Volume
LIPIcs, Volume 282
5th Conference on Advances in Financial Technologies (AFT 2023)
-
Part of:
Series:
Leibniz International Proceedings in Informatics (LIPIcs)
Conference: Advances in Financial Technologies (AFT)
Event
AFT 2023, October 23-25, 2023, Princeton, NJ, USAEditors
Publication Details
- published at: 2023-10-18
- Publisher: Schloss Dagstuhl – Leibniz-Zentrum für Informatik
- ISBN: 978-3-95977-303-4
- DBLP: db/conf/aft/aft2023
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Document
Complete Volume
LIPIcs, Volume 282, AFT 2023, Complete Volume
Abstract
LIPIcs, Volume 282, AFT 2023, Complete Volume
Cite as
5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 1-718, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@Proceedings{bonneau_et_al:LIPIcs.AFT.2023,
title = {{LIPIcs, Volume 282, AFT 2023, Complete Volume}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {1--718},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023},
URN = {urn:nbn:de:0030-drops-191884},
doi = {10.4230/LIPIcs.AFT.2023},
annote = {Keywords: LIPIcs, Volume 282, AFT 2023, Complete Volume}
}
Document
Front Matter
Front Matter, Table of Contents, Preface, Conference Organization
Abstract
Front Matter, Table of Contents, Preface, Conference Organization
Cite as
5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 0:i-0:xx, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{bonneau_et_al:LIPIcs.AFT.2023.0,
author = {Bonneau, Joseph and Weinberg, S. Matthew},
title = {{Front Matter, Table of Contents, Preface, Conference Organization}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {0:i--0:xx},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.0},
URN = {urn:nbn:de:0030-drops-191894},
doi = {10.4230/LIPIcs.AFT.2023.0},
annote = {Keywords: Front Matter, Table of Contents, Preface, Conference Organization}
}
Document
Privacy-Preserving Transactions with Verifiable Local Differential Privacy
Abstract
Privacy-preserving transaction systems on blockchain networks like Monero or Zcash provide complete transaction anonymity through cryptographic commitments or encryption. While this secures privacy, it inhibits the collection of statistical data, which current financial markets heavily rely on for economic and sociological research conducted by central banks, statistics bureaus, and research companies. Differential privacy techniques have been proposed to preserve individuals' privacy while still making aggregate analysis possible. We show that differential privacy and privacy-preserving transactions can coexist. We propose a modular scheme incorporating verifiable local differential privacy techniques into a privacy-preserving transaction system. We devise a novel technique that, on the one hand, ensures unbiased randomness and integrity when computing the differential privacy noise by the user and on the other hand, does not degrade the user’s privacy guarantees.
Cite as
Danielle Movsowitz Davidow, Yacov Manevich, and Eran Toch. Privacy-Preserving Transactions with Verifiable Local Differential Privacy. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 1:1-1:23, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{movsowitzdavidow_et_al:LIPIcs.AFT.2023.1,
author = {Movsowitz Davidow, Danielle and Manevich, Yacov and Toch, Eran},
title = {{Privacy-Preserving Transactions with Verifiable Local Differential Privacy}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {1:1--1:23},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.1},
URN = {urn:nbn:de:0030-drops-191901},
doi = {10.4230/LIPIcs.AFT.2023.1},
annote = {Keywords: Differential Privacy, Blockchain, Privacy Preserving, Verifiable Privacy}
}
Document
Correct Cryptocurrency ASIC Pricing: Are Miners Overpaying?
Abstract
Cryptocurrencies that are based on Proof-of-Work (PoW) often rely on special purpose hardware to perform so-called mining operations that secure the system, with miners receiving freshly minted tokens as a reward for their work. A notable example of such a cryptocurrency is Bitcoin, which is primarily mined using application specific integrated circuit (ASIC) based machines. Due to the supposed profitability of cryptocurrency mining, such hardware has been in great demand in recent years, in-spite of high associated costs like electricity.
In this work, we show that because mining rewards are given in the mined cryptocurrency, while expenses are usually paid in some fiat currency such as the United States Dollar (USD), cryptocurrency mining is in fact a bundle of financial options. When exercised, each option converts electricity to tokens.
We provide a method of pricing mining hardware based on this insight, and prove that any other price creates arbitrage. Our method shows that contrary to the popular belief that mining hardware is worth less if the cryptocurrency is highly volatile, the opposite effect is true: volatility increases value. Thus, if a coin’s volatility decreases, some miners may leave, affecting security.
We compare the prices produced by our method to prices obtained from popular tools currently used by miners and show that the latter only consider the expected returns from mining, while neglecting to account for the inherent risk in mining, which is due to the high exchange-rate volatility of cryptocurrencies.
Finally, we show that the returns made from mining can be imitated by trading in bonds and coins, and create such imitating investment portfolios. Historically, realized revenues of these portfolios have outperformed mining, showing that indeed hardware is mispriced.
Cite as
Aviv Yaish and Aviv Zohar. Correct Cryptocurrency ASIC Pricing: Are Miners Overpaying?. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 2:1-2:25, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{yaish_et_al:LIPIcs.AFT.2023.2,
author = {Yaish, Aviv and Zohar, Aviv},
title = {{Correct Cryptocurrency ASIC Pricing: Are Miners Overpaying?}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {2:1--2:25},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.2},
URN = {urn:nbn:de:0030-drops-191919},
doi = {10.4230/LIPIcs.AFT.2023.2},
annote = {Keywords: Cryptocurrency, Blockchain, Proof of Work, Economics}
}
Document
F3B: A Low-Overhead Blockchain Architecture with Per-Transaction Front-Running Protection
Abstract
Front-running attacks, which benefit from advanced knowledge of pending transactions, have proliferated in the blockchain space since the emergence of decentralized finance. Front-running causes devastating losses to honest participants and continues to endanger the fairness of the ecosystem. We present Flash Freezing Flash Boys (F3B), a blockchain architecture that addresses front-running attacks by using threshold cryptography. In F3B, a user generates a symmetric key to encrypt their transaction, and once the underlying consensus layer has finalized the transaction, a decentralized secret-management committee reveals this key. F3B mitigates front-running attacks because, before the consensus group finalizes it, an adversary can no longer read the content of a transaction, thus preventing the adversary from benefiting from advanced knowledge of pending transactions. Unlike other mitigation systems, F3B properly ensures that all unfinalized transactions, even with significant delays, remain private by adopting per-transaction protection. Furthermore, F3B addresses front-running at the execution layer; thus, our solution is agnostic to the underlying consensus algorithm and compatible with existing smart contracts. We evaluated F3B on Ethereum with a modified execution layer and found only a negligible (0.026%) increase in transaction latency, specifically due to running threshold decryption with a 128-member secret-management committee after a transaction is finalized; this indicates that F3B is both practical and low-cost.
Cite as
Haoqian Zhang, Louis-Henri Merino, Ziyan Qu, Mahsa Bastankhah, Vero Estrada-Galiñanes, and Bryan Ford. F3B: A Low-Overhead Blockchain Architecture with Per-Transaction Front-Running Protection. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 3:1-3:23, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{zhang_et_al:LIPIcs.AFT.2023.3,
author = {Zhang, Haoqian and Merino, Louis-Henri and Qu, Ziyan and Bastankhah, Mahsa and Estrada-Gali\~{n}anes, Vero and Ford, Bryan},
title = {{F3B: A Low-Overhead Blockchain Architecture with Per-Transaction Front-Running Protection}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {3:1--3:23},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.3},
URN = {urn:nbn:de:0030-drops-191921},
doi = {10.4230/LIPIcs.AFT.2023.3},
annote = {Keywords: Blockchain, DeFi, Front-running Mitigation}
}
Document
Designing Multidimensional Blockchain Fee Markets
Abstract
Public blockchains implement a fee mechanism to allocate scarce computational resources across competing transactions. Most existing fee market designs utilize a joint, fungible unit of account (e.g., gas in Ethereum) to price otherwise non-fungible resources such as bandwidth, computation, and storage, by hardcoding their relative prices. Fixing the relative price of each resource in this way inhibits granular price discovery, limiting scalability and opening up the possibility of denial-of-service attacks. As a result, many prominent networks such as Ethereum and Solana have proposed multidimensional fee markets. In this paper, we provide a principled way to design fee markets that efficiently price multiple non-fungible resources. Starting from a loss function specified by the network designer, we show how to dynamically compute prices that align the network’s incentives (to minimize the loss) with those of the users and miners (to maximize their welfare), even as demand for these resources changes. We derive an EIP-1559-like mechanism from first principles as an example. Our pricing mechanism follows from a natural decomposition of the network designer’s problem into two parts that are related to each other via the resource prices. These results can be used to efficiently set fees in order to improve network performance.
