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Credible Decentralized Exchange Design via Verifiable Sequencing Rules
Computer Science and Game Theory · Submitted 30 Sep 2022
abstract compiled · 2026-09-23 · no language-model review
The authors' main claim In light of this impossibility result, our main result is a verifiable sequencing rule that provides execution price guarantees for users.
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The abstract, sentence by sentence
Trading on decentralized exchanges has been one of the primary use cases for permissionless blockchains with daily trading volume exceeding billions of U.S.~dollars. In the status quo, users broadcast transactions and miners are responsible for composing a block of transactions and picking an execution ordering -- the order in which transactions execute in the exchange. Due to the lack of a regulatory framework, it is common to observe miners exploiting their privileged position by front-running transactions and obtaining risk-fee profits. In this work, we propose to modify the interaction between miners and users and initiate the study of {\em verifiable sequencing rules}. As in the status quo, miners can determine the content of a block; however, they commit to respecting a sequencing rule that constrains the execution ordering and is verifiable (there is a polynomial time algorithm that can verify if the execution ordering satisfies such constraints). Thus in the event a miner deviates from the sequencing rule, anyone can generate a proof of non-compliance. We ask if there are sequencing rules that limit price manipulation from miners in a two-token liquidity pool exchange. Our first result is an impossibility theorem: for any sequencing rule, there is an instance of user transactions where the miner can obtain non-zero risk-free profits. In light of this impossibility result, our main result is a verifiable sequencing rule that provides execution price guarantees for users. In particular, for any user transaction A, it ensures that either (1) the execution price of A is at least as good as if A was the only transaction in the block, or (2) the execution price of A is worse than this ``standalone'' price and the miner does not gain (or lose) when including A in the block.
background contribution method result interpretation main claim
| # | sentence | role | the authors' own work | states the main conclusion | strength |
|---|---|---|---|---|---|
| s0 | Trading on decentralized exchanges has been one of the primary use cases for permissionless blockchains with daily trading volume exceeding billions of U.S.~dollars. | background 1.00 | 0.04 | 0.01 | asserted 1.00 |
| s1 | In the status quo, users broadcast transactions and miners are responsible for composing a block of transactions and picking an execution ordering -- the order in which transactions execute in the exchange. | background 1.00 | 0.03 | 0.01 | asserted 1.00 |
| s2 | Due to the lack of a regulatory framework, it is common to observe miners exploiting their privileged position by front-running transactions and obtaining risk-fee profits. | background 0.97 | 0.05 | 0.01 | asserted 0.89 |
| s3 | In this work, we propose to modify the interaction between miners and users and initiate the study of {\em verifiable sequencing rules}. | contribution 1.00 | 0.90 | 0.04 | asserted 0.94 |
| s4 | As in the status quo, miners can determine the content of a block; however, they commit to respecting a sequencing rule that constrains the execution ordering and is verifiable (there is a polynomial time algorithm that can verify if the execution ordering satisfies such constraints). | method 0.51 | 0.45 | 0.06 | asserted 0.95 |
| s5 | Thus in the event a miner deviates from the sequencing rule, anyone can generate a proof of non-compliance. | method 0.48 | 0.24 | 0.04 | asserted 0.98 |
| s6 | We ask if there are sequencing rules that limit price manipulation from miners in a two-token liquidity pool exchange. | contribution 0.57 | 0.30 | 0.02 | hedged possibility 0.50 |
| s7 | Our first result is an impossibility theorem: for any sequencing rule, there is an instance of user transactions where the miner can obtain non-zero risk-free profits. | result 0.99 | 0.93 | 0.05 | asserted 1.00 |
| s8 | In light of this impossibility result, our main result is a verifiable sequencing rule that provides execution price guarantees for users. | contribution 0.57 | 0.95 | 0.91 | asserted 1.00 |
| s9 | In particular, for any user transaction A, it ensures that either (1) the execution price of A is at least as good as if A was the only transaction in the block, or (2) the execution price of A is worse than this ``standalone'' price and the miner does not gain (or lose) when including A in the block. | result 0.79 | 0.93 | 0.61 | asserted 1.00 |
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The paper
Original abstract
Trading on decentralized exchanges has been one of the primary use cases for permissionless blockchains with daily trading volume exceeding billions of U.S.~dollars. In the status quo, users broadcast transactions and miners are responsible for composing a block of transactions and picking an execution ordering -- the order in which transactions execute in the exchange. Due to the lack of a regulatory framework, it is common to observe miners exploiting their privileged position by front-running transactions and obtaining risk-fee profits. In this work, we propose to modify the interaction between miners and users and initiate the study of {\em verifiable sequencing rules}. As in the status quo, miners can determine the content of a block; however, they commit to respecting a sequencing rule that constrains the execution ordering and is verifiable (there is a polynomial time algorithm that can verify if the execution ordering satisfies such constraints). Thus in the event a miner deviates from the sequencing rule, anyone can generate a proof of non-compliance. We ask if there are sequencing rules that limit price manipulation from miners in a two-token liquidity pool exchange. Our first result is an impossibility theorem: for any sequencing rule, there is an instance of user transactions where the miner can obtain non-zero risk-free profits. In light of this impossibility result, our main result is a verifiable sequencing rule that provides execution price guarantees for users. In particular, for any user transaction A, it ensures that either (1) the execution price of A is at least as good as if A was the only transaction in the block, or (2) the execution price of A is worse than this ``standalone'' price and the miner does not gain (or lose) when including A in the block.
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References
How the literature uses it
5 arXiv papers cite this in 5 sentences
Papers citing it · 3 sentences without a confident label
Cites it as background 2 papers
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The paper also discusses, with useful references, the debate around application-specific sequencing [ref] — an off-protocol approach, in which transactions are sequenced outside the base protocol.
Ordering by Unanimity: Giving Applications Sequencing Rights Without Breaking Composability · Introduction · 0.89
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Recent proposals for reducing the implications of MEV on the Ethereum blockchain, range from smart contract designs in the execution layer [ref] to the implementation of new encryption techniques in the consensus layer [https://ethresear.ch/t/shutterized-beacon-chain/12249].
Multi-block MEV · Discussion and Next Steps · 0.92
What it cites · 2 sentences without a confident label
Cites as background 3 papers
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[ref] and [ref] show that complex liquidity provision strategies can improve the liquidity provider's revenue and [ref] studies the tradeoffs between return to liquidity providers and gas fees to traders in the design of Uniswap v3 style schemes for differential price liquidity provision.
Strategic Liquidity Provision in Uniswap v3 · Related work · 0.88
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[ref] and [ref] show that complex liquidity provision strategies can improve the liquidity provider's revenue and [ref] studies the tradeoffs between return to liquidity providers and gas fees to traders in the design of Uniswap v3 style schemes for differential price liquidity provision.
Differential Liquidity Provision in Uniswap v3 and Implications for Contract Design · Related work · 0.88
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[ref] and [ref] show that complex liquidity provision strategies can improve the liquidity provider's revenue and [ref] studies the tradeoffs between return to liquidity providers and gas fees to traders in the design of Uniswap v3 style schemes for differential price liquidity provision.
Risks and Returns of Uniswap V3 Liquidity Providers · Related work · 0.88
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