Altcoin News: Research: Market Manipulation Using Bots Continues on Decentralized Exchanges

April 17, 2019, by Marko Vidrih on ALTCOIN MAGAZINE

Arbitrage bots are widely used in manipulative profit-making strategies on decentralized exchanges (DEX), according to researchers at Cornell University.

According to Bloomberg, the study documents and measures the depth and specific characteristics of market manipulation with the help of bots, which, according to the researchers, have created specific tools that undermine the basic security of blockchains of traded assets.

Researchers have identified the presence of such strategies as forwarding transactions — when traders see other orders and place their own in the first place. In the context of cryptocurrency, bots are used to participate in the practice called priority gas auctions (PGA), which is defined in the document as “a competitive increase in the amount of transaction fees in order to obtain priority execution order for transactions”.

Thus, automated trading strategies in the context of cryptocurrencies are aimed at optimizing network delays in order to anticipate and use transactions of ordinary users in order to gain economic benefits, the researchers said.

The researchers also analyzed other manipulation, which they called the extraction of value from mining (miner-extractable value — MEV). According to them, this practice allows the use of possible system vulnerabilities at the consensus level for their own purposes.

These strategies and many others associated with them, including branching at the expense of commissions (fee-based forking) and time-based bandit attacks, create security risks at the consensus level and a real threat for blockchains like Ethereum, said the researchers. Bloomberg quotes Ariel Juels, a professor at Cornell University and the author of the study. He said that such practices are likely to be common on centralized exchanges:

“We have no idea what the extent of the malfeasance is on centralized exchanges. If we extrapolate from what we’ve seen on DEXes, it could well be on the order of billions of dollars.”

Representatives of the Swiss-based company Bancor, one of the decentralized exchanges on which researchers revealed the presence of leading transactions, told Bloomberg that the platform sets maximum gas prices so that attackers cannot offer higher prices to ensure transaction priority.

In late March, it was reported that CoinMarketCap will change the ranking system of cryptocurrency exchanges. The reason for this could be repeated studies confirming the artificial overestimation of trading volumes on exchanges. In the middle of last month, an anonymous group of researchers CryptoIntegrity published a report, according to which 86% of transactions and 88% of the trading volume on cryptocurrency exchanges are created artificially.

In addition, at the end of last year, the Blockchain Transparency Institute published its annual report on trading volumes of crypto exchanges, according to which only two of the TOP 25 sites do not overestimate trading volumes.

Author: Marko Vidrih