Cite as
Theo Diamandis, Alex Evans, Tarun Chitra, and Guillermo Angeris. Designing Multidimensional Blockchain Fee Markets. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 4:1-4:23, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{diamandis_et_al:LIPIcs.AFT.2023.4,
author = {Diamandis, Theo and Evans, Alex and Chitra, Tarun and Angeris, Guillermo},
title = {{Designing Multidimensional Blockchain Fee Markets}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {4:1--4:23},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.4},
URN = {urn:nbn:de:0030-drops-191933},
doi = {10.4230/LIPIcs.AFT.2023.4},
annote = {Keywords: Blockchains, transaction fees, convex optimization, mechanism design}
}
Document
Security Analysis of Filecoin’s Expected Consensus in the Byzantine vs Honest Model
Abstract
Filecoin is the largest storage-based open-source blockchain, both by storage capacity (>11EiB) and market capitalization. This paper provides the first formal security analysis of Filecoin’s consensus (ordering) protocol, Expected Consensus (EC). Specifically, we show that EC is secure against an arbitrary adversary that controls a fraction β of the total storage for β m < 1- e^{-(1-β)m}, where m is a parameter that corresponds to the expected number of blocks per round, currently m = 5 in Filecoin. We then present an attack, the n-split attack, where an adversary splits the honest miners between multiple chains, and show that it is successful for β m ≥ 1- e^{-(1-β)m}, thus proving that β m = 1- e^{-(1-β)m} is the tight security threshold of EC. This corresponds roughly to an adversary with 20% of the total storage pledged to the chain. Finally, we propose two improvements to EC security that would increase this threshold. One of these two fixes is being implemented as a Filecoin Improvement Proposal (FIP).
Cite as
Xuechao Wang, Sarah Azouvi, and Marko Vukolić. Security Analysis of Filecoin’s Expected Consensus in the Byzantine vs Honest Model. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 5:1-5:21, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{wang_et_al:LIPIcs.AFT.2023.5,
author = {Wang, Xuechao and Azouvi, Sarah and Vukoli\'{c}, Marko},
title = {{Security Analysis of Filecoin’s Expected Consensus in the Byzantine vs Honest Model}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {5:1--5:21},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.5},
URN = {urn:nbn:de:0030-drops-191943},
doi = {10.4230/LIPIcs.AFT.2023.5},
annote = {Keywords: Decentralized storage, Consensus, Security analysis}
}
Document
Tailstorm: A Secure and Fair Blockchain for Cash Transactions
Abstract
Proof-of-work (PoW) cryptocurrencies rely on a balance of security and fairness in order to maintain a sustainable ecosystem of miners and users. Users demand fast and consistent transaction confirmation, and in exchange drive the adoption and valuation of the cryptocurrency. Miners provide the confirmations, however, they primarily seek rewards. In unfair systems, miners can amplify their rewards by consolidating mining power. Centralization however, undermines the security guarantees of the system and might discourage users.
In this paper we present Tailstorm, a cryptocurrency that strikes this balance. Tailstorm merges multiple recent protocol improvements addressing security, confirmation latency, and throughput with a novel incentive mechanism improving fairness. We implement a parallel proof-of-work consensus mechanism with k PoWs per block to obtain state-of-the-art consistency guarantees [Patrik Keller and Rainer Böhme, 2022]. Inspired by Bobtail [George Bissias and Brian Neil Levine, 2020] and Storm [awemany, 2019], we structure the individual PoWs in a tree which, by including a list of transactions with each PoW, reduces confirmation latency and improves throughput. Our proposed incentive mechanism discounts rewards based on the depth of this tree. Thereby, it effectively punishes information withholding, the core attack strategy used to reap an unfair share of rewards.
We back our claims with a comprehensive analysis. We present a generic system model which allows us to specify Bitcoin, B_k [Patrik Keller and Rainer Böhme, 2022], and Tailstorm from a joint set of assumptions. We provide an analytical bound for the fairness of Tailstorm and Bitcoin in honest networks and we confirm the results through simulation. We evaluate the effectiveness of dishonest behaviour through reinforcement learning. Our attack search reproduces known optimal strategies against Bitcoin, uncovers new ones against B_k, and confirms that Tailstorm’s reward discounting makes it more resilient to incentive layer attacks. Our results are reproducible with the material provided online [Keller and Glickenhaus, 2023].
Lastly, we have implemented a prototype of the Tailstorm cryptocurrency as a fork of Bitcoin Cash. The client software is ready for testnet deployment and we also publish its source online [Griffith and Bissias, 2023].
Cite as
Patrik Keller, Ben Glickenhaus, George Bissias, and Gregory Griffith. Tailstorm: A Secure and Fair Blockchain for Cash Transactions. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 6:1-6:26, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{keller_et_al:LIPIcs.AFT.2023.6,
author = {Keller, Patrik and Glickenhaus, Ben and Bissias, George and Griffith, Gregory},
title = {{Tailstorm: A Secure and Fair Blockchain for Cash Transactions}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {6:1--6:26},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.6},
URN = {urn:nbn:de:0030-drops-191954},
doi = {10.4230/LIPIcs.AFT.2023.6},
annote = {Keywords: Proof-of-Work, Blockchain, Cryptocurrency, Mining Rewards, Fairness}
}
Document
STROBE: Streaming Threshold Random Beacons
Abstract
We revisit decentralized random beacons with a focus on practical distributed applications. Decentralized random beacons (Beaver and So, Eurocrypt'93) provide the functionality for n parties to generate an unpredictable sequence of bits in a way that cannot be biased, which is useful for any decentralized protocol requiring trusted randomness.
Existing beacon constructions are highly inefficient in practical settings where protocol parties need to rejoin after crashes or disconnections, and more significantly where smart contracts may rely on arbitrary index points in high-volume streams. For this, we introduce a new notion of history-generating decentralized random beacons (HGDRBs).
Roughly, the history-generation property of HGDRBs allows for previous beacon outputs to be efficiently generated knowing only the current value and the public key. At application layers, history-generation supports registering a sparser set of on-chain values if desired, so that apps like lotteries can utilize on-chain values without incurring high-frequency costs, enjoying all the benefits of DRBs implemented off-chain or with decoupled, special-purpose chains. Unlike rollups, HG is tailored specifically to recovering and verifying pseudorandom bit sequences and thus enjoys unique optimizations investigated in this work.
We introduce STROBE: an efficient HGDRB construction which generalizes the original squaring-based RSA approach of Beaver and So. STROBE enjoys several useful properties that make it suited for practical applications that use beacons:
1) history-generating: it can regenerate and verify high-throughput beacon streams, supporting sparse (thus cost-effective) ledger entries;
2) concisely self-verifying: NIZK-free, with state and validation employing a single ring element;
3) eco-friendly: stake-based rather than work based;
4) unbounded: refresh-free, addressing limitations of Beaver and So;
5) delay-free: results are immediately available.
6) storage-efficient: the last beacon suffices to derive all past outputs, thus O(1) storage requirements for nodes serving the whole history.
Cite as
Donald Beaver, Konstantinos Chalkias, Mahimna Kelkar, Lefteris Kokoris-Kogias, Kevin Lewi, Ladi de Naurois, Valeria Nikolaenko, Arnab Roy, and Alberto Sonnino. STROBE: Streaming Threshold Random Beacons. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 7:1-7:16, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{beaver_et_al:LIPIcs.AFT.2023.7,
author = {Beaver, Donald and Chalkias, Konstantinos and Kelkar, Mahimna and Kokoris-Kogias, Lefteris and Lewi, Kevin and de Naurois, Ladi and Nikolaenko, Valeria and Roy, Arnab and Sonnino, Alberto},
title = {{STROBE: Streaming Threshold Random Beacons}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {7:1--7:16},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.7},
URN = {urn:nbn:de:0030-drops-191969},
doi = {10.4230/LIPIcs.AFT.2023.7},
annote = {Keywords: decentralized randomness, beacons, consensus, blockchain, lottery}
}
Document
User Participation in Cryptocurrency Derivative Markets
Abstract
As cryptocurrencies have been appreciating against fiat currencies, global markets for cryptocurrency investment have started to emerge, including, most prominently, derivative exchanges. Different from traditional derivative markets, cryptocurrency derivative products are directly marketed to consumers, rather than through brokerage firms or institutional investors. Cryptocurrency derivative exchange platforms include many game-like features (e.g., leaderboards, chatrooms, loot boxes), and have successfully attracted large numbers of investors. This paper attempts to discover the primary factors driving users to flock to these platforms. To answer this question, we have collected approximately a year worth of user data from one of the leading cryptocurrency derivative exchanges between 2020 and 2021. During that period, more than 7.5 million new user accounts were created on that platform. We build a regression analysis, accounting for the idiosyncrasies of the data at hand - notably, its non-stationarity and high correlation - and discover that prices of two major cryptocurrencies, Bitcoin and Ethereum, impact user registrations both in the short and long run. On the other hand, the influence of a less prominent coin, Ripple, and of a "meme" coin with a large social media presence, Dogecoin, is much more subtle. In particular, our regression model reveals the influence of Ripple prices vanishes when we include the SEC litigation against Ripple Labs, Inc. as an explanatory factor. Our regression analysis also suggests that the Chinese government statement regarding tightening cryptocurrency mining and trading regulations adversely impacted user registrations. These results indicate the strong influence of regulatory authorities on cryptocurrency investor behavior. We find cryptocurrency volatility impacts user registrations differently depending on the currency considered: volatility episodes in major cryptocurrencies immediately affect user registrations, whereas volatility of less prominent coins shows a delayed influence.
Cite as
Daisuke Kawai, Bryan Routledge, Kyle Soska, Ariel Zetlin-Jones, and Nicolas Christin. User Participation in Cryptocurrency Derivative Markets. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 8:1-8:24, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{kawai_et_al:LIPIcs.AFT.2023.8,
author = {Kawai, Daisuke and Routledge, Bryan and Soska, Kyle and Zetlin-Jones, Ariel and Christin, Nicolas},
title = {{User Participation in Cryptocurrency Derivative Markets}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {8:1--8:24},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.8},
URN = {urn:nbn:de:0030-drops-191975},
doi = {10.4230/LIPIcs.AFT.2023.8},
annote = {Keywords: Cryptocurrency, Online Markets, Derivatives, Trading, Regression Analysis}
}
Document
DeFi Lending During The Merge
Abstract
Lending protocols in decentralized finance enable the permissionless exchange of capital from lenders to borrowers without relying on a trusted third party for clearing or market-making. Interest rates are set by the supply and demand of capital according to a pre-defined function. In the lead-up to The Merge: Ethereum blockchain’s transition from proof-of-work (PoW) to proof-of-stake (PoS), a fraction of the Ethereum ecosystem announced plans of continuing with a PoW-chain. Owners of ETH - whether their ETH was borrowed or not - would hold the native tokens on each chain. This development alarmed lending protocols. They feared spiking ETH borrowing rates would lead to mass liquidations which could undermine their viability. Thus, the decentralized autonomous organization running the protocols saw no alternative to intervention - restricting users' ability to borrow.
We investigate the effects of the merge and the aforementioned intervention on the two biggest lending protocols on Ethereum: AAVE and Compound. Our analysis finds that borrowing rates were extremely volatile, jumping by two orders of magnitude, and borrowing at times reached 100% of the available funds. Despite this, no spike in mass liquidations or irretrievable loans materialized. Further, we are the first to quantify and analyze hard-fork-arbitrage, profiting from holding debt in the native blockchain token during a hard fork. We find that arbitrageurs transferred tokens to centralized exchanges which at the time were worth more than 13 Mio US$, money that was effectively extracted from the platforms' lenders.
Cite as
Lioba Heimbach, Eric Schertenleib, and Roger Wattenhofer. DeFi Lending During The Merge. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 9:1-9:25, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{heimbach_et_al:LIPIcs.AFT.2023.9,
author = {Heimbach, Lioba and Schertenleib, Eric and Wattenhofer, Roger},
title = {{DeFi Lending During The Merge}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {9:1--9:25},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.9},
URN = {urn:nbn:de:0030-drops-191985},
doi = {10.4230/LIPIcs.AFT.2023.9},
annote = {Keywords: blockchain, Ethereum, lending protocol, hard fork}
}
Document
FairPoS: Input Fairness in Permissionless Consensus
Abstract
In permissionless consensus, the ordering of transactions or inputs in each block is freely determined by an anonymously elected block leader. A rational block leader will choose an ordering of inputs that maximizes financial gain; the emergence of automatic market makers in decentralized finance enables the block leader to front-run honest trade orders by injecting its own inputs prior to and after honest trades. Front-running is rampant in decentralized finance and reduces the utility of the system by extracting financial value from honest trades and increasing demand for block-space. Current proposals to prevent input order attacks by encrypting user inputs are not permissionless, as they rely on small static committees to perform distributed key generation and threshold decryption. Such committees require party authentication, knowledge of the number of participating parties or do not permit player replaceability and are therefore not permissionless. Moreover, alternative solutions based on sequencing inputs in order of their arrival cannot prevent front-running in an unauthenticated peer-2-peer network where message arrival is adversarially controlled.
We present FairPoS, the first consensus protocol to achieve input fairness in the permissionless setting with security against adaptive adversaries in semi-synchronous networks. In FairPoS, the adversary cannot learn the plaintext of any client input before it is included in a block in the chain’s common-prefix. Thus, input ordering attacks that depend on observing pending client inputs in the clear are no longer possible. In FairPoS, this is achieved via Delay Encryption (DeFeo et al., EUROCRYPT 2021), a recent cryptographic primitive related to time-lock puzzles, allowing all client inputs in a given round to be encrypted under a key that can only be extracted after enough time has elapsed. In contrast to alternative approaches, the key extraction task in delay encryption can, in principle, be performed by any party in the permissionless setting and requires no distribution of secret key material amongst authenticated parties. However, key extraction requires highly specialized hardware in practice. Thus, FairPoS requires resource-rich staking parties to insert extracted keys into blocks, enabling light-clients to decrypt past inputs and relieving parties who join the execution from decrypting all inputs in the entire chain history. Realizing this in proof-of-stake is non-trivial; naive application of key extraction to proof-of-stake can result in chain stalls lasting the entire key extraction period. We overcome this challenge with a novel key extraction protocol, which tolerates adversarial delays in block delivery intended to prevent key extraction from completing on schedule. Critically, this also enables the adoption of a new longest-extendable-chain rule which allows FairPoS to achieve the same guarantees as Ouroborous Praos against an adaptive adversary.
Cite as
James Hsin-yu Chiang, Bernardo David, Ittay Eyal, and Tiantian Gong. FairPoS: Input Fairness in Permissionless Consensus. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 10:1-10:23, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{chiang_et_al:LIPIcs.AFT.2023.10,
author = {Chiang, James Hsin-yu and David, Bernardo and Eyal, Ittay and Gong, Tiantian},
title = {{FairPoS: Input Fairness in Permissionless Consensus}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {10:1--10:23},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.10},
URN = {urn:nbn:de:0030-drops-191990},
doi = {10.4230/LIPIcs.AFT.2023.10},
annote = {Keywords: Front-running, Delay Encryption, Proof-of-Stake, Blockchain}
}
Document
Correlated-Output Differential Privacy and Applications to Dark Pools
Abstract
In the classical setting of differential privacy, a privacy-preserving query is performed on a private database, after which the query result is released to the analyst; a differentially private query ensures that the presence of a single database entry is protected from the analyst’s view. In this work, we contribute the first definitional framework for differential privacy in the trusted curator setting (Fig. 1); clients submit private inputs to the trusted curator, which then computes individual outputs privately returned to each client. The adversary is more powerful than the standard setting; it can corrupt up to n-1 clients and subsequently decide inputs and learn outputs of corrupted parties. In this setting, the adversary also obtains leakage from the honest output that is correlated with a corrupted output. Standard differentially private mechanisms protect client inputs but do not mitigate output correlation leaking arbitrary client information, which can forfeit client privacy completely. We initiate the investigation of a novel notion of correlated-output differential privacy to bound the leakage from output correlation in the trusted curator setting. We define the satisfaction of both standard and correlated-output differential privacy as round differential privacy and highlight the relevance of this novel privacy notion to all application domains in the trusted curator model.
