Optimistic Rollups (ORUs) significantly enhance blockchain scalability but inherently suffer from the verifier's dilemma, particularly concerning validator attentiveness. Current systems lack mechanisms to proactively ensure validators are diligently monitoring L2 state transitions, creating a vulnerability where fraudulent states could be finalized. This paper introduces the Randomized Attention Test (RAT), a novel L1-based protocol designed to probabilistically challenge validators in ORUs, thereby verifying their liveness and computational readiness. Our game-theoretic analysis demonstrates that an Ideal Security Equilibrium, where all validators are attentive and proposers are honest, can be achieved with RAT. Notably, this equilibrium is attainable and stable with relatively low economic penalties (under \$1000) for non-responsive validators, a low attention test frequency (under 1\% per epoch), and a minimal operation overhead (monthly under \$30) with 10 validators. RAT thus provides a pivotal, practical mechanism to enforce validator diligence, fortifying the overall security and integrity of ORU systems with minimizing additional costs.
Automated Market Makers (AMMs) are decentralized exchange protocols that provide continuous access to token liquidity without the need for order books or traditional market makers. However, this innovation has failed to scale when it comes to cross-chain swaps. Modern cross-chain swaps employ double-sided AMMs, which are not only inefficient due to liquidity fragmentation but also require an intermediate token. This introduces inherent volatility risk as well as blockchain and bridging risk, especially in the case of wrapped tokens. This paper describes the inefficiencies of existing AMM invariants, particularly their mixed polynomial nature, and derives a new class of AMMs that do not have bi-state dependency between the assets being swapped. We propose a novel method of value transfer swaps using the described invariant that mitigates the need for bi-state dependency and eliminates the need for intermediate tokens or bridging. Furthermore, we show how this mechanism enables efficient cross-chain swaps with lower gas requirements and no bridging risks. The proposed technology is designed to support cross-chain swaps across any permutation of L1, L2, and L3 blockchains.
Gordon Y. Liao, Ziming Zeng, Mira Belenkiy, Jacob Hirshman
This paper introduces a fraud-deterrent access validation system for public blockchains, leveraging two complementary concepts: "Transaction Proximity", which measures the distance between wallets in the transaction graph, and "Easily Attainable Identities (EAIs)", wallets with direct transaction connections to centralized exchanges. Recognizing the limitations of traditional approaches like blocklisting (reactive, slow) and strict allow listing (privacy-invasive, adoption barriers), we propose a system that analyzes transaction patterns to identify wallets with close connections to centralized exchanges. Our directed graph analysis of the Ethereum blockchain reveals that 56% of large USDC wallets (with a lifetime maximum balance greater than \$10,000) are EAI and 88% are within one transaction hop of an EAI. For transactions exceeding \$2,000, 91% involve at least one EAI. Crucially, an analysis of past exploits shows that 83% of the known exploiter addresses are not EAIs, with 21% being more than five hops away from any regulated exchange. We present three implementation approaches with varying gas cost and privacy tradeoffs, demonstrating that EAI-based access control can potentially prevent most of these incidents while preserving blockchain openness. Importantly, our approach does not restrict access or share personally identifiable information, but it provides information for protocols to implement their own validation or risk scoring systems based on specific needs. This middle-ground solution enables programmatic compliance while maintaining the core values of open blockchain.
Artificial intelligence (AI) has demonstrated remarkable success across various applications. In light of this trend, the field of automated trading has developed a keen interest in leveraging AI techniques to forecast the future prices of financial assets. This interest stems from the need to address trading challenges posed by the inherent volatility and dynamic nature of asset prices. However, crafting a flawless strategy becomes a formidable task when dealing with assets characterized by intricate and ever-changing price dynamics. To surmount these formidable challenges, this research employs an innovative rule-based strategy approach to train Deep Reinforcement Learning (DRL). This application is carried out specifically in the context of trading Bitcoin (BTC) and Ripple (XRP). Our proposed approach hinges on the integration of Deep Q-Network, Double Deep Q-Network, Dueling Deep Q-learning networks, alongside the Advantage Actor-Critic algorithms. Each of them aims to yield an optimal policy for our application. To evaluate the effectiveness of our Deep Reinforcement Learning (DRL) approach, we rely on portfolio wealth and the trade signal as performance metrics. The experimental outcomes highlight that Duelling and Double Deep Q-Network outperformed when using XRP with the increasing of the portfolio wealth. All codes are available in this \href{https://github.com/VerlonRoelMBINGUI/RL_Final_Projects_AMMI2023}{\color{blue}Github link}.
