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Commitment Against Front-Running Attacks

Author

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  • Andrea Canidio

    (IMT School for Advanced Studies, Lucca, Italy)

  • Vincent Danos

    (DI-ENS - Département d'informatique - ENS Paris - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - Inria - Institut National de Recherche en Informatique et en Automatique - CNRS - Centre National de la Recherche Scientifique)

Abstract

We provide a game-theoretic analysis of the problem of front-running attacks. We use it to distinguish attacks from legitimate competition among honest users for having their transactions included earlier in the block. We also use it to introduce an intuitive notion of the severity of front-running attacks. We then study a simple commit-reveal protocol and discuss its properties. This protocol has costs because it requires two messages and imposes a delay. However, we show that it prevents the most severe front-running attacks while preserving legitimate competition between users, guaranteeing that the earliest transaction in a block belongs to the honest user who values it the most. When the protocol does not fully eliminate attacks, it nonetheless benefits honest users because it reduces competition among attackers (and overall expenditure by attackers). This paper was accepted by Joshua Gans, business strategy. Funding: The authors gratefully acknowledge the financial support of the Ethereum Foundation [Grant FY22-0840].

Suggested Citation

  • Andrea Canidio & Vincent Danos, 2023. "Commitment Against Front-Running Attacks," Post-Print hal-04310293, HAL.
    • Handle: RePEc:hal:journl:hal-04310293
    DOI: 10.1287/mnsc.2023.01239
    Note: View the original document on HAL open archive server: https://hal.science/hal-04310293
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    References listed on IDEAS

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    1. Tim Roughgarden, 2020. "Transaction Fee Mechanism Design for the Ethereum Blockchain: An Economic Analysis of EIP-1559," Papers 2012.00854, arXiv.org.
    2. Fudenberg, Drew & Tirole, Jean, 1987. "Understanding Rent Dissipation: On the Use of Game Theory in Industrial Organization," American Economic Review, American Economic Association, vol. 77(2), pages 176-183, May.
    3. Joshua S. Gans & Richard T. Holden, 2022. "A Solomonic Solution to Ownership Disputes: An Application to Blockchain Front-Running," NBER Working Papers 29780, National Bureau of Economic Research, Inc.
    4. Ron Siegel, 2014. "Contests with productive effort," International Journal of Game Theory, Springer;Game Theory Society, vol. 43(3), pages 515-523, August.
    5. Eric Budish & Peter Cramton & John Shim, 2015. "Editor's Choice The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(4), pages 1547-1621.
    6. Agostino Capponi & Ruizhe Jia & Ye Wang, 2022. "The Evolution of Blockchain: from Lit to Dark," Papers 2202.05779, arXiv.org.
    7. Joshua Gans, 2023. "Cryptography Versus Incentives," Springer Books, in: The Economics of Blockchain Consensus, chapter 0, pages 85-101, Springer.
    8. Agostino Capponi & Ruizhe Jia, 2021. "The Adoption of Blockchain-based Decentralized Exchanges," Papers 2103.08842, arXiv.org, revised Jul 2021.
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    Cited by:

    1. Andrea Canidio & Robin Fritsch, 2023. "Arbitrageurs' profits, LVR, and sandwich attacks: batch trading as an AMM design response," Papers 2307.02074, arXiv.org, revised Feb 2024.

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