We explore round differential privacy in traditional "dark pool" market venues, which promise privacy-preserving trade execution to mitigate front-running; privately submitted trade orders and trade execution are kept private by the trusted venue operator. We observe that dark pools satisfy neither classic nor correlated-output differential privacy; in markets with low trade activity, the adversary may trivially observe recurring, honest trading patterns, and anticipate and front-run future trades. In response, we present the first round differentially private market mechanisms that formally mitigate information leakage from all trading activity of a user. This is achieved with fuzzy order matching, inspired by the standard randomized response mechanism; however, this also introduces a liquidity mismatch as buy and sell orders are not guaranteed to execute pairwise, thereby weakening output correlation; this mismatch is compensated for by a round differentially private liquidity provider mechanism, which freezes a noisy amount of assets from the liquidity provider for the duration of a privacy epoch, but leaves trader balances unaffected. We propose oblivious algorithms for realizing our proposed market mechanisms with secure multi-party computation (MPC) and implement these in the Scale-Mamba Framework using Shamir Secret Sharing based MPC. We demonstrate practical, round differentially private trading with comparable throughput as prior work implementing (traditional) dark pool algorithms in MPC; our experiments demonstrate practicality for both traditional finance and decentralized finance settings.
Cite as
James Hsin-yu Chiang, Bernardo David, Mariana Gama, and Christian Janos Lebeda. Correlated-Output Differential Privacy and Applications to Dark Pools. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 11:1-11:23, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{chiang_et_al:LIPIcs.AFT.2023.11,
author = {Chiang, James Hsin-yu and David, Bernardo and Gama, Mariana and Lebeda, Christian Janos},
title = {{Correlated-Output Differential Privacy and Applications to Dark Pools}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {11:1--11:23},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.11},
URN = {urn:nbn:de:0030-drops-192003},
doi = {10.4230/LIPIcs.AFT.2023.11},
annote = {Keywords: Differential Privacy, Secure Multi-party Computation, Dark Pools, Decentralized Finance}
}
Document
SoK: Privacy-Enhancing Technologies in Finance
Abstract
Recent years have seen the emergence of practical advanced cryptographic tools that not only protect data privacy and authenticity, but also allow for jointly processing data from different institutions without sacrificing privacy. The ability to do so has enabled implementations of a number of traditional and decentralized financial applications that would have required sacrificing privacy or trusting a third party. The main catalyst of this revolution was the advent of decentralized cryptocurrencies that use public ledgers to register financial transactions, which must be verifiable by any third party, while keeping sensitive data private. Zero Knowledge (ZK) proofs rose to prominence as a solution to this challenge, allowing for the owner of sensitive data (e.g. the identities of users involved in an operation) to convince a third party verifier that a certain operation has been correctly executed without revealing said data. It quickly became clear that performing arbitrary computation on private data from multiple sources by means of secure Multiparty Computation (MPC) and related techniques allows for more powerful financial applications, also in traditional finance.
In this SoK, we categorize the main traditional and decentralized financial applications that can benefit from state-of-the-art Privacy-Enhancing Technologies (PETs) and identify design patterns commonly used when applying PETs in the context of these applications. In particular, we consider the following classes of applications: 1. Identity Management, KYC & AML; 2. Markets & Settlement; 3. Legal; and 4. Digital Asset Custody. We examine how ZK proofs, MPC and related PETs have been used to tackle the main security challenges in each of these applications. Moreover, we provide an assessment of the technological readiness of each PET in the context of different financial applications according to the availability of: theoretical feasibility results, preliminary benchmarks (in scientific papers) or benchmarks achieving real-world performance (in commercially deployed solutions). Finally, we propose future applications of PETs as Fintech solutions to currently unsolved issues. While we systematize financial applications of PETs at large, we focus mainly on those applications that require privacy preserving computation on data from multiple parties.
Cite as
Carsten Baum, James Hsin-yu Chiang, Bernardo David, and Tore Kasper Frederiksen. SoK: Privacy-Enhancing Technologies in Finance. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 12:1-12:30, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{baum_et_al:LIPIcs.AFT.2023.12,
author = {Baum, Carsten and Chiang, James Hsin-yu and David, Bernardo and Frederiksen, Tore Kasper},
title = {{SoK: Privacy-Enhancing Technologies in Finance}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {12:1--12:30},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.12},
URN = {urn:nbn:de:0030-drops-192019},
doi = {10.4230/LIPIcs.AFT.2023.12},
annote = {Keywords: DeFi, Anti-money laundering, MPC, FHE, identity management, PETs}
}
Document
Decentralization Cheapens Corruptive Majority Attacks
Abstract
Corruptive majority attacks, in which mining power is distributed among miners and an attacker attempts to bribe a majority of miners into participation in a majority attack, pose a threat to blockchains. Budish bounded the cost of bribing miners to participate in an attack by their expected loss as a result of attack success. We show that this bound is loose. In particular, an attack may be structured so that under equilibrium play by most miners, a miner’s choice to participate only slightly affects the attack success chance. Combined with the fact that most of the cost of attack success is externalized by any given small miner, this implies that if most mining power is controlled by small miners, bribing miners to participate in such an attack is much cheaper than the Budish bound. We provide a scheme for a cheap corruptive majority attack and discuss practical concerns and consequences.
Cite as
Stephen H. Newman. Decentralization Cheapens Corruptive Majority Attacks. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 13:1-13:19, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{newman:LIPIcs.AFT.2023.13,
author = {Newman, Stephen H.},
title = {{Decentralization Cheapens Corruptive Majority Attacks}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {13:1--13:19},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.13},
URN = {urn:nbn:de:0030-drops-192025},
doi = {10.4230/LIPIcs.AFT.2023.13},
annote = {Keywords: Blockchain, Majority Attack, Corruptive Majority Attack}
}
Document
Proofs of Proof-Of-Stake with Sublinear Complexity
Abstract
Popular Ethereum wallets (like MetaMask) entrust centralized infrastructure providers (e.g., Infura) to run the consensus client logic on their behalf. As a result, these wallets are light-weight and high-performant, but come with security risks. A malicious provider can mislead the wallet by faking payments and balances, or censoring transactions. On the other hand, light clients, which are not in popular use today, allow decentralization, but are concretely inefficient, often with asymptotically linear bootstrapping complexity. This poses a dilemma between decentralization and performance.
We design, implement, and evaluate a new proof-of-stake (PoS) superlight client with concretely efficient and asymptotically logarithmic bootstrapping complexity. Our proofs of proof-of-stake (PoPoS) take the form of a Merkle tree of PoS epochs. The verifier enrolls the provers in a bisection game, in which honest provers are destined to win once an adversarial Merkle tree is challenged at sufficient depth. We provide an implementation for mainnet Ethereum: compared to the state-of-the-art light client construction of Ethereum, our client improves time-to-completion by 9×, communication by 180×, and energy usage by 30× (when bootstrapping after 10 years of consensus execution). As an important additional application, our construction can be used to realize trustless cross-chain bridges, in which the superlight client runs within a smart contract and takes the role of an on-chain verifier. We prove our construction is secure and show how to employ it for other PoS systems such as Cardano (with fully adaptive adversary), Algorand, and Snow White.
