uniswap price manipulation
The marginal prices of the token t1, i.e. The lending platform Compound for example makes use of Uniswap, although not directly as a price oracle. Now I add 1 ETH and 1SDP to LP. It is important to bear in mind that things could go wrong when using AMMs naively as a price oracle (read here). Uniswap V2 includes several improvements for supporting manipulation-resistant public price feeds. Uniswap (UNI) Price for today is $30.48, for the last 24-hours 45,773,158 UNI's were exchanged with a trade volume of $1,395,110,443.It's currently traded on 62 exchange(s) and has 87 active market(s), the top two exchange pairs are tether & bitcoin. Because of this, the ecosystem has witnessed numerous high-profile hacks where the oracle implementation is the primary attack vector. The cost of price manipulation depends on the sizes of the reserves and the formula defining the mechanism of the AMM. For larger liquidity pools and over longer time periods, this attack is impractical, as the cost of manipulation typically exceeds the value at stake. It is noticeable that for pairs with a small total liquidity, price manipulations can be achieved with relatively low costs. Choosing w1 = 1/2 we get back the cost formula for Uniswap (8). This variable can be used by external contracts to track accurate time-weighted average prices (TWAPs) across any time interval. Early decentralized exchange (DEX) proposals took their inspiration from classical exchange markets and made use…, The purpose of this document is to offer different alternatives to reduce gas cost in…, Market makers at stock exchanges are companies or individuals who stand ready to buy and…, Tagged as: amm, Automated Market Maker, Balancer, constant function market maker, decentralized-exchange, dex, ethereum, Uniswap, Categorized in: Cryptocurrency, Ethereum, Exchange, Finance, Research, Security, Smart Contracts, Blockchain Development Company | Outlook 365 Plugin Development | Other factors, such as network congestion, can reduce the cost of attack. The essential ideas behind their solutions are based on reserve pools to provide liquidity to the exchange, and to make use of simple mathematical formulas for price discovery. First, every pair measures (but does not store) the market price at the beginning of each block, before any trades take place. The spread out liquidity was, to be fair, way less capital efficient, but wouldn't it also make price manipulation far more expensive? For a 10-minute TWAP, sample once every 10 minutes. Uniswap (UNI) is a cryptocurrency token built on top of Ethereum platform. This variable represents a sum of the Uniswap price for every second in the entire history of the contract. In the scenario that the DYP token value gets affected by over -2.5%, DYP is automatically swapped to ETH up to the amount that will not affect the price. The above price formulas do not take into account eventual fees for the trades. Our last blog post discussed the basic mechanisms of the automated market makers (AMMs) in Uniswap, Balancer, and Curve. The whitepaper elaborates on some of them. The TWAP is constructed by reading the cumulative price from an ERC20 token pair at the beginning and at the end of the desired interval. 区块链技术, Automated Market Making Mechanisms and Issues in Uniswap, Balancer, and Curve, Market Making in Crypto Exchanges: An Introduction, The Tension Between Divergence Loss and Profit in Automated Market Makers, Cost of Price Manipulation in Uniswap and Balancer, Cryptocup: Auditoría Contrato Inteligente Token ERC721 | CoinFabrik Blog, Review of AppeCoin: An Alternative Anonymous Cryptocurrency - CoinFabrik Blog, Comparison of Cryptocurrency Developments, Live Updated Cryptocurrency Investment Spreadsheet (Update 3) - CoinFabrik Blog, Live Updated Cryptocurrency Portfolio Tracking Spreadsheet (Update 2), Blockchain: Links And Resources (192) | Angel ”Java” Lopez on Blog, ERC20 Token Development on RSK with OpenZeppelin, ERC20 Token Development on RSK with OpenZeppelin and Web3.Py – Deluxe World, ERC20 Token Development on RSK with OpenZeppelin and Web3.py. To set the measured price to one that is out of sync with the global market price, an attacker has to make a bad trade at the end of a previous block , typically with no guarantee that they will arbitrage it back in the next block. Uniswap was one such example, as its price skyrocketed to record levels and a reversal was nowhere in sight. Taking again the ETH price of 1823 USD as of March 9th, a change of Ocean price in Uniswap would have incurred a minimum costs of: The calculated costs presented above are, as mentioned earlier, lower bounds of the real costs since we do not take the trading fees into account. linear) with the length of time over which you average. https://beincrypto.com/warp-finance-relaunches-additional-security-chainlink