Crypto Island


Simple Cardano "batching bots" for concurrent DEX protocols

Posted 2021-09-10
Updated 2021-09-11
Tags: cardano, plutus, concurrency, utxo, brainstorm, dex

Everyone seems so interested in Cardano’s concurrency problem that I decided it’s worth posting my own half-baked solution. This is mainly based on (and almost identical to?) Chris from Mirqur’s idea. It sounds like others are thinking along similar lines as well.

Update: MELD has a simpler solution that removes the need for an auction by requiring a predefined set of UTXOs to be used as user inputs. That looks better for most use cases. I could see it having an issue with auction sniping though.

Update: only one bid can reference each original trade UTXO; subsequent bids just reference the previous state

A (relatively) simple batching protocol

The basic idea is to have a three-phase protocol for updating the DEX state:

  1. First, everyone who wants to interact with the DEX posts a transaction that announces the trade they intend to make. It doesn’t actually consume the current DEX state though. They would just send their tokens to a DEX-controlled script address that acts like a queue with an attached datum specifying the trade parameters they agree to. A large number of them could be submitted at once during one or several slots.

  2. Next, an “auction” where anyone can run a bot that gathers up all the posted trades and executes them at once according to the DEX logic. They would be paid a small fee for doing it, and have to post collateral to be slashed if they leave any valid trades out. Each “bid” has to include all previous valid transactions plus at least one new one.

  3. After waiting a few slots for any more state transition bids to appear, the final step is to apply the highest-bidding transition to the main DEX UTXO, reward the winning bidder, and slash any other bidders’ collateral. Anyone could do this step as well but the winning bot is the one with the most incentive.

Here’s an example workflow. Rectangles are transactions and ovals are UTXOs. Color indicates who controls each thing: blue for a user, green for a bot, orange for the DEX contract.

Something like this should work for not only a DEX, but for any contract that needs someone to post a state transition and be assured that they include all the valid inputs. For example a concurrent auction contract could tip a bot for calling its close endpoint and gathering all valid bids at the end of the auction. (I imagine this would come up a lot in real auctions, since everyone would wait to snipe at the end)

The simplest way I can think of bootstrapping a generalized bot economy would be to have a cardano-batch-bot-contrib or similar repo where everyone posts code for operating a bot on their protocol, and bot operators choose which ones to include. Any stake pool operator (SPO) who wants some extra revenue could also operate a bot and customize it to run only the protocols they’re comfortable with.

Potential objections

Q: Is this too complicated or too slow to operate at scale?

A: I don’t think so. This protocol could probably be run on the main chain at least as fast as an oracle could come to consensus on price changes. Trades would be ordered by the slot they were submitted in, which is the same level of resolution a trivial “single-threaded” DEX would be capable of. And inside a Hydra head it could go orders of magnitude faster. Probably fast enough that users wouldn’t notice any delay at all! Finally, because cheating bots will always be caught, there should normally only be one bid.

Q: Would this introduce nondeterminism and miner-extractable value (MEV)?

A: It depends whether the DEX protocol is deterministic. Batching bots would probably end up being run by SPOs and the slot leader would be able to include their own batch transaction, but they would be unable to censor or re-order transactions unless the DEX contract + batching protocol allows it.

Q: Would batching bot operators be legally responsible for operating an order book, like what happened to EtherDelta?

A: I have no legal training whatsoever, but it seems to me that that should also depend on whether the protocol is deterministic. If so, bot operators don’t have any decision-making power to abuse and therefore don’t need to be regulated. The only choice they would have is whether to participate in the protocol at all or not. One could imagine situations where everyone might refuse to process money from a hack for example, but I think that would be better regulated at the DEX protocol level so everyone is clear on what counts as a legal trade beforehand. The founders, devs, or token holders might be responsible in that case.

Next steps

Lots of things would still need to be worked out. For example: