant (CFT) consensus algorithms are commonly used in scenarios where system components are trusted - e.g., enterprise settings and government infrastructure. However, CFT consensus can be broken by even a single corrupt node. A desirable property in the face of such potential Byzantine faults is accountability: if a corrupt node breaks the protocol and affects consensus safety, it should be possible to identify the culpable components with cryptographic integrity from the node states. Today, the best-known protocol for providing accountability to CFT protocols is called PeerReview; it essentially records a signed transcript of all messages sent during the CFT protocol. Because PeerReview is agnostic to the underlying CFT protocol, it incurs high communication and storage overhead. We propose CFT-Forensics, an accountability framework for CFT protocols. We show that for a special family of forensics-compliant CFT protocols (which includes widely-used CFT protocols like Raft and multi-Paxos), CFT-Forensics gives provable accountability guarantees. Under realistic deployment settings, we show theoretically that CFT-Forensics operates at a fraction of the cost of PeerReview. We subsequently instantiate CFT-Forensics for Raft, and implement Raft-Forensics as an extension to the popular nuRaft library. In extensive experiments, we demonstrate that Raft-Forensics adds low overhead to vanilla Raft. With 256 byte messages, Raft-Forensics achieves a peak throughput 87.8% of vanilla Raft at 46% higher latency (+44 ms). We finally integrate Raft-Forensics into the open-source central bank digital currency OpenCBDC, and show that in wide-area network experiments, Raft-Forensics achieves 97.8% of the throughput of Raft, with 14.5% higher latency (+326 ms).
Cite as
Weizhao Tang, Peiyao Sheng, Ronghao Ni, Pronoy Roy, Xuechao Wang, Giulia Fanti, and Pramod Viswanath. CFT-Forensics: High-Performance Byzantine Accountability for Crash Fault Tolerant Protocols. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 3:1-3:25, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{tang_et_al:LIPIcs.AFT.2024.3,
author = {Tang, Weizhao and Sheng, Peiyao and Ni, Ronghao and Roy, Pronoy and Wang, Xuechao and Fanti, Giulia and Viswanath, Pramod},
title = {{CFT-Forensics: High-Performance Byzantine Accountability for Crash Fault Tolerant Protocols}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {3:1--3:25},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.3},
URN = {urn:nbn:de:0030-drops-209399},
doi = {10.4230/LIPIcs.AFT.2024.3},
annote = {Keywords: CFT Protocols, forensics, blockchain}
}
Document
Cross Ledger Transaction Consistency for Financial Auditing
Abstract
Auditing throughout a fiscal year is integral to organizations with transactional activity. Organizations transact with each other and record the details for all their economical activities so that a regulatory committee can verify the lawfulness and legitimacy of their activity. However, it is computationally infeasible for the committee to perform all necessary checks for each organization. To overcome this, auditors assist in this process: organizations give access to all their internal data to their auditors, who then produce reports regarding the consistency of the organization’s data, alerting the committee to any inconsistencies. Despite this, numerous issues that result in fines annually revolve around such inconsistencies in bookkeeping across organizations. Notably, committees wishing to verify the correctness of auditor-provided reports need to redo all their calculations; a process which is computationally proportional to the number of organizations. In fact, it becomes prohibitive when considering real-world settings with thousands of organizations. In this work, we propose two protocols, CLOSC and CLOLC, whose goals are to enable auditors and a committee to verify the consistency of transactions across different ledgers. Both protocols ensure that for every transaction recorded in an organization’s ledger, there exists a dual one in the ledger of another organization while safeguarding against other potential attacks. Importantly, we minimize the information leakage to auditors and other organizations and guarantee three crucial security and privacy properties that we propose: (i) transaction amount privacy, (ii) organization-auditor unlinkability, and (iii) transacting organizations unlinkability. At the core of our protocols lies a two-tier ledger architecture alongside a suite of cryptographic tools. To demonstrate the practicality and scalability of our designs, we provide extensive performance evaluation for both CLOSC and CLOLC. Our numbers are promising, i.e., all computation and verification times lie in the range of seconds, even for millions of transactions, while the on-chain storage costs for an auditing epoch are encouraging i.e. in the range of GB for millions of transactions and thousands of organizations.
Cite as
Vlasis Koutsos, Xiangan Tian, Dimitrios Papadopoulos, and Dimitris Chatzopoulos. Cross Ledger Transaction Consistency for Financial Auditing. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 4:1-4:25, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{koutsos_et_al:LIPIcs.AFT.2024.4,
author = {Koutsos, Vlasis and Tian, Xiangan and Papadopoulos, Dimitrios and Chatzopoulos, Dimitris},
title = {{Cross Ledger Transaction Consistency for Financial Auditing}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {4:1--4:25},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.4},
URN = {urn:nbn:de:0030-drops-209409},
doi = {10.4230/LIPIcs.AFT.2024.4},
annote = {Keywords: Financial auditing, Two-tier ledger architecture, Smart contracts, Transaction privacy, Financial entity unlinkability}
}
Document
Proof of Diligence: Cryptoeconomic Security for Rollups
Abstract
Layer 1 (L1) blockchains such as Ethereum are secured under an "honest supermajority of stake" assumption for a large pool of validators who verify each and every transaction on it. This high security comes at a scalability cost which not only effects the throughput of the blockchain but also results in high gas fees for executing transactions on chain. The most successful solution for this problem is provided by optimistic rollups, Layer 2 (L2) blockchains that execute transactions outside L1 but post the transaction data on L1.
The security for such L2 chains is argued, informally, under the assumption that a set of nodes will check the transaction data posted on L1 and raise an alarm (a fraud proof) if faulty transactions are detected. However, all current deployments lack a proper incentive mechanism for ensuring that these nodes will do their job "diligently", and simply rely on a cursory incentive alignment argument for security.
We solve this problem by introducing an incentivized watchtower network designed to serve as the first line of defense for rollups. Our main contribution is a "Proof of Diligence" protocol that requires watchtowers to continuously provide a proof that they have verified L2 assertions and get rewarded for the same. Proof of Diligence protocol includes a carefully-designed incentive mechanism that is provably secure when watchtowers are rational actors, under a mild rational independence assumption.
Our proposed system is now live on Ethereum testnet. We deployed a watchtower network and implemented Proof of Diligence for multiple optimistic rollups. We extract execution as well as inclusion proofs for transactions as a part of the bounty. Each watchtower has minimal additional computational overhead beyond access to standard L1 and L2 RPC nodes. Our watchtower network comprises of 10 different (rationally independent) EigenLayer operators, secured using restaked Ethereum and spread across three different continents, watching two different optimistic rollups for Ethereum, providing them a decentralized and trustfree first line of defense. The watchtower network can be configured to watch the batches committed by sequencer on L1, providing an approximately 3 minute (cryptoeconomically secure) finality since the additional overhead for watching is very low. This is much lower than the finality delay in the current setup where it takes about 45 minutes for state assertions on L1, and hence will not delay the finality process on L1.