Cite as
Shresth Agrawal, Joachim Neu, Ertem Nusret Tas, and Dionysis Zindros. Proofs of Proof-Of-Stake with Sublinear Complexity. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 14:1-14:24, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{agrawal_et_al:LIPIcs.AFT.2023.14,
author = {Agrawal, Shresth and Neu, Joachim and Tas, Ertem Nusret and Zindros, Dionysis},
title = {{Proofs of Proof-Of-Stake with Sublinear Complexity}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {14:1--14:24},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.14},
URN = {urn:nbn:de:0030-drops-192037},
doi = {10.4230/LIPIcs.AFT.2023.14},
annote = {Keywords: Proof-of-stake, blockchain, light client, superlight, bridge, Ethereum}
}
Document
Condorcet Attack Against Fair Transaction Ordering
Abstract
We introduce the Condorcet attack, a new threat to fair transaction ordering. Specifically, the attack undermines batch-order-fairness, the strongest notion of transaction fair ordering proposed to date. The batch-order-fairness guarantees that a transaction tx is ordered before tx' if a majority of nodes in the system receive tx before tx'; the only exception (due to an impossibility result) is when tx and tx' fall into a so-called "Condorcet cycle". When this happens, tx and tx' along with other transactions within the cycle are placed in a batch, and any unfairness inside a batch is ignored.
In the Condorcet attack, an adversary attempts to undermine the system’s fairness by imposing Condorcet cycles to the system. In this work, we show that the adversary can indeed impose a Condorcet cycle by submitting as few as two otherwise legitimate transactions to the system. Remarkably, the adversary (e.g., a malicious client) can achieve this even when all the nodes in the system behave honestly. A notable feature of the attack is that it is capable of "trapping" transactions that do not naturally fall inside a cycle, i.e. those that are transmitted at significantly different times (with respect to the network latency). To mitigate the attack, we propose three methods based on three different complementary approaches. We show the effectiveness of the proposed mitigation methods through simulations, and explain their limitations.
Cite as
Mohammad Amin Vafadar and Majid Khabbazian. Condorcet Attack Against Fair Transaction Ordering. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 15:1-15:21, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{vafadar_et_al:LIPIcs.AFT.2023.15,
author = {Vafadar, Mohammad Amin and Khabbazian, Majid},
title = {{Condorcet Attack Against Fair Transaction Ordering}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {15:1--15:21},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.15},
URN = {urn:nbn:de:0030-drops-192045},
doi = {10.4230/LIPIcs.AFT.2023.15},
annote = {Keywords: Transaction ordering, fairness, Condorcet cycle}
}
Document
Pay Less for Your Privacy: Towards Cost-Effective On-Chain Mixers
Abstract
On-chain mixers, such as Tornado Cash (TC), have become a popular privacy solution for many non-privacy-preserving blockchain users. These mixers enable users to deposit a fixed amount of coins and withdraw them to another address, while effectively reducing the linkability between these addresses and securely obscuring their transaction history. However, the high cost of interacting with existing on-chain mixer smart contracts prohibits standard users from using the mixer, mainly due to the use of computationally expensive cryptographic primitives. For instance, the deposit cost of TC on Ethereum is approximately 1.1M gas (i.e., 66 USD in June 2023), which is 53× higher than issuing a base transfer transaction.
In this work, we introduce the Merkle Pyramid Builder approach, to incrementally build the Merkle tree in an on-chain mixer and update the tree per batch of deposits, which can therefore decrease the overall cost of using the mixer. Our evaluation results highlight the effectiveness of this approach, showcasing a significant reduction of up to 7× in the amortized cost of depositing compared to state-of-the-art on-chain mixers. Importantly, these improvements are achieved without compromising users' privacy. Furthermore, we propose the utilization of verifiable computations to shift the responsibility of Merkle tree updates from on-chain smart contracts to off-chain clients, which can further reduce deposit costs. Additionally, our analysis demonstrates that our designs ensure fairness by distributing Merkle tree update costs among clients over time.
Cite as
Zhipeng Wang, Marko Cirkovic, Duc V. Le, William Knottenbelt, and Christian Cachin. Pay Less for Your Privacy: Towards Cost-Effective On-Chain Mixers. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 16:1-16:25, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{wang_et_al:LIPIcs.AFT.2023.16,
author = {Wang, Zhipeng and Cirkovic, Marko and Le, Duc V. and Knottenbelt, William and Cachin, Christian},
title = {{Pay Less for Your Privacy: Towards Cost-Effective On-Chain Mixers}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {16:1--16:25},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.16},
URN = {urn:nbn:de:0030-drops-192050},
doi = {10.4230/LIPIcs.AFT.2023.16},
annote = {Keywords: Privacy, Blockchain, Mixers, Merkle Tree}
}
Document
Non-Atomic Payment Splitting in Channel Networks
Abstract
Off-chain channel networks are one of the most promising technologies for dealing with blockchain scalability and delayed finality issues. Parties connected within such networks can send coins to each other without interacting with the blockchain. Moreover, these payments can be "routed" over the network. Thanks to this, even the parties that do not have a channel in common can perform payments between each other with the help of intermediaries.
In this paper, we introduce a new notion that we call Non-Atomic Payment Splitting (NAPS) protocols that allow the intermediaries in the network to split the payments recursively into several subpayments in such a way that the payment can be successful "partially" (i.e. not all the requested amount may be transferred). This contrasts with the existing splitting techniques that are "atomic" in that they did not allow such partial payments (we compare the "atomic" and "non-atomic" approaches in the paper). We define NAPS formally and then present a protocol that we call "EthNA", that satisfies this definition. EthNA is based on very simple and efficient cryptographic tools; in particular, it does not use expensive cryptographic primitives. We implement a simple variant of EthNA in Solidity and provide some benchmarks. We also report on some experiments with routing using EthNA.
Cite as
Stefan Dziembowski and Paweł Kędzior. Non-Atomic Payment Splitting in Channel Networks. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 17:1-17:23, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{dziembowski_et_al:LIPIcs.AFT.2023.17,
author = {Dziembowski, Stefan and K\k{e}dzior, Pawe{\l}},
title = {{Non-Atomic Payment Splitting in Channel Networks}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {17:1--17:23},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.17},
URN = {urn:nbn:de:0030-drops-192068},
doi = {10.4230/LIPIcs.AFT.2023.17},
annote = {Keywords: Blockchain, Payment Channels Networks}
}
Document
Revisiting the Nova Proof System on a Cycle of Curves
Abstract
Nova is an efficient recursive proof system built from an elegant folding scheme for (relaxed) R1CS statements. The original Nova paper (CRYPTO'22) presented Nova using a single elliptic curve group of order p. However, for improved efficiency, the implementation of Nova alters the scheme to use a 2-cycle of elliptic curves. This altered scheme is only described in the code and has not been proven secure. In this work, we point out a soundness vulnerability in the original implementation of the 2-cycle Nova system. To demonstrate this vulnerability, we construct a convincing Nova proof for the correct evaluation of 2^{75} rounds of the Minroot VDF in only 116 milliseconds. We then present a modification of the 2-cycle Nova system and formally prove its security. The modified system also happens to be more efficient than the original implementation. In particular, the modification eliminates an R1CS instance-witness pair from the recursive proof. The implementation of Nova has now been updated to use our optimized and secure system. In addition, we show that the folding mechanism at the core of Nova is malleable: given a proof for some statement z, an adversary can construct a proof for a related statement z', at the same depth as z, without knowledge of the witness for z'.
Cite as
Wilson D. Nguyen, Dan Boneh, and Srinath Setty. Revisiting the Nova Proof System on a Cycle of Curves. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 18:1-18:22, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{nguyen_et_al:LIPIcs.AFT.2023.18,
author = {Nguyen, Wilson D. and Boneh, Dan and Setty, Srinath},
title = {{Revisiting the Nova Proof System on a Cycle of Curves}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {18:1--18:22},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.18},
URN = {urn:nbn:de:0030-drops-192076},
doi = {10.4230/LIPIcs.AFT.2023.18},
annote = {Keywords: Cryptographic Protocols, Recursive Proof Systems, Folding, Vulnerability}
}
Document
Censorship Resistance in On-Chain Auctions
Abstract
Modern blockchains guarantee that submitted transactions will be included eventually; a property formally known as liveness. But financial activity requires transactions to be included in a timely manner. Classical liveness does not guarantee this, particularly in the presence of a motivated adversary who benefits from censoring transactions. We define censorship resistance as the amount it would cost the adversary to censor a transaction for a fixed interval of time as a function of the associated tip. This definition has two advantages, first it captures the fact that transactions with a higher miner tip can be more costly to censor, and therefore are more likely to swiftly make their way onto the chain. Second, it applies to a finite time window, so it can be used to assess whether a blockchain is capable of hosting financial activity that relies on timely inclusion.