The price impact function of buying Δ 1 tokens is then. The difference in this cumulative price can then be divided by the length of the interval to create a TWAP for that period. https://dappradar.com/blog/uniswap-fueled-by-risky-defi-tokens For a simple TWAP, the cost of manipulation increases (approx. Native Token and Price Performance: Next we’ll consider the native tokens and their price performances as of April, 2021 in the Uniswap vs Venus vs PancakeSwapdebate. Uniswap v1 oracle was prone to price manipulation attack, the attack can change the price right before it is measured. Now let us interpret the formulas from the previous two sections in two examples by taking data from the Uniswap exchange. https://zephyrnet.com/uniswap-full-guide-how-to-make-money-yield-farming In both protocols, Uniswap and Balancer, liquidity for trades are provided by so-called liquidity providers who deposit tokens t1 and t2 in a prescribed proportion to reserve pools R1 and R2. Instead, Uniswap V2 adds this end-of-block price to a single cumulative-price variable in the core contract weighted by the amount of time this price existed. Keeping this attack over a longer time period will have an accumulated cost, since arbitageurs will take this price changes as an arbitrage opportunity. https://learn.bybit.com/defi/what-is-uniswap-and-how-does-it-work You can then use that validated proof to calculate the average price between the current block and the supplied proof's block so you are protected from short-term price manipulation. Moving the price 5% on a 1-hour TWAP is approximately equal to the amount lost to arbitrage and fees for moving the price 5% every block for 1 hour. If significant value settles based on the price resulting from this mechanism, an attackâs profit will likely outweigh the loss. Each staking pool has a smart contract protocol which serves as the anti-manipulation feature to automatically convert DYP rewards into ETH every 24 hours and distribute it directly to LPs. These are price oracles as well. This keeps the calculation simpler, and provides anyway a useful lower bound to the cost calculations. Uniswap v2 also uses oracles that average price data over time. Posted prices can only deviate from Uniswap V2 prices to a certain extent (defined by the deployer of the view), greatly limiting the reporter’s powers to manipulate the oracle. Hence, the reference market price mp is the same as the marginal price, i.e. security audit section on Oracle Integrity. Now let us state what the attacker wants to achieve. What is the best way to retrieve the price of a given asset on-chain? We have also to take into account that the attacker receives ∆1 tokens for the trade which can be determined by plugging the above ∆2 in (3) which is. Uniswap V2 includes several improvements for supporting manipulation-resistant public price feeds. an increase of the Balancer AMM price of t1 by adding ∆2 such that mbnew= (1 + ε)mp. The cost of manipulating the price for a specific time period can be roughly estimated as the amount lost to arbitrage and fees every block for the entire period. Decentralized exchanges are the third generation of the decentralized movement. Now I remove 100% LP. We will recall the cost of manipulation for Uniswap derived in [2], and extend it to the case of Balancer. March 19, 2021March 19, 2021 Hartwig MayerNo Comments. We invite you to read our previous post to get more background about this matter, if needed. For a 1-week TWAP, sample once every week. For a more in-depth review of the security of Uniswap V2 price oracles, read the security audit section on Oracle Integrity. Anyone with access to an Ethereum node can generate a proof of Uniswap's storage from up to 256 blocks ago and submit it for on-chain validation. Multiplying (7) to both sides of (6), we get, where we made use of mpR1 = R2 in the second equation. This type of attack presents several challenges and has not been observed to date. In the last section we evaluate the findings with actual exchange data. Namely, (s)he wants to increase the Uniswap AMM price of t1 by adding ∆2 such that munew= (1 + ε)mp. This price calculation is achieved by restricting the trading function ψ to be constant, i.e. It is also important to mention that this are the costs for a one-time change. Smart Contract Audit | Windows Driver Development | the trading function has the same value before and after the trade. If you are not interested in the derivation of the mathematical formulas, you can skip the middle part and jump right away to the discussion part. As a special case, we get the marginal price m u = g u (0) = R 2 /R 1 for Uniswap. With this at hand, the price of buying ∆1 can be determined as, In the case of Balancer, the trading function is given by the weighted product of the reserves, where wi are in the interval [0, 1] such that w1 + w2 = 1. linear) with liquidity on Uniswap, as well as (approx. Liquidity providers have an interest in depositing tokens, since each executed trade brings them a return from the trading fees. The following chart shows the manipulation costs ranging from 1 to 100%, and compares the costs to Balancer when choosing w1 = 1/4 and w1 = 3/4. Now the current price in 0.01 ETH per token. While there is no one size fits all solution, Uniswap V2 enables developers to build highly decentralized and manipulation-resistant on-chain price oracles, which may solve many of the demands necessary for building robust protocols. Therefore, we can use the constraint (2) for Uniswap, where in the last three equation we just make use of (5). For example, changing the Ocean price by 5% in Uniswap costs only 2177 USD, and in a similar situation in Balancer a price change woud have just a slightly higher cost of 2308 USD. Uniswap will not use these price oracles as a main point of reference, however. In the meantime, check out our example implementation of a 24 hr TWAP Oracle built on Uniswap V2! ... To further reduce the possibility of malicious manipulation, the anchors used by the view are based on Uniswap’s new time-weighted average prices. The price in t 2 can be calculated by bringing all other terms of equation (2) to the right: Δ 2 = (R 1 * R 2) / (R 1 – Δ 1) – R 2. A price oracle is any tool used to view price information about a given asset. Consider any smart contract that is using a DAI/ETH exchange to settle any kind of transaction. You can then use that validated proof to calculate the average price between the current block and the supplied proof's block so you are protected from short-term price manipulation. https://medium.com/coinmonks/should-you-use-uniswap-v1-or-v2-70f8e6cb3c2c Balancer can be considered to be a generalization of Uniswap, since the choice of w1 =w2 = 1/2 is basically the Uniswap case (taking the square of ψ). For example, if ε = 0,05, then (s)he tries to increase the Uniswap price by 5% compared to reference price mp. The first example takes the reserve size of the WBTC-ETH pair from 9th of March 2021: the pool held 3542 WBTC and 104,823 ETH with a total liquidity of 382,183,185 USD. First, every pair measures (but does not store) the market price at the beginning of each block, before any trades take place. Some of these vulnerabilities are discussed here. Community/Support Uniswap has a total of $4.12 B in its exchange). Hence, using AMMs of Uniswap and Balancer as price oracles must be considered as very risky, especially when the reserve pools have small total liquidity. You can find this equation in [2], Appendix E. Similarly as above, we start with the mathematical formulation of what the attacker wants to achieve, i.e. The fact that these AMMs provide – by their nature – token prices onchain, has invited other DeFi projects to make use of them as price oracles. mu = mp (Uniswap) and mb = mp (Balancer). Developers can extend Uniswap: Developers have forked Uniswap and created variations such as SushiSwap, KingSwap, and Zuniswap. Scenario 1; Suppose some time left - there were some trades and LP again = 1 ETH and 100 SDP (don't account fees). There are some nuances that are good to be aware of when using Uniswap V2 as an oracle, especially where manipulation resistance is concerned. When building smart contracts that integrate with DeFi protocols, developers will inevitably run into the price oracle problem. Anyway the results provide the correct order of magnitude of the manipulation costs. But this reads by definition of the marginal price for the updated reserve sizes as, What we have to do is to determine 1 using the above equation (6). We found the following formulas for the marginal price mu (Uniswap) and mb (Balancer). Similarly, the app on your phone relies on devices to retrieve price information - likely several, which are aggregated and then displayed to you, the end-user. The attacker can easily manipulate the price and then execute the transaction on the other contracts. the price when performing an infinitesimal small trade where no slippage appears. These trades can be reverted incurring little cost, and in the meanwhile other DeFi projects may take the altered price paying out a profit to the attacker. The trading function of Uniswap is given by the product of the updated reserves, so that the constraint of (2) becomes (R1 – ∆1)(R2 + ∆2) = R1R2. Another distinctive feature is the introduction of manipulation-resistant price oracles that will provide backup for the Uniswap price discovery system. When you look at stock prices on your phone, you are using your phone as a price oracle. Mathematically speaking, we require the following equation to hold true, Let’s check what this means in the case of Uniswap and Balancer. When traders want to buy an amount ∆1 ≤ R1 of token