Cite as
Peiyao Sheng, Ranvir Rana, Senthil Bala, Himanshu Tyagi, and Pramod Viswanath. Proof of Diligence: Cryptoeconomic Security for Rollups. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 5:1-5:24, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{sheng_et_al:LIPIcs.AFT.2024.5,
author = {Sheng, Peiyao and Rana, Ranvir and Bala, Senthil and Tyagi, Himanshu and Viswanath, Pramod},
title = {{Proof of Diligence: Cryptoeconomic Security for Rollups}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {5:1--5:24},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.5},
URN = {urn:nbn:de:0030-drops-209417},
doi = {10.4230/LIPIcs.AFT.2024.5},
annote = {Keywords: blockchain, rollup, game theory, security}
}
Document
Analyzing and Benchmarking ZK-Rollups
Abstract
As blockchain technology continues to transform the realm of digital transactions, scalability has emerged as a critical issue. This challenge has spurred the creation of innovative solutions, particularly Layer 2 scalability techniques like rollups. Among these, ZK-Rollups are notable for employing Zero-Knowledge Proofs to facilitate prompt on-chain transaction verification, thereby improving scalability and efficiency without sacrificing security. Nevertheless, the intrinsic complexity of ZK-Rollups has hindered an exhaustive evaluation of their efficiency, economic impact, and performance.
This paper offers a theoretical and empirical examination aimed at comprehending and evaluating ZK-Rollups, with particular attention to ZK-EVMs. We conduct a qualitative analysis to break down the costs linked to ZK-Rollups and scrutinize the design choices of well-known implementations. Confronting the inherent difficulties in benchmarking such intricate systems, we introduce a systematic methodology for their assessment, applying our method to two prominent ZK-Rollups: Polygon zkEVM and zkSync Era. Our research provides initial findings that illuminate trade-offs and areas for enhancement in ZK-Rollup implementations, delivering valuable insights for future research, development, and deployment of these systems.
Cite as
Stefanos Chaliasos, Itamar Reif, Adrià Torralba-Agell, Jens Ernstberger, Assimakis Kattis, and Benjamin Livshits. Analyzing and Benchmarking ZK-Rollups. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 6:1-6:24, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{chaliasos_et_al:LIPIcs.AFT.2024.6,
author = {Chaliasos, Stefanos and Reif, Itamar and Torralba-Agell, Adri\`{a} and Ernstberger, Jens and Kattis, Assimakis and Livshits, Benjamin},
title = {{Analyzing and Benchmarking ZK-Rollups}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {6:1--6:24},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.6},
URN = {urn:nbn:de:0030-drops-209420},
doi = {10.4230/LIPIcs.AFT.2024.6},
annote = {Keywords: Zero-Knowledge Proofs, ZK-Rollups, Benchmarking, Blockchain Scalability}
}
Document
DeFiAligner: Leveraging Symbolic Analysis and Large Language Models for Inconsistency Detection in Decentralized Finance
Abstract
Decentralized Finance (DeFi) has witnessed a monumental surge, reaching 53.039 billion USD in total value locked. As this sector continues to expand, ensuring the reliability of DeFi smart contracts becomes increasingly crucial. While some users are adept at reading code or the compiled bytecode to understand smart contracts, many rely on documentation. Therefore, discrepancies between the documentation and the deployed code can pose significant risks, whether these discrepancies are due to errors or intentional fraud. To tackle these challenges, we developed DeFiAligner, an end-to-end system to identify inconsistencies between documentation and smart contracts. DeFiAligner incorporates a symbolic execution tool, SEVM, which explores execution paths of on-chain binary code, recording memory and stack states. It automatically generates symbolic expressions for token balance changes and branch conditions, which, along with related project documents, are processed by LLMs. Using structured prompts, the LLMs evaluate the alignment between the symbolic expressions and the documentation. Our tests across three distinct scenarios demonstrate DeFiAligner’s capability to automate inconsistency detection in DeFi, achieving recall rates of 92% and 90% on two public datasets respectively.
Cite as
Rundong Gan, Liyi Zhou, Le Wang, Kaihua Qin, and Xiaodong Lin. DeFiAligner: Leveraging Symbolic Analysis and Large Language Models for Inconsistency Detection in Decentralized Finance. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 7:1-7:24, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{gan_et_al:LIPIcs.AFT.2024.7,
author = {Gan, Rundong and Zhou, Liyi and Wang, Le and Qin, Kaihua and Lin, Xiaodong},
title = {{DeFiAligner: Leveraging Symbolic Analysis and Large Language Models for Inconsistency Detection in Decentralized Finance}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {7:1--7:24},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.7},
URN = {urn:nbn:de:0030-drops-209431},
doi = {10.4230/LIPIcs.AFT.2024.7},
annote = {Keywords: Decentralized Finance Security, Large Language Models, Project Review, Symbolic Analysis, Smart Contracts}
}
Document
A Circuit Approach to Constructing Blockchains on Blockchains
Abstract
Recent years have witnessed an explosion of blockchains, each with an open ledger that anyone can read from and write to. In this multi-chain world, an important question emerges: how can we build a more secure overlay blockchain by reading from and writing to a given set of blockchains? Drawing an analogy with switching circuits, we approach the problem by defining two basic compositional operations between blockchains, serial and triangular compositions, and use these operations as building blocks to construct general overlay blockchains. Under the partially synchronous setting, we have the following results: 1) the serial composition, between two certificate-producing blockchains, yields an overlay blockchain that is safe if at least one of the two underlay blockchains is safe and that is live if both of them are live; 2) the triangular composition between three blockchains, akin to parallel composition of switching circuits, yields an overlay blockchain that is safe if all underlay blockchains are safe and that is live if over half of them are live; 3) repeated composition of these two basic operations can yield all possible tradeoffs of safety and liveness for an overlay blockchain built on an arbitrary number of underlay chains. The results are also extended to the synchronous setting.
Cite as
Ertem Nusret Tas, David Tse, and Yifei Wang. A Circuit Approach to Constructing Blockchains on Blockchains. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 8:1-8:25, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{tas_et_al:LIPIcs.AFT.2024.8,
author = {Tas, Ertem Nusret and Tse, David and Wang, Yifei},
title = {{A Circuit Approach to Constructing Blockchains on Blockchains}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {8:1--8:25},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.8},
URN = {urn:nbn:de:0030-drops-209442},
doi = {10.4230/LIPIcs.AFT.2024.8},
annote = {Keywords: interchain consensus protocols, serial composition, triangular composition, circuits}
}
Document
Blockchain Space Tokenization
Abstract
Handling congestion in blockchain systems is a fundamental problem given that the security and decentralization objectives of such systems lead to designs that compromise on (horizontal) scalability (what sometimes is referred to as the "blockchain trilemma"). Motivated by this, we focus on the question whether it is possible to design a transaction inclusion policy for block producers that facilitates fee and delay predictability while being incentive compatible at the same time.