In this work, we propose to apply a new model fusion and learning paradigm, known as Combinatorial Fusion Analysis (CFA), to the field of Bitcoin price prediction. Price prediction of financial product has always been a big topic in finance, as the successful prediction of the price can yield significant profit. Every machine learning model has its own strength and weakness, which hinders progress toward robust-ness. CFA has been used to enhance models by leveraging rank-score characteristic (RSC) function and cognitive diversity in the combination of a moderate set of diverse and relatively well-performed models. Our method utilizes both score and rank combinations as well as other weighted combination techniques. Key metrics such as RMSE and MAPE are used to evaluate our methodology performance. Our proposal presents a notable MAPE performance of 0.19 %. The proposed method greatly improves upon individual model performance, as well as out-performs other Bitcoin price prediction models.
Blockchain technology has set off a wave of decentralization in the world since its birth. The trust system constructed by blockchain technology based on cryptography algorithm and computing power provides a practical and powerful solution to solve the trust problem in human society. In order to make more convenient use of the characteristics of blockchain and build applications on it, smart contracts appear. By defining some trigger automatic execution contracts, the application space of blockchain is expanded and the foundation for the rapid development of blockchain is laid. This is blockchain 2.0. However, the programmability of smart contracts also introduces vulnerabilities. In order to cope with the insufficient security guarantee of high-value application networks running on blockchain 2.0 and smart contracts, this article will be represented by Ethereum to introduce the technical details of understanding blockchain 2.0 and the operation principle of contract virtual machines, and explain how cryptocurrencies based on blockchain 2.0 are constructed and operated. The common security problems and solutions are also discussed. Based on relevant research and on-chain practice, this paper provides a complete and comprehensive perspective to understanding cryptocurrency technology based on blockchain 2.0 and provides a reference for building more secure cryptocurrency contracts.
Blockchains rely on economic incentives to ensure secure and decentralised operation, making incentive compatibility a core design concern. However, protocols are rarely deployed in isolation. Applications interact with the underlying consensus and network layers, and multiple protocols may run concurrently on the same chain. These interactions give rise to complex incentive dynamics that traditional, isolated analyses often fail to capture. We propose the first compositional game-theoretic framework for blockchain protocols. Our model represents blockchain protocols as interacting games across the application, network, and consensus layers. It enables formal reasoning about incentive compatibility under composition by introducing two key abstractions: the cross-layer game, which models how strategies in one layer influence others, and cross-application composition, which captures how application protocols interact concurrently through shared infrastructure. We illustrate our framework through case studies on Hashed Timelock Contracts (HTLCs), Layer-2 protocols, and Maximal Extractable Value (MEV) showing how compositional analysis reveals new subtle incentive vulnerabilities and supports modular security proofs. Also, by introduction of a novel rational miner model, we derive new conditions for the robustness of timelocks to bribing attacks.
Cryptocurrency blockchains, beyond their primary role as distributed payment systems, are increasingly used to store and share arbitrary content, such as text messages and files. Although often non-financial, this hidden content can impact price movements by conveying private information, shaping sentiment, and influencing public opinion. However, current analyses of such data are limited in scope and scalability, primarily relying on manual classification or hand-crafted heuristics. In this work, we address these limitations by employing Natural Language Processing techniques to analyze, detect patterns, and extract public sentiment encoded within blockchain transactional data. Using a variety of Machine Learning techniques, we showcase for the first time the predictive power of blockchain-embedded sentiment in forecasting cryptocurrency price movements on the Bitcoin and Ethereum blockchains. Our findings shed light on a previously underexplored source of freely available, transparent, and immutable data and introduce blockchain sentiment analysis as a novel and robust framework for enhancing financial predictions in cryptocurrency markets. Incidentally, we discover an asymmetry between cryptocurrencies; Bitcoin has an informational advantage over Ethereum in that the sentiment embedded into transactional data is sufficient to predict its price movement.
Francesco Zola, Jon Ander Medina, A. Venturi, Raúl Orduna-Urrutia
Cryptocurrency users increasingly rely on obfuscation techniques such as mixers, swappers, and decentralised or no-KYC exchanges to protect their anonymity. However, at the same time, these services are exploited by criminals to conceal and launder illicit funds. Among obfuscation services, mixers remain one of the most challenging entities to tackle. This is because their owners are often unwilling to cooperate with Law Enforcement Agencies, and technically, they operate as 'black boxes'. To better understand their functionalities, this paper proposes an approach to analyse the operations of mixers by examining their address-transaction graphs and identifying topological similarities to uncover common patterns that can define the mixer's modus operandi. The approach utilises community detection algorithms to extract dense topological structures and clustering algorithms to group similar communities. The analysis is further enriched by incorporating data from external sources related to known Exchanges, in order to understand their role in mixer operations. The approach is applied to dissect the Blender.io mixer activities within the Bitcoin blockchain, revealing: i) consistent structural patterns across address-transaction graphs; ii) that Exchanges play a key role, following a well-established pattern, which raises several concerns about their AML/KYC policies. This paper represents an initial step toward dissecting and understanding the complex nature of mixer operations in cryptocurrency networks and extracting their modus operandi.
