Bot-Enabled Market Manipulation Rife on Decentralized Exchanges, Researchers Claim
Marie Huillett's orignal article for cointelegraph.com reduced by 42%
Arbitrage bots are being widely used for manipulative profit-making strategies on decentralized exchanges, a study from researchers at Cornell Tech has claimed. The paper documents and gauges the breadth and specific characteristics of bot-executed market manipulation, which the researchers argue has developed blockchain-specific elements that undermine the underlying blockchain security of traded assets. Researchers identified strategies including front running - whereby traders see orders from others and place their own first, which can beset traditional financial markets.
Automated trading strategies within a blockchain context thus aim to optimize network latency, exploit inefficiencies and wield PGA-enabled priority transaction ordering to anticipate and exploit ordinary users' trades to the bots' economic advantage, the researchers state. The researchers analyzed a further crypto-specific manipulation, termed miner-extractable value, which they argued enables systemic consensus-layer vulnerabilities for blockchains. These strategies and a host of related others - including fee-based forking and time-based bandit attacks - pose consensus-layer security risks and a realistic threat to blockchains such as ethereum, the researchers stated.
Swiss-based Bancor - one of the DExs where researchers identified blockchain-adapted front running - told Bloomberg that the platform sets maximum gas prices to prevent attackers from bidding more to secure transaction priority.
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