Preventing delay abuse in a Lightning-based peer-to-peer exchange

Summary:

In a recent thread on Lightning-dev, a user named Corné Plooy discussed decentralized crypto/crypto exchange ("atomic swap") on the Lightning network. They identified that the main problem with this type of exchange is that participants can delay transactions up to the HTLC time-out in order to speculate on exchange rate changes. Plooy proposed two approaches to deal with this issue. The first approach involved a latency monitor service to monitor latencies in transactions, which could be used as a source of information for building reputation of market participants. However, Plooy found this approach to have issues relating to dealing with reputation in a community of easily-created pseudonyms. The second approach, which Plooy favored, involves delegating the job of executing the Lightning transaction to a trusted third party. The trading parties don't need to trust each other and only need to trust the third party to not cooperate with the other trading party to perform the delay attack. Although this approach is not perfectly trust-free decentralized design, it offers several advantages such as no need for the trusted party to have a monopoly, and customers can remain anonymous. It is worth noting that decentralized Lightning-based exchange may not be competitive for very high-frequency or high-volume needs. However, it may have some use for casual use by people who are already on Lightning. At least it gets rid of the need for exchanges with large amounts of stored crypto assets, which are a very attractive target for hackers. Plooy included links to their proposals for both approaches for preventing abuse in a Lightning-based peer-to-peer exchange. ZmnSCPxj responded to Plooy's post and suggested that exchange delay abuse and the loop attack have the same attack vector, so mitigations for one should apply as mitigations of the other.

Updated on: 2023-05-25T01:01:18.821457+00:00