Reconciling these three properties is seemingly paradoxical given that the dominant approach to transaction processing is based on first-price auctions (e.g., as in Bitcoin) or dynamic adjustment of the minimum admissible fee (e.g. as in Ethereum EIP-1559) something that breaks fee predictability. At the same time, in fixed fee mechanisms (e.g., as in Cardano), fees are trivially predictable but are subject to relatively inexpensive bribing or denial of service attacks where transactions may be delayed indefinitely by a well funded attacker, hence breaking delay predictability.
In this work, we set out to address this problem by putting forward blockchain space tokenization (BST), namely a new capability of a blockchain system to tokenize its capacity for transactions and allocate it to interested users who are willing to pay ahead of time for the ability to post transactions regularly for a period of time. We analyze our system in the face of worst-case transaction-processing attacks by introducing a security game played between the mempool mechanism and an adversary. Leveraging this framework, we prove that BST offers predictable and asymptotically optimal delays, predictable fees, and is incentive compatible, thus answering the question posed in the affirmative.
Cite as
Aggelos Kiayias, Elias Koutsoupias, Philip Lazos, and Giorgos Panagiotakos. Blockchain Space Tokenization. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 9:1-9:20, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{kiayias_et_al:LIPIcs.AFT.2024.9,
author = {Kiayias, Aggelos and Koutsoupias, Elias and Lazos, Philip and Panagiotakos, Giorgos},
title = {{Blockchain Space Tokenization}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {9:1--9:20},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.9},
URN = {urn:nbn:de:0030-drops-209453},
doi = {10.4230/LIPIcs.AFT.2024.9},
annote = {Keywords: Blockchain protocols, Predictable Service, Transaction Fees}
}
Document
Optimal RANDAO Manipulation in Ethereum
Abstract
It is well-known that RANDAO manipulation is possible in Ethereum if an adversary controls the proposers assigned to the last slots in an epoch. We provide a methodology to compute, for any fraction α of stake owned by an adversary, the maximum fraction f(α) of rounds that a strategic adversary can propose. We further implement our methodology and compute f(⋅) for all α. For example, we conclude that an optimal strategic participant with 5% of the stake can propose a 5.048% fraction of rounds, 10% of the stake can propose a 10.19% fraction of rounds, and 20% of the stake can propose a 20.68% fraction of rounds.
Cite as
Kaya Alpturer and S. Matthew Weinberg. Optimal RANDAO Manipulation in Ethereum. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 10:1-10:21, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{alpturer_et_al:LIPIcs.AFT.2024.10,
author = {Alpturer, Kaya and Weinberg, S. Matthew},
title = {{Optimal RANDAO Manipulation in Ethereum}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {10:1--10:21},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.10},
URN = {urn:nbn:de:0030-drops-209467},
doi = {10.4230/LIPIcs.AFT.2024.10},
annote = {Keywords: Proof of Stake, Consensus, Blockchain, Ethereum, Randomness manipulation}
}
Document
Bribe & Fork: Cheap PCN Bribing Attacks via Forking Threat
Abstract
In this work, we reexamine the vulnerability of Payment Channel Networks (PCNs) to bribing attacks, where an adversary incentivizes blockchain miners to deliberately ignore a specific transaction to undermine the punishment mechanism of PCNs. While previous studies have posited a prohibitive cost for such attacks, we show that this cost can be dramatically reduced (to approximately $125), thereby increasing the likelihood of these attacks. To this end, we introduce Bribe & Fork, a modified bribing attack that leverages the threat of a so-called feather fork which we analyze with a novel formal model for the mining game with forking. We empirically analyze historical data of some real-world blockchain implementations to evaluate the scale of this cost reduction. Our findings shed more light on the potential vulnerability of PCNs and highlight the need for robust solutions.
Cite as
Zeta Avarikioti, Paweł Kędzior, Tomasz Lizurej, and Tomasz Michalak. Bribe & Fork: Cheap PCN Bribing Attacks via Forking Threat. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 11:1-11:22, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{avarikioti_et_al:LIPIcs.AFT.2024.11,
author = {Avarikioti, Zeta and K\k{e}dzior, Pawe{\l} and Lizurej, Tomasz and Michalak, Tomasz},
title = {{Bribe \& Fork: Cheap PCN Bribing Attacks via Forking Threat}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {11:1--11:22},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.11},
URN = {urn:nbn:de:0030-drops-209473},
doi = {10.4230/LIPIcs.AFT.2024.11},
annote = {Keywords: Blockchain, Payment Channels Networks, Timelock Bribing, Feather Forking}
}
Document
Payment Censorship in the Lightning Network Despite Encrypted Communication
Abstract
The Lightning network (LN) offers a solution to Bitcoin’s scalability limitations by providing fast and private off-chain payments. In addition to the LN’s long known application-level centralisation, recent work has highlighted its centralisation at the network-level which makes it vulnerable to attacks on privacy by malicious actors. In this work, we explore the LN’s susceptibility to censorship by a network-level actor such as a malicious autonomous system. We show that a network-level actor can identify and censor all payments routed via their network by just examining the packet headers. Our results indicate that it is viable to accurately identify LN messages despite the fact that all inter-peer communication is end-to-end encrypted. Additionally, we describe how a network-level observer can determine a node’s role in a payment path based on timing, direction of flow and message type, and demonstrate the approach’s feasibility using experiments in a live instance of the network. Simulations of the attack on a snapshot of the Lightning mainnet suggest that the impact of the attack varies from mild to potentially dramatic depending on the adversary and type of payments that are censored. We analyse countermeasures the network can implement and come to the conclusion that an adequate solution comprises constant message sizes as well as dummy traffic.
Cite as
Charmaine Ndolo and Florian Tschorsch. Payment Censorship in the Lightning Network Despite Encrypted Communication. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 12:1-12:24, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{ndolo_et_al:LIPIcs.AFT.2024.12,
author = {Ndolo, Charmaine and Tschorsch, Florian},
title = {{Payment Censorship in the Lightning Network Despite Encrypted Communication}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {12:1--12:24},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.12},
URN = {urn:nbn:de:0030-drops-209484},
doi = {10.4230/LIPIcs.AFT.2024.12},
annote = {Keywords: Lightning network, payment channel networks, censorship resistance}
}
Document
Musketeer: Incentive-Compatible Rebalancing for Payment Channel Networks
Abstract
In this work, we revisit the severely limited throughput problem of cryptocurrencies and propose a novel rebalancing approach for Payment Channel Networks (PCNs). PCNs are a popular solution for increasing the blockchain throughput, however, their benefit depends on the overall users' liquidity. Rebalancing mechanisms are the state-of-the-art approach to maintaining high liquidity in PCNs. However, existing opt-in rebalancing mechanisms exclude users that may assist in rebalancing for small service fees, leading to suboptimal solutions and under-utilization of the PCNs' bounded liquidity.