We apply this definition in the context of auctions. Auctions are a building block for many financial applications, and censoring competing bids offers an easy-to-model motivation for our adversary. Traditional proof-of-stake blockchains have poor enough censorship resistance that it is difficult to retain the integrity of an auction when bids can only be submitted in a single block. As the number of bidders n in a single block auction increases, the probability that the winner is not the adversary, and the economic efficiency of the auction, both decrease faster than 1/n. Running the auction over multiple blocks, each with a different proposer, alleviates the problem only if the number of blocks grows faster than the number of bidders. We argue that blockchains with more than one concurrent proposer can have strong censorship resistance. We achieve this by setting up a prisoner’s dilemma among the proposers using conditional tips.
Cite as
Elijah Fox, Mallesh M. Pai, and Max Resnick. Censorship Resistance in On-Chain Auctions. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 19:1-19:20, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{fox_et_al:LIPIcs.AFT.2023.19,
author = {Fox, Elijah and Pai, Mallesh M. and Resnick, Max},
title = {{Censorship Resistance in On-Chain Auctions}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {19:1--19:20},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.19},
URN = {urn:nbn:de:0030-drops-192089},
doi = {10.4230/LIPIcs.AFT.2023.19},
annote = {Keywords: Censorship Resistance, Auctions, Blockchain, MEV}
}
Document
The Centralizing Effects of Private Order Flow on Proposer-Builder Separation
Abstract
The current Proposer-Builder Separation (PBS) equilibrium has several builders with different backgrounds winning blocks consistently. This paper considers how that equilibrium will shift when transactions are sold privately via order flow auctions (OFAs) rather than forwarded directly to the public mempool. We discuss a novel model that highlights the augmented value of private order flow for integrated builder searchers. We show that private order flow is complementary to top-of-block opportunities, and therefore integrated builder-searchers are more likely to participate in OFAs and outbid non integrated builders. They will then parlay access to these private transactions into an advantage in the PBS auction, winning blocks more often and extracting higher profits than non-integrated builders. To validate our main assumptions, we construct a novel dataset pairing post-merge PBS outcomes with realized 12-second volatility on a leading CEX (Binance). Our results show that integrated builder-searchers are more likely to win in the PBS auction when realized volatility is high, suggesting that indeed such builders have an advantage in extracting top-of-block opportunities. Our findings suggest that modifying PBS to disentangle the intertwined dynamics between top-of-block extraction and private order flow would pave the way for a fairer and more decentralized Ethereum.
Cite as
Tivas Gupta, Mallesh M. Pai, and Max Resnick. The Centralizing Effects of Private Order Flow on Proposer-Builder Separation. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 20:1-20:15, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{gupta_et_al:LIPIcs.AFT.2023.20,
author = {Gupta, Tivas and Pai, Mallesh M. and Resnick, Max},
title = {{The Centralizing Effects of Private Order Flow on Proposer-Builder Separation}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {20:1--20:15},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.20},
URN = {urn:nbn:de:0030-drops-192098},
doi = {10.4230/LIPIcs.AFT.2023.20},
annote = {Keywords: Private Order Flow, PBS, OFAs, decentralization}
}
Document
When Bidders Are DAOs
Abstract
In a typical decentralized autonomous organization (DAO), people organize themselves into a group that is programmatically managed. DAOs can act as bidders in auctions (with ConstitutionDAO being one notable example), with a DAO’s bid typically treated by the auctioneer as if it had been submitted by an individual, without regard to any details of the internal DAO dynamics.
The goal of this paper is to study auctions in which the bidders are DAOs. More precisely, we consider the design of two-level auctions in which the "participants" are groups of bidders rather than individuals. Bidders form DAOs to pool resources, but must then also negotiate the terms by which the DAO’s winnings are shared. We model the outcome of a DAO’s negotiations through an aggregation function (which aggregates DAO members' bids into a single group bid) and a budget-balanced cost-sharing mechanism (that determines DAO members' access to the DAO’s allocation and distributes the aggregate payment demanded from the DAO to its members). DAOs' bids are processed by a direct-revelation mechanism that has no knowledge of the DAO structure (and thus treats each DAO as an individual). Within this framework, we pursue two-level mechanisms that are incentive-compatible (with truthful bidding a dominant strategy for each member of each DAO) and approximately welfare-optimal.
We prove that, even in the case of a single-item auction, the DAO dynamics hidden from the outer mechanism preclude incentive-compatible welfare maximization: No matter what the outer mechanism and the cost-sharing mechanisms used by DAOs, the welfare of the resulting two-level mechanism can be a ≈ ln n factor less than the optimal welfare (in the worst case over DAOs and valuation profiles). We complement this lower bound with a natural two-level mechanism that achieves a matching approximate welfare guarantee. This upper bound also extends to multi-item auctions in which individuals have additive valuations. Finally, we show that our positive results cannot be extended much further: Even in multi-item settings in which bidders have unit-demand valuations, truthful two-level mechanisms form a highly restricted class and as a consequence cannot guarantee any non-trivial approximation of the maximum social welfare.
Cite as
Maryam Bahrani, Pranav Garimidi, and Tim Roughgarden. When Bidders Are DAOs. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 21:1-21:21, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{bahrani_et_al:LIPIcs.AFT.2023.21,
author = {Bahrani, Maryam and Garimidi, Pranav and Roughgarden, Tim},
title = {{When Bidders Are DAOs}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {21:1--21:21},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.21},
URN = {urn:nbn:de:0030-drops-192108},
doi = {10.4230/LIPIcs.AFT.2023.21},
annote = {Keywords: Auctions, DAOs}
}
Document
Fast and Furious Withdrawals from Optimistic Rollups
Abstract
Optimistic rollups are in wide use today as an opt-in scalability layer for blockchains like Ethereum. In such systems, Ethereum is referred to as L1 (Layer 1) and the rollup provides an environment called L2, which reduces fees and latency but cannot instantly and trustlessly interact with L1. One practical issue for optimistic rollups is that trustless transfers of tokens and ETH, as well as general messaging, from L2 to L1 is not finalized on L1 until the passing of a dispute period (aka withdrawal window) which is currently 7 days in the two leading optimistic rollups: Arbitrum and Optimism. In this paper, we explore methods for sidestepping the dispute period when withdrawing ETH from L2 (called an exit), even in the case when it is not possible to directly validate L2. We fork the most-used rollup, Arbitrum Nitro, to enable exits to be traded on L1 before they are finalized. We also study the combination of tradeable exits and prediction markets to enable insurance for withdrawals that do not finalize. As a result, anyone (including contracts) on L1 can safely accept withdrawn tokens while the dispute period is open despite having no knowledge of what is happening on L2. Our scheme also allows users to opt-into a fast withdrawal at any time. All fees are set by open market operations.
Cite as
Mahsa Moosavi, Mehdi Salehi, Daniel Goldman, and Jeremy Clark. Fast and Furious Withdrawals from Optimistic Rollups. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 22:1-22:17, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{moosavi_et_al:LIPIcs.AFT.2023.22,
author = {Moosavi, Mahsa and Salehi, Mehdi and Goldman, Daniel and Clark, Jeremy},
title = {{Fast and Furious Withdrawals from Optimistic Rollups}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {22:1--22:17},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.22},
URN = {urn:nbn:de:0030-drops-192112},
doi = {10.4230/LIPIcs.AFT.2023.22},
annote = {Keywords: Ethereum, layer 2, rollups, bridges, prediction markets}
}
Document
Buying Time: Latency Racing vs. Bidding for Transaction Ordering
Abstract
We design TimeBoost: a practical transaction ordering policy for rollup sequencers that takes into account both transaction timestamps and bids; it works by creating a score from timestamps and bids, and orders transactions based on this score.