t1, the AMM determines the cost in terms of the amount ∆2 of token t2. Many oracle designs on Ethereum have been implemented on an ad-hoc basis, with varying degrees of decentralization and security. Again, by definition of the marginal price, this means, The constraint of satisfying the market maker condition is, Using the simple relation mb = mp = w1/w2 R2/R1 to get mpR1 = w1/w2 R2, we can derive by multiplying the above equation on both sides of (9), Since the attacker receives in return (plugging ∆2 = R2((1 + ε)w1 – 1) in equation (4)). The cost of price manipulation depends on the sizes of the reserves and the formula defining the mechanism of the AMM. This approach is meant to produce more reliable prices and prevent price manipulation. Bitcoin Cash [BCH] Source: BCH/USD, TradingView. Furthermore, we assume that an arbitrageur will correct price differences with an (infinite) reference market. Bitcoin Cash flipped support at $403 after resistance at $425 rejected the price. Instead of consulting external exchanges for token prices via price oracles such as Chainlink, it is a more economic and simpler solution to consume the data from, for example, the Uniswap Version 2 AMM. To learn more about building oracles check out building an oracle in the developer guides. But as a way of improving its own … Unfortunately, this alone is not enough. For example, taking the ETH price of 1823 USD as of March 9th, a change of WBTC price in Uniswap would have incurred a minimum costs of: In the second example we consider the case of the token pair Ocean-ETH in Uniswap. The reserve sizes of the Ocean-ETH pair from 9th of March 2021 are: the pools held 1,774,033 Ocean and 1407 ETH. Document Change Log Version Date Description 1.0 2020-08-17 Initial report 1.1 2020-08-28 Updated with remediation Executive Summary This report presents the results of our assessment of Aave’s Balancer and Further, to avoid any sort of market manipulation attacks, the Venus Protocol makes use of price feed oracles. As a decentralized exchange (DEX), Uniswap inherits the benefits of blockchain and removes the drawbacks inherent in its centralized peers including price manipulation, scam, security, fake transactions, and controversial KYC. In the last section we evaluate the findings with actual exchange data. Community/Support I added a LP to uniswap 100 SDP and 1 ETH. Attackers will lose money to arbitrageurs unless they can âselfishlyâ mine two blocks in a row. LP is now empty (What is the price of token with empty LP btw?) We will recall the cost of manipulation for Uniswap derived in, and extend it to the case of Balancer. These projects have achieved to construct purely peer-to-peer exchanges which do not require any intermediary, and attracted already many users (e.g. One aspect of it is the possibility to manipulate the prices by making large trades due to deterministic slippage effects. The constraint (2) becomes (R1 – ∆1)w1(R2 + ∆2)w2 = R1w1R2 w2, and the price for 1 is, We close this recap by mentioning a result described in our previous post. Additional oracle-focused developer guides and documentation will be released soon. Anyone with access to an Ethereum node can generate a proof of Uniswap's storage from up to 256 blocks ago and submit it for on-chain validation. The Cost of an attack is relatively simple to estimate. TWAPs can be used directly or as the basis for moving averages (EMAs and SMAs) as needed. The price skyrockets to 1. This price is expensive to manipulate because it is set by the last transaction, whether it is a mint, swap, or burn, in a previous block. Infinite ) reference market price mp is the uniswap price manipulation attack vector aspect of it is important bear! One-Time change 1407 ETH oracle implementation is the primary attack vector already many users e.g... 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Guides and documentation will be released soon, TradingView now let us state the! Keeps the calculation simpler, and attracted already many users ( e.g about this matter, if.. Performing an infinitesimal small trade where no slippage appears $ 425 rejected the price and then execute the on. Matter, if needed LP is now empty ( what is the value... 1 tokens is then Uniswap v1 oracle was prone to price manipulation depends on the sizes of the exchange... Prices and prevent price manipulation attack, the ecosystem has witnessed numerous high-profile hacks where the oracle implementation is primary... Likely outweigh the loss same value before and after the trade and Zuniswap we assume that an will! Buying Δ 1 tokens is then âselfishlyâ mine two blocks in a row now the price. ) and mb ( Balancer ) [ 2 ], and extend it to the cost manipulation. ( Uniswap ) and mb ( Balancer ) example, as its price skyrocketed to record levels and a was. 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