We introduce the first rebalancing approach for PCNs that includes all users, following a "all for one and one for all" design philosophy that yields optimal throughput. The proposed approach introduces a double-auction rebalancing problem, which we term Musketeer, where users can participate as buyers (paying fees to rebalance) or sellers (charging fees to route transactions). The desired properties tailored to the unique characteristics of PCNs are formally defined, including the novel game-theoretic property of cyclic budget balance that is a stronger variation of strong budget balance.
Basic results derived from auction theory, including an impossibility and multiple mechanisms that either achieve all desiderata under a relaxed model or sacrifice one of the properties, are presented. We also propose a novel mechanism that leverages time delays as an additional cost to users. This mechanism is provably truthful, cyclic budget balanced, individually rational and economic efficient but only with respect to liquidity.
Cite as
Zeta Avarikioti, Stefan Schmid, and Samarth Tiwari. Musketeer: Incentive-Compatible Rebalancing for Payment Channel Networks. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 13:1-13:22, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{avarikioti_et_al:LIPIcs.AFT.2024.13,
author = {Avarikioti, Zeta and Schmid, Stefan and Tiwari, Samarth},
title = {{Musketeer: Incentive-Compatible Rebalancing for Payment Channel Networks}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {13:1--13:22},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.13},
URN = {urn:nbn:de:0030-drops-209494},
doi = {10.4230/LIPIcs.AFT.2024.13},
annote = {Keywords: Blockchains, Payment Channel Networks, Rebalancing, Game Theory}
}
Document
SoK: Zero-Knowledge Range Proofs
Abstract
Zero-knowledge range proofs (ZKRPs) allow a prover to convince a verifier that a secret value lies in a given interval. ZKRPs have numerous applications: from anonymous credentials and auctions, to confidential transactions in cryptocurrencies. At the same time, a plethora of ZKRP constructions exist in the literature, each with its own trade-offs. In this work, we systematize the knowledge around ZKRPs. We create a classification of existing constructions based on the underlying building techniques, and we summarize their properties. We provide comparisons between schemes both in terms of properties as well as efficiency levels, and construct a guideline to assist in the selection of an appropriate ZKRP for different application requirements. Finally, we discuss a number of interesting open research problems.
Cite as
Miranda Christ, Foteini Baldimtsi, Konstantinos Kryptos Chalkias, Deepak Maram, Arnab Roy, and Joy Wang. SoK: Zero-Knowledge Range Proofs. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 14:1-14:25, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{christ_et_al:LIPIcs.AFT.2024.14,
author = {Christ, Miranda and Baldimtsi, Foteini and Chalkias, Konstantinos Kryptos and Maram, Deepak and Roy, Arnab and Wang, Joy},
title = {{SoK: Zero-Knowledge Range Proofs}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {14:1--14:25},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.14},
URN = {urn:nbn:de:0030-drops-209504},
doi = {10.4230/LIPIcs.AFT.2024.14},
annote = {Keywords: Range proofs, zero knowledge}
}
Document
Privacy Comparison for Bitcoin Light Client Implementations
Abstract
Light clients implement a simple solution for Bitcoin’s scalability problem, as they do not store the entire blockchain but only the state of particular addresses of interest. To be able to keep track of the updated state of their addresses, light clients rely on full nodes to provide them with the required information. To do so, they must reveal information about the addresses they are interested in. This paper studies the two most common light client implementations, SPV and Neutrino with regards to their privacy. We define privacy metrics for comparing the privacy of the different implementations. We evaluate and compare the privacy of the implementations over time on real Bitcoin data and discuss the inherent privacy-communication tradeoff. In addition, we propose general techniques to enhance light client privacy in the existing implementations. Finally, we propose a new SPV-based light client model, the aggregation model, evaluate it, and show it can achieve enhanced privacy than in the existing light client implementations.
Cite as
Arad Kotzer and Ori Rottenstreich. Privacy Comparison for Bitcoin Light Client Implementations. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 15:1-15:23, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{kotzer_et_al:LIPIcs.AFT.2024.15,
author = {Kotzer, Arad and Rottenstreich, Ori},
title = {{Privacy Comparison for Bitcoin Light Client Implementations}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {15:1--15:23},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.15},
URN = {urn:nbn:de:0030-drops-209510},
doi = {10.4230/LIPIcs.AFT.2024.15},
annote = {Keywords: Blockchain, Privacy, Light Clients, Bloom filter}
}
Document
CrudiTEE: A Stick-And-Carrot Approach to Building Trustworthy Cryptocurrency Wallets with TEEs
Abstract
Cryptocurrency introduces usability challenges by requiring users to manage signing keys. Popular signing key management services (e.g., custodial wallets), however, either introduce a trusted party or burden users with managing signing key shares, posing the same usability challenges. TEE (Trusted Execution Environment) is a promising technology to avoid both, but practical implementations of TEEs suffer from various side-channel attacks that have proven hard to eliminate.
This paper explores a new approach to side-channel mitigation through economic incentives for TEE-based cryptocurrency wallet solutions. By taking the cost and profit of side-channel attacks into consideration, we designed a Stick-and-Carrot-based cryptocurrency wallet, CrudiTEE, that leverages penalties (the stick) and rewards (the carrot) to disincentivize attackers from exfiltrating signing keys in the first place. We model the attacker’s behavior using a Markov Decision Process (MDP) to evaluate the effectiveness of the bounty and enable the service provider to adjust the parameters of the bounty’s reward function accordingly.
Cite as
Lulu Zhou, Zeyu Liu, Fan Zhang, and Michael K. Reiter. CrudiTEE: A Stick-And-Carrot Approach to Building Trustworthy Cryptocurrency Wallets with TEEs. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 16:1-16:25, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{zhou_et_al:LIPIcs.AFT.2024.16,
author = {Zhou, Lulu and Liu, Zeyu and Zhang, Fan and Reiter, Michael K.},
title = {{CrudiTEE: A Stick-And-Carrot Approach to Building Trustworthy Cryptocurrency Wallets with TEEs}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {16:1--16:25},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.16},
URN = {urn:nbn:de:0030-drops-209525},
doi = {10.4230/LIPIcs.AFT.2024.16},
annote = {Keywords: Cryptocurrency wallet, blockchain}
}
Document
Cornucopia: Distributed Randomness at Scale
Abstract
We propose Cornucopia, a protocol framework for distributed randomness beacons combining accumulators and verifiable delay functions. Cornucopia generalizes the Unicorn protocol, using an accumulator to enable efficient verification by each participant that their contribution has been included. The output is unpredictable as long as at least one participant is honest, yielding a scalable distributed randomness beacon with strong security properties. Proving this approach secure requires developing a novel property of accumulators, insertion security, which we show is both necessary and sufficient for Cornucopia-style protocols. We show that not all accumulators are insertion-secure, then prove that common constructions (Merkle trees, RSA accumulators, and bilinear accumulators) are either naturally insertion-secure or can be made so with trivial modifications.
