Maximizing Extractable Value from Automated Market Makers

Bartoletti, Massimo; Chiang, James Hsin-yu; Lafuente, Alberto Lluch

doi:10.1007/978-3-031-18283-9_1

Cited by 14 publications

(6 citation statements)

References 9 publications

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“…Even though guarded transactions mitigate the issue of not knowing the state where one's transaction will be fired, they are not a complete defence against MEV attacks. Indeed, in [BCL22] it is shown that adversaries can craft sandwiches that extract value from any non-empty mempool of swap and dep (guarded) transactions. Further analyses the effect of MEV on constant-function AMMs are developed in [KDC22].…”

Section: Maximal Extractable Valuementioning

confidence: 99%

“…In this way, A will always have a negative gain, which is counterbalanced by a positive gain of M. This and other kinds of attacks have fostered the research on adversarial and defensive strategies, and on empirical analyses of the impact of attacks [BCL22,CAE22,ZQT + 21,QZG21,DGK + 20,EMC20]. For instance, the work [BCL22] devises an optimal strategy through which an adversary can extract the maximal value from users' transactions (not only swaps, but also deposits and redeems), in the setting of Uniswap-like AMMs. The swap-rate-agnostic approach pursued by this paper could be exploited to generalise the attack of [BCL22] to AMMs beyond Uniswap.…”

Section: Introductionmentioning

confidence: 99%

“…For instance, the work [BCL22] devises an optimal strategy through which an adversary can extract the maximal value from users' transactions (not only swaps, but also deposits and redeems), in the setting of Uniswap-like AMMs. The swap-rate-agnostic approach pursued by this paper could be exploited to generalise the attack of [BCL22] to AMMs beyond Uniswap.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

A theory of Automated Market Makers in DeFi

Bartoletti¹,

Chiang²,

Lafuente³

2022

Logical Methods in Computer Science

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Automated market makers (AMMs) are one of the most prominent decentralized finance (DeFi) applications. AMMs allow users to trade different types of crypto-tokens, without the need to find a counter-party. There are several implementations and models for AMMs, featuring a variety of sophisticated economic mechanisms. We present a theory of AMMs. The core of our theory is an abstract operational model of the interactions between users and AMMs, which can be concretised by instantiating the economic mechanisms. We exploit our theory to formally prove a set of fundamental properties of AMMs, characterizing both structural and economic aspects. We do this by abstracting from the actual economic mechanisms used in implementations, and identifying sufficient conditions which ensure the relevant properties. Notably, we devise a general solution to the arbitrage problem, the main game-theoretic foundation behind the economic mechanisms of AMMs.

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Section: Maximal Extractable Valuementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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A theory of Automated Market Makers in DeFi

Bartoletti¹,

Chiang²,

Lafuente³

2022

Logical Methods in Computer Science

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“…Given the huge practical relevance of MEV, several research efforts have been made to improve its understanding. However, most approaches are preeminently empirical, as they focus on the definition of heuristics to extract value from certain classes of protocols [6]- [9], on the quantification of their impact in the wild [10]- [13], or on techniques to mitigate the effects of MEV attacks [14]- [18]. There are only a few attempts to provide MEV with a rigorous definition [19]- [21], and the resulting notions are not completely satisfactory, as we discuss in detail in Section VII.…”

Section: Introductionmentioning

confidence: 99%

A theoretical basis for Blockchain Extractable Value

Bartoletti¹,

Zunino²

2023

Preprint

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Extractable Value refers to a wide class of economic attacks to public blockchains, where adversaries with the power to reorder, drop or insert transactions in a block can "extract" value from user transactions. Empirical research has shown that mainstream protocols, like e.g. decentralized exchanges, are massively targeted by these attacks, with detrimental effects on their users and on the blockchain network. Despite the growing impact of these attacks in the real world, theoretical foundations are still missing. In this paper we propose a formal theory of Extractable Value, based on a general, abstract model of blockchains and smart contracts. Our theory is the basis for formal proofs of security against Extractable Value attacks.

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“…2021;Churiwala and Krishnamachari 2022;Obadia et al 2021;Kulkarni et al 2022;Malkhi and Szalachowski 2022;Weintraub et al 2022;Bartoletti et al 2022). StablecoinsCrypto assets that are pegged to the value of a specific asset, such as the US dollar, in order to reduce volatility in their value(Fiedler and Ante 2023;Hoang and Baur 2021;Briola et al 2022;Ante et al 2021aAnte et al , 2021bGrobys et al 2021;Moin et al 2020;Saggu 2022;Griffin and Shams 2020;Wang et al 2020).…”

mentioning

confidence: 99%

Time-Varying Bidirectional Causal Relationships between Transaction Fees and Economic Activity of Subsystems Utilizing the Ethereum Blockchain Network

Ante,

Saggu

2024

JRFM

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The Ethereum blockchain network enables transaction processing and smart-contract execution through levies of transaction fees, commonly known as gas fees. This framework mediates economic participation via a market-based mechanism for gas fees, permitting users to offer higher gas fees to expedite processing. Historically, the ensuing gas fee volatility led to critical disequilibria between supply and demand for block space, presenting stakeholder challenges. This study examines the dynamic causal interplay between transaction fees and economic subsystems leveraging the network. By utilizing data related to unique active wallets and transaction volume of each subsystem and applying time-varying Granger causality analysis, we reveal temporal heterogeneity in causal relationships between economic activity and transaction fees across all subsystems. This includes (a) a bidirectional causal feedback loop between cross-blockchain bridge user activity and transaction fees, which diminishes over time, potentially signaling user migration; (b) a bidirectional relationship between centralized cryptocurrency exchange deposit and withdrawal transaction volume and fees, indicative of increased competition for block space; (c) decentralized exchange volumes causally influence fees, while fees causally influence user activity, although this relationship is weakening, potentially due to the diminished significance of decentralized finance; (d) intermittent causal relationships with maximal extractable value bots; (e) fees causally influence non-fungible token transaction volumes; and (f) a highly significant and growing causal influence of transaction fees on stablecoin activity and transaction volumes highlight its prominence. These results inform strategic considerations for stakeholders to more effectively plan, utilize, and advocate for economic activities on Ethereum, enhancing the understanding and optimization of within the rapidly evolving economy.

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Maximizing Extractable Value from Automated Market Makers

Cited by 14 publications

References 9 publications

A theory of Automated Market Makers in DeFi

A theory of Automated Market Makers in DeFi

A theoretical basis for Blockchain Extractable Value

Time-Varying Bidirectional Causal Relationships between Transaction Fees and Economic Activity of Subsystems Utilizing the Ethereum Blockchain Network

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