TimeBoost is transaction-data-independent (i.e., can work with encrypted transactions) and supports low transaction finalization times similar to a first-come first-serve (FCFS or pure-latency) ordering policy. At the same time, it avoids the inefficient latency competition created by an FCFS policy. It further satisfies useful economic properties of first-price auctions that come with a pure-bidding policy. We show through rigorous economic analyses how TimeBoost allows players to compete on arbitrage opportunities in a way that results in better guarantees compared to both pure-latency and pure-bidding approaches.
Cite as
Akaki Mamageishvili, Mahimna Kelkar, Jan Christoph Schlegel, and Edward W. Felten. Buying Time: Latency Racing vs. Bidding for Transaction Ordering. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 23:1-23:22, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{mamageishvili_et_al:LIPIcs.AFT.2023.23,
author = {Mamageishvili, Akaki and Kelkar, Mahimna and Schlegel, Jan Christoph and Felten, Edward W.},
title = {{Buying Time: Latency Racing vs. Bidding for Transaction Ordering}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {23:1--23:22},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.23},
URN = {urn:nbn:de:0030-drops-192120},
doi = {10.4230/LIPIcs.AFT.2023.23},
annote = {Keywords: Transaction ordering, First-come-first-serve, First-price auctions}
}
Document
Batching Trades on Automated Market Makers
Abstract
We consider an automated market maker (AMM) in which all trades are batched and executed at a price equal to the marginal price (i.e., the price of an arbitrarily small trade) after the batch trades. We show that such an AMM is a function maximizing AMM (or FM-AMM): for given prices, it trades to reach the highest possible value of a given function. Competition between arbitrageurs guarantees that an FM-AMM always trades at a fair, equilibrium price, and arbitrage profits (also known as LVR) are eliminated. Sandwich attacks are also eliminated because all trades occur at the exogenously-determined equilibrium price. Finally, we show that our results are robust to the case where the batch has exclusive access to the FM-AMM, but can also trade on a traditional constant function AMM.
Cite as
Andrea Canidio and Robin Fritsch. Batching Trades on Automated Market Makers. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 24:1-24:17, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{canidio_et_al:LIPIcs.AFT.2023.24,
author = {Canidio, Andrea and Fritsch, Robin},
title = {{Batching Trades on Automated Market Makers}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {24:1--24:17},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.24},
URN = {urn:nbn:de:0030-drops-192139},
doi = {10.4230/LIPIcs.AFT.2023.24},
annote = {Keywords: Arbitrage profits, Loss-vs-Rebalancing (LVR), MEV, Sandwich attacks, AMM, Mechanism design, Batch trading}
}
Document
Strategic Liquidity Provision in Uniswap V3
Abstract
Uniswap v3 is the largest decentralized exchange for digital currencies. A novelty of its design is that it allows a liquidity provider (LP) to allocate liquidity to one or more closed intervals of the price of an asset instead of the full range of possible prices. An LP earns fee rewards proportional to the amount of its liquidity allocation when prices move in this interval. This induces the problem of strategic liquidity provision: smaller intervals result in higher concentration of liquidity and correspondingly larger fees when the price remains in the interval, but with higher risk as prices may exit the interval leaving the LP with no fee rewards. Although reallocating liquidity to new intervals can mitigate this loss, it comes at a cost, as LPs must expend gas fees to do so. We formalize the dynamic liquidity provision problem and focus on a general class of strategies for which we provide a neural network-based optimization framework for maximizing LP earnings. We model a single LP that faces an exogenous sequence of price changes that arise from arbitrage and non-arbitrage trades in the decentralized exchange. We present experimental results informed by historical price data that demonstrate large improvements in LP earnings over existing allocation strategy baselines. Moreover we provide insight into qualitative differences in optimal LP behaviour in different economic environments.
Cite as
Zhou Fan, Francisco Marmolejo-Cossio, Daniel Moroz, Michael Neuder, Rithvik Rao, and David C. Parkes. Strategic Liquidity Provision in Uniswap V3. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 25:1-25:22, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{fan_et_al:LIPIcs.AFT.2023.25,
author = {Fan, Zhou and Marmolejo-Cossio, Francisco and Moroz, Daniel and Neuder, Michael and Rao, Rithvik and Parkes, David C.},
title = {{Strategic Liquidity Provision in Uniswap V3}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {25:1--25:22},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.25},
URN = {urn:nbn:de:0030-drops-192144},
doi = {10.4230/LIPIcs.AFT.2023.25},
annote = {Keywords: blockchain, decentralized finance, Uniswap v3, liquidity provision, stochastic gradient descent}
}
Document
Post-Quantum Single Secret Leader Election (SSLE) from Publicly Re-Randomizable Commitments
Abstract
A Single Secret Leader Election (SSLE) enables a group of parties to randomly choose exactly one leader from the group with the restriction that the identity of the leader will be known to the chosen leader and nobody else. At a later time, the elected leader should be able to publicly reveal her identity and prove that she is the elected leader. The election process itself should work properly even if many registered users are passive and do not send any messages. SSLE is used to strengthen the security of proof-of-stake consensus protocols by ensuring that the identity of the block proposer remains unknown until the proposer publishes a block. Boneh, Eskandarian, Hanzlik, and Greco (AFT'20) defined the concept of an SSLE and gave several constructions. Their most efficient construction is based on the difficulty of the Decision Diffie-Hellman problem in a cyclic group.
In this work we construct the first efficient SSLE protocols based on the standard Learning With Errors (LWE) problem on integer lattices, as well as the Ring-LWE problem. Both are believed to be post-quantum secure. Our constructions generalize the paradigm of Boneh et al. by introducing the concept of a re-randomizable commitment (RRC). We then construct several post-quantum RRC schemes from lattice assumptions and prove the security of the derived SSLE protocols. Constructing a lattice-based RRC scheme is non-trivial, and may be of independent interest.
Cite as
Dan Boneh, Aditi Partap, and Lior Rotem. Post-Quantum Single Secret Leader Election (SSLE) from Publicly Re-Randomizable Commitments. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 26:1-26:23, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{boneh_et_al:LIPIcs.AFT.2023.26,
author = {Boneh, Dan and Partap, Aditi and Rotem, Lior},
title = {{Post-Quantum Single Secret Leader Election (SSLE) from Publicly Re-Randomizable Commitments}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {26:1--26:23},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.26},
URN = {urn:nbn:de:0030-drops-192158},
doi = {10.4230/LIPIcs.AFT.2023.26},
annote = {Keywords: Consensus, Leader Election, Post-Quantum, Lattice Cryptography, Blockchain}
}
Document
Liquidity Management Attacks on Lending Markets
Abstract
Decentralized Finance (DeFi) continues to open up promising opportunities for a broad spectrum of users, with lending pools emerging as a cornerstone of its applications. While prominent platforms like Compound and Aave maintain a large share of the funds in lending pools, numerous other smaller pools also exist. Many of these smaller entities draw heavily from the design principles of their larger counterparts due to the complex nature of lending pool design.
This paper asserts that the design approaches that serve larger pools effectively may not necessarily be the most beneficial for smaller lending pools. We identify and elaborate on two liquidity management attacks, which can allow well-funded attackers to exploit specific circumstances within lending pools for personal gain. Although large lending pools, due to their vast and diverse liquidity and high user engagement, are generally less vulnerable to these attacks, smaller lending protocols may need to employ specialized defensive strategies, particularly during periods of low liquidity. We also show that beyond the six leading lending protocols, there exists a market value exceeding $1.75 billion. This considerable sum is dispersed among over 200 liquidity pools, posing a potentially attractive target for bad actors.
Furthermore, we evaluate existing designs of lending pools and suggest a novel architecture that distinctly separates the liquidity and logic layers. This unique setup gives smaller pools the adaptability they need to link with larger, well-established pools. Despite encountering certain constraints, these emerging pools can leverage the considerable liquidity from larger pools until they generate sufficient funds to form their own standalone liquidity pools. This design cultivates a setting where multiple lending pools can integrate their liquidity components, thus encouraging a more diverse and robust liquidity environment.