Cite as
Miranda Christ, Kevin Choi, and Joseph Bonneau. Cornucopia: Distributed Randomness at Scale. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 17:1-17:23, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{christ_et_al:LIPIcs.AFT.2024.17,
author = {Christ, Miranda and Choi, Kevin and Bonneau, Joseph},
title = {{Cornucopia: Distributed Randomness at Scale}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {17:1--17:23},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.17},
URN = {urn:nbn:de:0030-drops-209533},
doi = {10.4230/LIPIcs.AFT.2024.17},
annote = {Keywords: Randomness beacons, accumulators}
}
Document
Loss-Versus-Fair: Efficiency of Dutch Auctions on Blockchains
Abstract
Milionis et al. (2023) studied the rate at which automated market makers leak value to arbitrageurs when block times are discrete and follow a Poisson process, and where the risky asset price follows a geometric Brownian motion. We extend their model to analyze another popular mechanism in decentralized finance for onchain trading: Dutch auctions. We compute the expected losses that a seller incurs to arbitrageurs and expected time-to-fill for Dutch auctions as a function of starting price, volatility, decay rate, and average interblock time. We also extend the analysis to gradual Dutch auctions, a variation on Dutch auctions for selling tokens over time at a continuous rate. We use these models to explore the tradeoff between speed of execution and quality of execution, which could help inform practitioners in setting parameters for starting price and decay rate on Dutch auctions, or help platform designers determine performance parameters like block times.
Cite as
Ciamac C. Moallemi and Dan Robinson. Loss-Versus-Fair: Efficiency of Dutch Auctions on Blockchains. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 18:1-18:17, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{moallemi_et_al:LIPIcs.AFT.2024.18,
author = {Moallemi, Ciamac C. and Robinson, Dan},
title = {{Loss-Versus-Fair: Efficiency of Dutch Auctions on Blockchains}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {18:1--18:17},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.18},
URN = {urn:nbn:de:0030-drops-209541},
doi = {10.4230/LIPIcs.AFT.2024.18},
annote = {Keywords: Dutch auctions, blockchain, decentralized finance}
}
Document
Credible, Optimal Auctions via Public Broadcast
Abstract
We study auction design in a setting where agents can communicate over a censorship-resistant broadcast channel like the ones we can implement over a public blockchain. We seek to design credible, strategyproof auctions in a model that differs from the traditional mechanism design framework because communication is not centralized via the auctioneer. We prove this allows us to design a larger class of credible auctions where the auctioneer has no incentive to be strategic. Intuitively, a decentralized communication model weakens the auctioneer’s adversarial capabilities because they can only inject messages into the communication channel but not delete, delay, or modify the messages from legitimate buyers. Our main result is a separation in the following sense: we give the first instance of an auction that is credible only if communication is decentralized. Moreover, we construct the first two-round auction that is credible, strategyproof, and optimal when bidder valuations are α-strongly regular, for α > 0. Our result relies on mild assumptions - namely, the existence of a broadcast channel and cryptographic commitments.
Cite as
Tarun Chitra, Matheus V. X. Ferreira, and Kshitij Kulkarni. Credible, Optimal Auctions via Public Broadcast. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 19:1-19:16, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{chitra_et_al:LIPIcs.AFT.2024.19,
author = {Chitra, Tarun and Ferreira, Matheus V. X. and Kulkarni, Kshitij},
title = {{Credible, Optimal Auctions via Public Broadcast}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {19:1--19:16},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.19},
URN = {urn:nbn:de:0030-drops-209550},
doi = {10.4230/LIPIcs.AFT.2024.19},
annote = {Keywords: credible auctions, blockchains, cryptographic auctions, optimal auction design, mechanism design with imperfect commitment}
}
Document
Optimizing Exit Queues for Proof-Of-Stake Blockchains: A Mechanism Design Approach
Abstract
Byzantine fault-tolerant consensus protocols have provable safety and liveness properties for static validator sets. In practice, however, the validator set changes over time, potentially eroding the protocol’s security guarantees. For example, systems with accountable safety may lose some of that accountability over time as adversarial validators exit. As a result, protocols must rate limit entry and exit so that the set changes slowly enough to ensure security. Here, the system designer faces a fundamental trade-off. The harder it is to exit the system, the less attractive staking becomes; alternatively, the easier it is to exit the system, the less secure the protocol will be.
This paper provides the first systematic study of exit queues for Proof-of-Stake blockchains. Given a collection of validator-set consistency constraints imposed by the protocol, the social planner’s goal is to provide a constrained-optimal mechanism that minimizes disutility for the participants. We introduce the MINSLACK mechanism, a dynamic capacity first-come-first-served queue in which the amount of stake that can exit in a period depends on the number of previous exits and the consistency constraints. We show that MINSLACK is optimal when stakers equally value the processing of their withdrawal. When stakers values are heterogeneous, the optimal mechanism resembles a priority queue with dynamic capacity. However, this mechanism must reserve exit capacity for the future in case a staker with a much higher need for liquidity arrives. We conclude with a survey of known consistency constraints and highlight the diversity of existing exit mechanisms.
Cite as
Michael Neuder, Mallesh Pai, and Max Resnick. Optimizing Exit Queues for Proof-Of-Stake Blockchains: A Mechanism Design Approach. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 20:1-20:22, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{neuder_et_al:LIPIcs.AFT.2024.20,
author = {Neuder, Michael and Pai, Mallesh and Resnick, Max},
title = {{Optimizing Exit Queues for Proof-Of-Stake Blockchains: A Mechanism Design Approach}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {20:1--20:22},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.20},
URN = {urn:nbn:de:0030-drops-209564},
doi = {10.4230/LIPIcs.AFT.2024.20},
annote = {Keywords: Mechanism Design, Market Design, Accountable Safety, Proof-of-Stake, Blockchain}
}
Document
Searcher Competition in Block Building
Abstract
We study the amount of maximal extractable value (MEV) captured by validators, as a function of searcher (or order flow provider) competition in blockchains with competitive block building markets such as Ethereum. We argue that the core is a suitable solution concept in this context that makes robust predictions that are independent of implementation details or specific mechanisms chosen. We characterize how much value validators extract in the core and quantify the surplus share of validators as a function of searcher competition. Searchers can obtain at most the marginal value increase of the winning block relative to the best block that can be built without their bundles. Dually this gives a lower bound on the value extracted by the validator. If arbitrages are easy to find and many searchers find similar bundles, the validator gets paid all value almost surely, while searchers can capture most value if there is little searcher competition per arbitrage. For the case of passive block-proposers we study, moreover, mechanisms that implement core allocations in dominant strategies and find that for submodular value, there is a unique dominant-strategy incentive compatible core-selecting mechanism that gives each searcher exactly their marginal value contribution to the winning block.
