Paper 2021/609

FairMM: A Fast and Frontrunning-Resistant Crypto Market-Maker

Michele Ciampi and Muhammad Ishaq and Malik Magdon-Ismail and Rafail Ostrovsky and Vassilis Zikas

Abstract

As new and emerging markets, crypto(-currency/-token) markets are susceptible to manipulation and illiquidity. The theory of market economics, offers market makers that bear the promise of bootstrapping/stabilizing such markets and boosting their liquidity. In order, however, to achieve these goals, the market maker operator (typically an exchange) is assumed trusted against manipulations. Common attempts to remove/weaken this trust assumption require several on-chain rounds per trade or use expensive MPC machinery, and/or are susceptible to manipulative market-maker operators that perform informed front-running attacks—i.e., manipulate the sequence of trades using future trade information. Our work proposes a market-maker-based exchange which is resilient against a wide class of front-running (in particular, reordering attacks). When instantiated with a monopolistic profit seeking market maker our system yields a market where the trading price of crypto-tokens converges to a bid-ask spread centered around their true valuation. Importantly, after an initial setup of appropriate smart contracts, the trades are done in an off-chain fashion and smart contracts are invoked asynchronously to the trades. Our methodology yields a highly efficient exchange, where the market maker’s compliance is ensured by a combination of a rational market analysis, cryptographic mechanisms, and smart-contract-based collaterals. We have implemented our exchange in Ethereum and showcase its competitive throughput, its performance under attack, and the associate gas costs.