An evaluation of irregularities found within the Augur decentralized prediction market platform has recognized quite a lot of design flaws. Namely, it recognized a possible assault vector based mostly on discrepancies between a market’s expiry date and its end result date.
How A Prediction Market Works
A prediction market would appear a super use-case for blockchain, harnessing the trustless nature and lack of centralized management. Augur makes use of the Ethereum blockchain, and permits a person to create a prediction market based mostly on any definable occasion.
The market creator defines the subject, finish date, and potential outcomes, plus an adjudicator in that case desired. Trading (denominated in ETH) continues till the event-end, at which level Augur token holders (or designated reporter) determines the result. Token holders stake their Reputation (REP) on the result and obtain settlement charges.
Houston, We Have A Problem (or Two)
Aside from potentially-illegal markets, overlaying subjects akin to assassinations and terror assaults, there are some key elementary points.
Owing to its steep studying curve, many Augur customers depend on numerous internet interfaces, which supply non-standard options and are open to manipulation. In explicit, many customers gravitate in the direction of markets which seem reliable to others. This creates a feeding-frenzy across the few markets with reported quantity, which the market creator could effectively have manipulated.
Disputed outcomes go to a voting process, with customers staking REP, and receiving rewards in the event that they select the profitable end result. This incentivises customers to vote for the most well-liked end result, no matter whether or not it’s the true end result. On prime of this, the validity bond, which is misplaced if a market is deemed invalid, stays mounted, so unhealthy actors can continuous create bogus markets.
Potential Attack Vector
A current instance of how this technique could be manipulated, was based mostly on the ‘normal value of Ethereum’ on the finish of the day on March 31st (UTC). The market expired at 01:59 on April 1st (UTC+8), which is earlier than the result date, which might trigger this contract to be deemed invalid.
By creating a number of outcomes, one in every of which was unrealistic (ETH over $1000), and one seemingly straightforward to attain (ETH between $100 and $1000), it simply required a little bit of wash-trading to lure punters in.
The attacker would then ship a restrict promote order for the ‘straightforward’ end result, for a quote which is above the reward for an invalid consequence, however beneath that of a supposed ‘whole lot’. Thus customers will fill the order, unknowingly being doubtlessly caught in an invalid market.
An invalid market leads to an equal quantity of ETH going to shares of every end result. In a 3 end result market (the ultimate end result being ETH < $100), every end result can be marked at 1/three worth. With nearly all of contributors backing the ‘straightforward’ end result, a disproportion return would go to the ‘unrealistic’ backers.
Fixing A Hole Where The Rain Comes In
Whilst Augur has already recognized a number of of the issues, there was no official announcement of enchancment implementation. Meanwhile, customers are nonetheless uncovered to this sort of assault.
Indeed, the identical creator has already made a brand new market with the identical flaw referred to as ‘Ethereum Price at End of April’. There are additionally copycat markets springing as much as catch customers unawares.
Until these flaws are mounted, customers ought to possible contemplate Augur, ‘purchaser beware’.
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