Cite as
Akaki Mamageishvili, Christoph Schlegel, and Benny Sudakov. Searcher Competition in Block Building. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 21:1-21:12, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{mamageishvili_et_al:LIPIcs.AFT.2024.21,
author = {Mamageishvili, Akaki and Schlegel, Christoph and Sudakov, Benny},
title = {{Searcher Competition in Block Building}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {21:1--21:12},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.21},
URN = {urn:nbn:de:0030-drops-209579},
doi = {10.4230/LIPIcs.AFT.2024.21},
annote = {Keywords: MEV, Block Building, Searchers, Proposer Builder Separation, Core}
}
Document
Who Wins Ethereum Block Building Auctions and Why?
Abstract
The MEV-Boost block auction contributes approximately 90% of all Ethereum blocks. Between October 2023 and March 2024, only three builders produced 80% of them, highlighting the concentration of power within the block builder market. To foster competition and preserve Ethereum’s decentralized ethos and censorship resistance properties, understanding the dominant players' competitive edges is essential.
In this paper, we identify features that play a significant role in builders' ability to win blocks and earn profits by conducting a comprehensive empirical analysis of MEV-Boost auctions over a six-month period. We reveal that block market share positively correlates with order flow diversity, while profitability correlates with access to order flow from Exclusive Providers, such as integrated searchers and external providers with exclusivity deals. Additionally, we show a positive correlation between market share and profit margin among the top ten builders, with features such as exclusive signal, non-atomic arbitrages, and Telegram bot flow strongly correlating with both metrics. This highlights a "chicken-and-egg" problem where builders need differentiated order flow to profit, but only receive such flow if they have a significant market share. Overall, this work provides an in-depth analysis of the key features driving the builder market towards centralization and offers valuable insights for designing further iterations of Ethereum block auctions, preserving Ethereum’s censorship resistance properties.
Cite as
Burak Öz, Danning Sui, Thomas Thiery, and Florian Matthes. Who Wins Ethereum Block Building Auctions and Why?. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 22:1-22:25, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{oz_et_al:LIPIcs.AFT.2024.22,
author = {\"{O}z, Burak and Sui, Danning and Thiery, Thomas and Matthes, Florian},
title = {{Who Wins Ethereum Block Building Auctions and Why?}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {22:1--22:25},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.22},
URN = {urn:nbn:de:0030-drops-209589},
doi = {10.4230/LIPIcs.AFT.2024.22},
annote = {Keywords: Block Building Auction, Proposer-Builder Separation, Maximal Extractable Value}
}
Document
A Shortfall in Investor Expectations of Leveraged Tokens
Abstract
Leveraged tokens (LVTs) are emerging crypto-assets primarily issued by centralized exchanges. The concept is borrowed from leveraged ETFs (LETFs) in traditional financial markets, which offer higher gains (and higher losses) relative to price movements in the underlying asset. Leverage is commonly used by short-term traders to amplify returns from daily market shifts. However, LVTs have been implemented differently from LETFs by exchanges in the crypto market, with variations across platforms. We examine the mechanics and constituent components of LVTs, demonstrating that the lack of a standard has resulted in deficiencies and unexpected technical and economic outcomes. To identify existing problems, we analyze more than 1,600 leveraged tokens from 10 issuers. Our analysis reveals that 99.9% of LVTs are centralized, with 80% lacking blockchain interaction, leading to transparency issues. Total supply information is difficult to access for 53% of
them, and 41% appear inadequately backed at launch. Additionally, 97% of LVTs are vulnerable to front-running during well-known events, and they deviate from their stated leverage ratios more than LETFs, partly due to inconsistent re-leveraging processes and higher management fees. This work provides a framework for crypto investors, blockchain developers, and data analysts to gain a deep understanding of leveraged tokens and their impact on market dynamics, liquidity, and price movements. It also offers insights for crypto exchanges and auditors into the internal functionalities and financial performance of LVTs under varying market conditions.
Cite as
Reza Rahimian and Jeremy Clark. A Shortfall in Investor Expectations of Leveraged Tokens. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 23:1-23:24, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{rahimian_et_al:LIPIcs.AFT.2024.23,
author = {Rahimian, Reza and Clark, Jeremy},
title = {{A Shortfall in Investor Expectations of Leveraged Tokens}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {23:1--23:24},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.23},
URN = {urn:nbn:de:0030-drops-209599},
doi = {10.4230/LIPIcs.AFT.2024.23},
annote = {Keywords: crypto-assets, ethereum, leverage, derivatives}
}
Document
Investigating Wrench Attacks: Physical Attacks Targeting Cryptocurrency Users
Abstract
Cryptocurrency wrench attacks are physical attacks targeting cryptocurrency users in the real world to illegally obtain cryptocurrencies. These attacks significantly undermine the efficacy of existing digital security norms when confronted with real-world threats. We present the first comprehensive study on wrench attacks. We propose a theoretical approach to defining wrench attacks per criminal law norms, and an interdisciplinary empirical approach to measure their incidence. Leveraging three data sources, we perform crime script analysis, detecting incidents globally across 10 interviews with victims and experts, 146 news articles, and 37 online forums. Our findings reveal diverse groups of attackers ranging from organized crime groups to friends and family, various modi operandi, and different forms of attacks varying from blackmail to murder. Despite existing since Bitcoin’s early days, these attacks are underreported due to revictimization fears. Additionally, unlike other cryptocurrency crimes, users with advanced security experience were not immune to them. We identify potential vulnerabilities in users' behavior and encourage cryptocurrency holders to lean into digital as well as physical safety measures to protect themselves and their cryptocurrency. We offer actionable recommendations for the security community and regulators, highlighting the double-edged sword of Know Your Customer policies.
