Paper 2022/155
FairTraDEX: A Decentralised Exchange Preventing Value Extraction
Abstract
We present FairTraDEX, a decentralized exchange (DEX) protocol based on frequent batch auctions (FBAs), which provides formal game-theoretic guarantees against extractable value. FBAs when run by a trusted third-party provide unique game-theoretic optimal strategies which ensure players are shown prices equal to the liquidity provider's fair price, excluding explicit, pre-determined fees. FairTraDEX replicates the key features of an FBA that provide these game-theoretic guarantees using a combination of set-membership in zero-knowledge protocols and an escrow-enforced commit-reveal protocol. We extend the results of FBAs to handle monopolistic and/or malicious liquidity providers. We provide real-world examples that demonstrate that the costs of executing orders in existing academic and industry-standard protocols become prohibitive as order size increases due to basic value extraction techniques, popularized as maximal extractable value. We further demonstrate that FairTraDEX protects against these execution costs, guaranteeing a fixed fee model independent of order size, the first guarantee of it's kind for a DEX protocol. We also provide detailed Solidity and pseudo-code implementations of FairTraDEX, making FairTraDEX a novel and practical contribution.
Metadata
- Available format(s)
- Category
- Applications
- Publication info
- Preprint.
- Keywords
- Decentralized Exchange Blockchain Extractable Value Incentives Zero Knowledge
- Contact author(s)
- conor mcmenamin @ upf edu
- History
- 2022-08-04: revised
- 2022-02-12: received
- See all versions
- Short URL
- https://ia.cr/2022/155
- License
-
CC BY
BibTeX
@misc{cryptoeprint:2022/155, author = {Conor McMenamin and Vanesa Daza and Matthias Fitzi and Padraic O'Donoghue}, title = {{FairTraDEX}: A Decentralised Exchange Preventing Value Extraction}, howpublished = {Cryptology {ePrint} Archive, Paper 2022/155}, year = {2022}, url = {https://eprint.iacr.org/2022/155} }