Optimal MEV Extraction Using Absolute Commitments

TL;DR

This paper introduces a new, more effective attack on decentralized exchanges using absolute commitments, enabling miners to extract maximum fees and potentially harming user utility more than existing sandwich attacks.

Contribution

The paper presents a novel attack leveraging absolute commitments that allows miners to charge monopoly prices, surpassing the efficiency of traditional sandwich attacks.

Findings

The attack can be implemented via smart contracts on major blockchains.

It enables miners to extract maximum fees by conditioning on other agents' strategies.

The attack significantly reduces the utility of affected decentralized exchanges.

Abstract

We propose a new, more potent attack on decentralized exchanges. This attack leverages absolute commitments, which are commitments that can condition on the strategies made by other agents. This attack allows an adversary to charge monopoly prices by committing to undercut those other miners that refuse to charge an even higher fee. This allows the miner to extract the maximum possible price from the user, potentially through side channels that evade the inefficiencies and fees usually incurred. This is considerably more efficient than the prevailing strategy of `sandwich attacks', wherein the adversary induces and profits from fluctuations in the market price to the detriment of users. The attack we propose can, in principle, be realized by the irrevocable and self-executing nature of smart contracts, which are readily available on many major blockchains. Thus, the attack could potentially be used against a decentralized exchange and could drastically reduce the utility of the affected exchange.