Cite as
Marilyne Ordekian, Gilberto Atondo-Siu, Alice Hutchings, and Marie Vasek. Investigating Wrench Attacks: Physical Attacks Targeting Cryptocurrency Users. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 24:1-24:24, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{ordekian_et_al:LIPIcs.AFT.2024.24,
author = {Ordekian, Marilyne and Atondo-Siu, Gilberto and Hutchings, Alice and Vasek, Marie},
title = {{Investigating Wrench Attacks: Physical Attacks Targeting Cryptocurrency Users}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {24:1--24:24},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.24},
URN = {urn:nbn:de:0030-drops-209609},
doi = {10.4230/LIPIcs.AFT.2024.24},
annote = {Keywords: cryptocurrency, Bitcoin, crime, wrench attack, physical attack}
}
Document
Adaptive Curves for Optimally Efficient Market Making
Abstract
Automated Market Makers (AMMs) are essential in Decentralized Finance (DeFi) as they match liquidity supply with demand. They function through liquidity providers (LPs) who deposit assets into liquidity pools. However, the asset trading prices in these pools often trail behind those in more dynamic, centralized exchanges, leading to potential arbitrage losses for LPs. This issue is tackled by adapting market maker bonding curves to trader behavior, based on the classical market microstructure model of Glosten and Milgrom. Our approach ensures a zero-profit condition for the market maker’s prices. We derive the differential equation that an optimal adaptive curve should follow to minimize arbitrage losses while remaining competitive. Solutions to this optimality equation are obtained for standard Gaussian and Lognormal price models using Kalman filtering. A key feature of our method is its ability to estimate the external market price without relying on price or loss oracles. We also provide an equivalent differential equation for the implied dynamics of canonical static bonding curves and establish conditions for their optimality. Our algorithms demonstrate robustness to changing market conditions and adversarial perturbations, and we offer an on-chain implementation using Uniswap v4 alongside off-chain AI co-processors.
Cite as
Viraj Nadkarni, Sanjeev Kulkarni, and Pramod Viswanath. Adaptive Curves for Optimally Efficient Market Making. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 25:1-25:22, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{nadkarni_et_al:LIPIcs.AFT.2024.25,
author = {Nadkarni, Viraj and Kulkarni, Sanjeev and Viswanath, Pramod},
title = {{Adaptive Curves for Optimally Efficient Market Making}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {25:1--25:22},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.25},
URN = {urn:nbn:de:0030-drops-209612},
doi = {10.4230/LIPIcs.AFT.2024.25},
annote = {Keywords: Automated market makers, Adaptive, Glosten-Milgrom, Decentralized Finance}
}
Document
Competitive Policies for Online Collateral Maintenance
Abstract
Layer-two blockchain protocols emerged to address scalability issues related to fees, storage cost, and confirmation delay of on-chain transactions. They aggregate off-chain transactions into fewer on-chain ones, thus offering immediate settlement and reduced transaction fees. To preserve security of the underlying ledger, layer-two protocols often work in a collateralized model; resources are committed on-chain to backup off-chain activities. A fundamental challenge that arises in this setup is determining a policy for establishing, committing, and replenishing the collateral in a way that maximizes the value of settled transactions.
In this paper, we study this problem under two settings that model collateralized layer-two protocols. The first is a general model in which a party has an on-chain collateral C with a policy to decide on whether to settle or discard each incoming transaction. The policy also specifies when to replenish C based on the remaining collateral value. The second model considers a discrete setup in which C is divided among k wallets, each of which is of size C/k, such that when a wallet is full, and so cannot settle any incoming transactions, it will be replenished. We devise several online policies for these models, and show how competitive they are compared to optimal (offline) policies that have full knowledge of the incoming transaction stream. To the best of our knowledge, we are the first to study and formulate online competitive policies for collateral and wallet management in the blockchain setting.
Cite as
Ghada Almashaqbeh, Sixia Chen, and Alexander Russell. Competitive Policies for Online Collateral Maintenance. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 26:1-26:16, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{almashaqbeh_et_al:LIPIcs.AFT.2024.26,
author = {Almashaqbeh, Ghada and Chen, Sixia and Russell, Alexander},
title = {{Competitive Policies for Online Collateral Maintenance}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {26:1--26:16},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.26},
URN = {urn:nbn:de:0030-drops-209620},
doi = {10.4230/LIPIcs.AFT.2024.26},
annote = {Keywords: Blockchain layer-two solutions, Wallets, Collateral management, Online algorithms, Competitive analysis}
}
Document
Thinking Fast and Slow: Data-Driven Adaptive DeFi Borrow-Lending Protocol
Abstract
Decentralized finance (DeFi) borrowing and lending platforms are crucial to the decentralized economy, involving two main participants: lenders who provide assets for interest and borrowers who offer collateral exceeding their debt and pay interest. Collateral volatility necessitates over-collateralization to protect lenders and ensure competitive returns. Traditional DeFi platforms use a fixed interest rate curve based on the utilization rate (the fraction of available assets borrowed) and determine over-collateralization offline through simulations to manage risk. This method doesn't adapt well to dynamic market changes, such as price fluctuations and evolving user needs, often resulting in losses for lenders or borrowers. In this paper, we introduce an adaptive, data-driven protocol for DeFi borrowing and lending. Our approach includes a high-frequency controller that dynamically adjusts interest rates to maintain market stability and competitiveness with external markets. Unlike traditional protocols, which rely on user reactions and often adjust slowly, our controller uses a learning-based algorithm to quickly find optimal interest rates, reducing the opportunity cost for users during periods of misalignment with external rates. Additionally, we use a low-frequency planner that analyzes user behavior to set an optimal over-collateralization ratio, balancing risk reduction with profit maximization over the long term. This dual approach is essential for adaptive markets: the short-term component maintains market stability, preventing exploitation, while the long-term planner optimizes market parameters to enhance profitability and reduce risks. We provide theoretical guarantees on the convergence rates and adversarial robustness of the short-term component and the long-term effectiveness of our protocol. Empirical validation confirms our protocol’s theoretical benefits.
Cite as
Mahsa Bastankhah, Viraj Nadkarni, Chi Jin, Sanjeev Kulkarni, and Pramod Viswanath. Thinking Fast and Slow: Data-Driven Adaptive DeFi Borrow-Lending Protocol. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 27:1-27:23, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{bastankhah_et_al:LIPIcs.AFT.2024.27,
author = {Bastankhah, Mahsa and Nadkarni, Viraj and Jin, Chi and Kulkarni, Sanjeev and Viswanath, Pramod},
title = {{Thinking Fast and Slow: Data-Driven Adaptive DeFi Borrow-Lending Protocol}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {27:1--27:23},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.27},
URN = {urn:nbn:de:0030-drops-209634},
doi = {10.4230/LIPIcs.AFT.2024.27},
annote = {Keywords: Defi borrow-lending, adaptive market design, decentralized finance}
}
Document
SoK: Attacks on DAOs
Abstract
Decentralized Autonomous Organizations (DAOs) are blockchain-based organizations that facilitate decentralized governance. Today, DAOs not only hold billions of dollars in their treasury but also govern many of the most popular Decentralized Finance (DeFi) protocols. This paper systematically analyses security threats to DAOs, focusing on the types of attacks they face. We study attacks on DAOs that took place in the past, attacks that have been theorized to be possible, and potential attacks that were uncovered and prevented in audits. For each of these (potential) attacks, we describe and categorize the attack vectors utilized into four categories. This reveals that while many attacks on DAOs take advantage of the less tangible and more complex human nature involved in governance, audits tend to focus on code and protocol vulnerabilities. Thus, additionally, the paper examines empirical data on DAO vulnerabilities, outlines risk factors contributing to these attacks, and suggests mitigation strategies to safeguard against such vulnerabilities.