Cite as
Alireza Arjmand and Majid Khabbazian. Liquidity Management Attacks on Lending Markets. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 27:1-27:21, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{arjmand_et_al:LIPIcs.AFT.2023.27,
author = {Arjmand, Alireza and Khabbazian, Majid},
title = {{Liquidity Management Attacks on Lending Markets}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {27:1--27:21},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.27},
URN = {urn:nbn:de:0030-drops-192164},
doi = {10.4230/LIPIcs.AFT.2023.27},
annote = {Keywords: Lending Pools, DeFi, Interest Rate, Liquidity Management Attack}
}
Document
Analysis of CryptoNote Transaction Graphs Using the Dulmage-Mendelsohn Decomposition
Abstract
CryptoNote blockchains like Monero represent the largest public deployments of linkable ring signatures. Beginning with the work of Kumar et al. (ESORICS 2017) and Möser et al. (PoPETs 2018), several techniques have been proposed to trace CryptoNote transactions, i.e. identify the actual signing key, by using the transaction history. Yu et al. (FC 2019) introduced the closed set attack for undeniable traceability and proved that it is optimal by showing that it has the same performance as the brute-force attack. However, they could only implement an approximation of the closed set attack due to its exponential time complexity. In this paper, we show that the Dulmage-Mendelsohn (DM) decomposition of bipartite graphs gives a polynomial-time implementation of the closed set attack. Our contribution includes open source implementations of the DM decomposition and the clustering algorithm (the approximation to the closed set attack proposed by Yu et al). Using these implementations, we evaluate the empirical performance of these methods on the Monero dataset in two ways - firstly using data only from the main Monero chain and secondly using data from four hard forks of Monero in addition to the main Monero chain. We have released the scripts used to perform the empirical analysis along with step-by-step instructions.
Cite as
Saravanan Vijayakumaran. Analysis of CryptoNote Transaction Graphs Using the Dulmage-Mendelsohn Decomposition. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 28:1-28:22, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{vijayakumaran:LIPIcs.AFT.2023.28,
author = {Vijayakumaran, Saravanan},
title = {{Analysis of CryptoNote Transaction Graphs Using the Dulmage-Mendelsohn Decomposition}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {28:1--28:22},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.28},
URN = {urn:nbn:de:0030-drops-192172},
doi = {10.4230/LIPIcs.AFT.2023.28},
annote = {Keywords: Cryptocurrency, CryptoNote, Monero, Traceability}
}
Document
Vector Commitments with Efficient Updates
Abstract
Dynamic vector commitments that enable local updates of opening proofs have applications ranging from verifiable databases with membership changes to stateless clients on blockchains. In these applications, each user maintains a relevant subset of the committed messages and the corresponding opening proofs with the goal of ensuring a succinct global state. When the messages are updated, users are given some global update information and update their opening proofs to match the new vector commitment. We investigate the relation between the size of the update information and the runtime complexity needed to update an individual opening proof. Existing vector commitment schemes require that either the information size or the runtime scale linearly in the number k of updated state elements. We construct a vector commitment scheme that asymptotically achieves both length and runtime that is sublinear in k, namely k^ν and k^{1-ν} for any ν ∈ (0,1). We prove an information-theoretic lower bound on the relation between the update information size and runtime complexity that shows the asymptotic optimality of our scheme. While in practice, the construction is not yet competitive with Verkle commitments, our approach may point the way towards more performant vector commitments.
Cite as
Ertem Nusret Tas and Dan Boneh. Vector Commitments with Efficient Updates. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 29:1-29:23, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{tas_et_al:LIPIcs.AFT.2023.29,
author = {Tas, Ertem Nusret and Boneh, Dan},
title = {{Vector Commitments with Efficient Updates}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {29:1--29:23},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.29},
URN = {urn:nbn:de:0030-drops-192184},
doi = {10.4230/LIPIcs.AFT.2023.29},
annote = {Keywords: Vector commitments, stateless clients}
}
Document
Time Is Money: Strategic Timing Games in Proof-Of-Stake Protocols
Abstract
We propose a model suggesting that rational consensus participants may play timing games, and strategically delay their block proposal to optimize MEV capture, while still ensuring the proposal’s inclusion in the canonical chain. In this context, ensuring economic fairness among consensus participants is critical to preserving decentralization. We contend that a model grounded in rational consensus participation provides a more accurate portrayal of behavior in economically incentivized systems such as blockchain protocols. We empirically investigate timing games on the Ethereum network and demonstrate that while timing games are worth playing, they are not currently being exploited by consensus participants. By quantifying the marginal value of time, we uncover strong evidence pointing towards their future potential, despite the limited exploitation of MEV capture observed at present.
Cite as
Caspar Schwarz-Schilling, Fahad Saleh, Thomas Thiery, Jennifer Pan, Nihar Shah, and Barnabé Monnot. Time Is Money: Strategic Timing Games in Proof-Of-Stake Protocols. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 30:1-30:17, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{schwarzschilling_et_al:LIPIcs.AFT.2023.30,
author = {Schwarz-Schilling, Caspar and Saleh, Fahad and Thiery, Thomas and Pan, Jennifer and Shah, Nihar and Monnot, Barnab\'{e}},
title = {{Time Is Money: Strategic Timing Games in Proof-Of-Stake Protocols}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {30:1--30:17},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.30},
URN = {urn:nbn:de:0030-drops-192193},
doi = {10.4230/LIPIcs.AFT.2023.30},
annote = {Keywords: blockchain, proof-of-stake, game theory, maximal extractable value}
}
Document
Practical Large-Scale Proof-Of-Stake Asynchronous Total-Order Broadcast
Abstract
We present simple and practical protocols for generating randomness as used by asynchronous total-order broadcast. The protocols are secure in a proof-of-stake setting with dynamically changing stake. They can be plugged into existing protocols for asynchronous total-order broadcast and will turn these into asynchronous total-order broadcast with dynamic stake. Our contribution relies on two important techniques. The paper "Random Oracles in Constantinople: Practical Asynchronous Byzantine Agreement using Cryptography" [Cachin, Kursawe, and Shoup, PODC 2000] has influenced the design of practical total-order broadcast through its use of threshold cryptography. However, it needs a setup protocol to be efficient. In a proof-of-stake setting with dynamic stake this setup would have to be continually recomputed, making the protocol impractical. The work "Asynchronous Byzantine Agreement with Subquadratic Communication" [Blum, Katz, Liu-Zhang, and Loss, TCC 2020] showed how to use an initial setup for broadcast to asymptotically efficiently generate sub-sequent setups. The protocol, however, resorted to fully homomorphic encryption and was therefore not practically efficient. We adopt their approach to the proof-of-stake setting with dynamic stake, apply it to the Constantinople paper, and remove the need for fully homomorphic encryption. This results in simple and practical proof-of-stake protocols.
Cite as
Orestis Alpos, Christian Cachin, Simon Holmgaard Kamp, and Jesper Buus Nielsen. Practical Large-Scale Proof-Of-Stake Asynchronous Total-Order Broadcast. In 5th Conference on Advances in Financial Technologies (AFT 2023). Leibniz International Proceedings in Informatics (LIPIcs), Volume 282, pp. 31:1-31:22, Schloss Dagstuhl – Leibniz-Zentrum für Informatik (2023)
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@InProceedings{alpos_et_al:LIPIcs.AFT.2023.31,
author = {Alpos, Orestis and Cachin, Christian and Kamp, Simon Holmgaard and Nielsen, Jesper Buus},
title = {{Practical Large-Scale Proof-Of-Stake Asynchronous Total-Order Broadcast}},
booktitle = {5th Conference on Advances in Financial Technologies (AFT 2023)},
pages = {31:1--31:22},
series = {Leibniz International Proceedings in Informatics (LIPIcs)},
ISBN = {978-3-95977-303-4},
ISSN = {1868-8969},
year = {2023},
volume = {282},
editor = {Bonneau, Joseph and Weinberg, S. Matthew},
publisher = {Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
address = {Dagstuhl, Germany},
URL = {https://drops-dev.dagstuhl.de/entities/document/10.4230/LIPIcs.AFT.2023.31},
URN = {urn:nbn:de:0030-drops-192203},
doi = {10.4230/LIPIcs.AFT.2023.31},
annote = {Keywords: Total-Order Broadcast, Atomic Broadcast, Proof of Stake, Random Beacon}
}