Order-Fairness for Byzantine Consensus, Frontrunning, Transaction Reordering, and Consensus Instability in Decentralized Exchanges

Came accross two research papers shared in another community here: https://dusk.network/news/development-update-april-2020
Thought I could share it here because I feel its relevant enough… I’ve put some questions in the end of post…

Order-Fairness for Byzantine Consensus (March 6 2020)


ABSTRACT

Decades of research in both cryptography and distributed systems has extensively studied the problem of state machine replication, also known as Byzantine consensus. A consensus protocol must satisfy two properties: consistency and liveness. These properties ensure that honest participating nodes agree on the same log and dictate when fresh transactions get added. They fail, however, to ensure against adversarial manipulation of the actual ordering of transactions in the log. Indeed, in leader-based protocols (almost all protocols used today), malicious leaders can directly choose the final transaction ordering. To rectify this problem, we propose a third consensus property: transaction orderfairness. We initiate the first formal investigation of order-fairness and explain its fundamental importance. We provide several natural definitions for order-fairness and analyze the assumptions necessary to realize them. We also propose a new class of consensus protocols called Aequitas1. Aequitas protocols are the first to achieve order-fairness in addition to consistency and liveness. They can be realized in a black-box way using existing broadcast and agreement primitives (or indeed using any consensus protocol), and work in both synchronous and asynchronous network models.
–Mahimna Kelkar∗ Fan Zhang Steven Goldfeder Ari Juels
Cornell University, Cornell Tech, and IC3

Flash Boys 2.0: Frontrunning, Transaction Reordering, andConsensus Instability in Decentralized Exchanges (April 10 2020)

ABSTRACT:

Blockchains, and specifically smart contracts, have promised to create fair and transparent trading ecosystems. Unfortunately, we show that this promise has not been met. We document and quantify the widespread and rising deployment of arbitrage bots in blockchain systems, specifically in decentralized exchanges (or “DEXes”). Like high-frequency traders on Wall Street, these bots exploit inefficiencies in DEXes, paying high transaction fees and optimizing network latency to frontrun, i.e.,
anticipate and exploit, ordinary users’ DEX trades. We study the breadth of DEX arbitrage bots in a subset of transactions that yield quantifiable revenue to these bots. We also study bots’ profit-making strategies, with a focus on blockchainspecific elements. We observe bots engage in what we call priority
gas auctions (PGAs), competitively bidding up transaction fees in order to obtain priority ordering, i.e., early block position and execution, for their transactions. PGAs present an interesting
and complex new continuous-time, partial-information, gametheoretic model that we formalize and study. We release an interactive web portal, frontrun.me, to provide the community with real-time data on PGAs.
We additionally show that high fees paid for priority transaction ordering poses a systemic risk to consensus-layer security. We explain that such fees are just one form of a general phenomenon in DEXes and beyond—what we call miner extractable value (MEV)—that poses concrete, measurable, consensus-layer security risks. We show empirically that MEV poses a realistic threat to Ethereum today. Our work highlights the large, complex risks created by transaction-ordering dependencies in smart contracts and the ways in which traditional forms of financial-market exploitation are adapting to and penetrating blockchain economies.
https://arxiv.org/pdf/1904.05234.pdf

  • How you think those relate with BC and any mitigation required ?
  • How important is order fairness for BC ecosystem ? (http://frontrun.me/) Should anything be done against Flashboys or is this just what it is…

Interesting. Thanks for sharing!

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