Cite as
Rainer Feichtinger, Robin Fritsch, Lioba Heimbach, Yann Vonlanthen, and Roger Wattenhofer. SoK: Attacks on DAOs. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 28:1-28:27, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{feichtinger_et_al:LIPIcs.AFT.2024.28,
author = {Feichtinger, Rainer and Fritsch, Robin and Heimbach, Lioba and Vonlanthen, Yann and Wattenhofer, Roger},
title = {{SoK: Attacks on DAOs}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {28:1--28:27},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.28},
URN = {urn:nbn:de:0030-drops-209640},
doi = {10.4230/LIPIcs.AFT.2024.28},
annote = {Keywords: blockchain, DAO, governance, security, measurements, voting systems}
}
Document
Transaction Fee Mechanism Design in a Post-MEV World
Abstract
The incentive-compatibility properties of blockchain transaction fee mechanisms have been investigated with passive block producers that are motivated purely by the net rewards earned at the consensus layer. This paper introduces a model of active block producers that have their own private valuations for blocks (representing, for example, additional value derived from the application layer). The block producer surplus in our model can be interpreted as one of the more common colloquial meanings of the phrase "maximal extractable value (MEV)."
We first prove that transaction fee mechanism design is fundamentally more difficult with active block producers than with passive ones: With active block producers, no non-trivial or approximately welfare-maximizing transaction fee mechanism can be incentive-compatible for both users and block producers. These results can be interpreted as a mathematical justification for augmenting transaction fee mechanisms with additional components such as order flow auctions, block producer competition, trusted hardware, or cryptographic techniques.
We then consider a more fine-grained model of block production that more accurately reflects current practice, in which we distinguish the roles of "searchers" (who actively identify opportunities for value extraction from the application layer and compete for the right to take advantage of them) and "proposers" (who participate directly in the blockchain protocol and make the final choice of the published block). Searchers can effectively act as an "MEV oracle" for a transaction fee mechanism, thereby enlarging the design space. Here, we first consider a TFM that is inspired by how searchers have traditionally been incorporated into the block production process, with each transaction effectively sold off to a searcher through a first-price auction. We then explore the TFM design space with searchers more generally, and design a mechanism that circumvents our impossibility results for TFMs without searchers. Our mechanism (the "SAKA" mechanism) is incentive-compatible (for users, searchers, and the block producer), sybil-proof, and guarantees roughly 50% of the maximum-possible welfare when transaction sizes are small relative to block sizes. We conclude with a matching negative result: even when transaction sizes are small, no DSIC and sybil-proof deterministic TFM can guarantee more than 50% of the maximum-possible welfare.
Cite as
Maryam Bahrani, Pranav Garimidi, and Tim Roughgarden. Transaction Fee Mechanism Design in a Post-MEV World. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 29:1-29:24, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{bahrani_et_al:LIPIcs.AFT.2024.29,
author = {Bahrani, Maryam and Garimidi, Pranav and Roughgarden, Tim},
title = {{Transaction Fee Mechanism Design in a Post-MEV World}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {29:1--29:24},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.29},
URN = {urn:nbn:de:0030-drops-209658},
doi = {10.4230/LIPIcs.AFT.2024.29},
annote = {Keywords: MEV, Transaction Fee Mechanisms, Auctions}
}
Document
Profitable Manipulations of Cryptographic Self-Selection Are Statistically Detectable
Abstract
Cryptographic Self-Selection is a common primitive underlying leader-selection for Proof-of-Stake blockchain protocols. The concept was first popularized in Algorand [Jing Chen and Silvio Micali, 2019], who also observed that the protocol might be manipulable. [Matheus V. X. Ferreira et al., 2022] provide a concrete manipulation that is strictly profitable for a staker of any size (and also prove upper bounds on the gains from manipulation).
Separately, [Maryam Bahrani and S. Matthew Weinberg, 2024; Aviv Yaish et al., 2023] initiate the study of undetectable profitable manipulations of consensus protocols with a focus on the seminal Selfish Mining strategy [Eyal and Sirer, 2014] for Bitcoin’s Proof-of-Work longest-chain protocol. They design a Selfish Mining variant that, for sufficiently large miners, is strictly profitable yet also indistinguishable to an onlooker from routine latency (that is, a sufficiently large profit-maximizing miner could use their strategy to strictly profit over being honest in a way that still appears to the rest of the network as though everyone is honest but experiencing mildly higher latency. This avoids any risk of negatively impacting the value of the underlying cryptocurrency due to attack detection).
We investigate the detectability of profitable manipulations of the canonical cryptographic self-selection leader selection protocol introduced in [Jing Chen and Silvio Micali, 2019] and studied in [Matheus V. X. Ferreira et al., 2022], and establish that for any player with α < (3-√5)/2 ≈ 0.38 fraction of the total stake, every strictly profitable manipulation is statistically detectable. Specifically, we consider an onlooker who sees only the random seed of each round (and does not need to see any other broadcasts by any other players). We show that the distribution of the sequence of random seeds when any player is profitably manipulating the protocol is inconsistent with any distribution that could arise by honest stakers being offline or timing out (for a natural stylized model of honest timeouts).
Cite as
Linda Cai, Jingyi Liu, S. Matthew Weinberg, and Chenghan Zhou. Profitable Manipulations of Cryptographic Self-Selection Are Statistically Detectable. In 6th Conference on Advances in Financial Technologies (AFT 2024). Leibniz International Proceedings in Informatics (LIPIcs), Volume 316, pp. 30:1-30:23, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2024)
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@InProceedings{cai_et_al:LIPIcs.AFT.2024.30,
author = {Cai, Linda and Liu, Jingyi and Weinberg, S. Matthew and Zhou, Chenghan},
title = {{Profitable Manipulations of Cryptographic Self-Selection Are Statistically Detectable}},
booktitle = {6th Conference on Advances in Financial Technologies (AFT 2024)},
pages = {30:1--30:23},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-345-4},
ISSN = {1868-8969},
year = {2024},
volume = {316},
editor = {B\"{o}hme, Rainer and Kiffer, Lucianna},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2024.30},
URN = {urn:nbn:de:0030-drops-209660},
doi = {10.4230/LIPIcs.AFT.2024.30},
annote = {Keywords: Blockchain, Cryptocurrency, Proof-of-Stake, Strategic Mining, Statistical Detection}
}