As the number of decentralized applications and users on Ethereum grows, the ability of the blockchain to efficiently handle a growing number of transactions becomes increasingly strained. Ethereums current execution model relies heavily on sequential processing, meaning that operations are processed one after the other, which creates significant bottlenecks to future scalability demands. While scalability solutions for Ethereum exist, they inherit the limitations of the EVM, restricting the extent to which they can scale. This paper proposes a novel solution to enable maximally parallelizable executions within Ethereum, built out of three self-sufficient approaches. These approaches include strategies in which Ethereum transaction state accesses could be strategically and efficiently predetermined, and further propose how the incorporation of gas based incentivization mechanisms could enforce a maximally parallelizable network.
Cryptocurrencies have transformed financial markets with their innovative blockchain technology and volatile price movements, presenting both challenges and opportunities for predictive analytics. Ethereum, being one of the leading cryptocurrencies, has experienced significant market fluctuations, making its price prediction an attractive yet complex problem. This paper presents a comprehensive study on the effectiveness of Large Language Models (LLMs) in predicting Ethereum prices for short-term and few-shot forecasting scenarios. The main challenge in training models for time series analysis is the lack of data. We address this by leveraging a novel approach that adapts existing pre-trained LLMs on natural language or images from billions of tokens to the unique characteristics of Ethereum price time series data. Through thorough experimentation and comparison with traditional and contemporary models, our results demonstrate that selectively freezing certain layers of pre-trained LLMs achieves state-of-the-art performance in this domain. This approach consistently surpasses benchmarks across multiple metrics, including Mean Squared Error (MSE), Mean Absolute Error (MAE), and Root Mean Squared Error (RMSE), demonstrating its effectiveness and robustness. Our research not only contributes to the existing body of knowledge on LLMs but also provides practical insights in the cryptocurrency prediction domain. The adaptability of pre-trained LLMs to handle the nature of Ethereum prices suggests a promising direction for future research, potentially including the integration of sentiment analysis to further refine forecasting accuracy.
The rapid growth of Blockchain and Decentralized Finance (DeFi) has introduced new challenges and vulnerabilities that threaten the integrity and efficiency of the ecosystem. This study identifies critical issues such as Transaction Order Dependence (TOD), Blockchain Extractable Value (BEV), and Transaction Importance Diversity (TID), which collectively undermine the fairness and security of DeFi systems. BEV-related activities, including Sandwich attacks, Liquidations, and Transaction Replay, have emerged as significant threats, collectively generating $540.54 million in losses over 32 months across 11,289 addresses, involving 49,691 cryptocurrencies and 60,830 on-chain markets. These attacks exploit transaction mechanics to manipulate asset prices and extract value at the expense of other participants, with Sandwich attacks being particularly impactful. Additionally, the growing adoption of Blockchain in traditional finance highlights the challenge of TID, where high transaction volumes can strain systems and compromise time-sensitive operations. To address these pressing issues, we propose a novel Distributed Transaction Sequencing Strategy (DTSS), which combines forking mechanisms and the Analytic Hierarchy Process (AHP) to enforce fair and transparent transaction ordering in a decentralized manner. Our approach is further enhanced by an optimization framework and the introduction of the Normalized Allocation Disparity Metric (NADM), which ensures optimal parameter selection for transaction prioritization. Experimental evaluations demonstrate that DTSS effectively mitigates BEV risks, enhances transaction fairness, and significantly improves the security and transparency of DeFi ecosystems. This work is essential for protecting the future of decentralized finance and promoting its integration into global financial systems.
This paper demonstrates that Automated Market Maker (AMM) based markets, such as those using constant product formulas (e.g., Uniswap), are inherently path-dependent. We prove mathematically that the sequence of operations in AMMs determines the final state, challenging the notion that market prices solely reflect information. This property has profound implications for decentralized prediction markets that rely on AMMs for price discovery, as it demonstrates they cannot function as pure "truth machines." Using both mathematical proofs and empirical evidence from ETH/USDC pools, we show that AMM-based markets incorporate historical path information beyond the current market beliefs. Our findings contribute to the understanding of market efficiency, mechanism design, and the interpretation of prices in decentralized finance systems.
Throughout the history from pre-industry 4.0 to post-industry 4.0, cybersecurity at banks has undergone significant changes. Pre-industry 4.0 cyber security at banks relied on individual security methods that were highly manual and had low accuracy. When moving to post-industry 4.0, cybersecurity at banks had a major turning point with security methods that combined different technologies such as Artificial Intelligence (AI), Blockchain, IoT, automating necessary processes and significantly increasing the defence layer for banks. However, along with the development of new technologies, the current challenge of cybersecurity at banks lies in scalability, high costs and resources in both money and time for R&D of defence methods along with the threat of high-tech cybercriminals growing and expanding. This report goes from introducing the importance of cybersecurity at banks, analyzing their management, operational and business objectives, evaluating pre-industry 4.0 technologies used for cybersecurity at banks to assessing post-industry 4.0 technologies focusing on Artificial Intelligence and Blockchain, discussing current policies and practices and ending with discussing key advantages and challenges for 4.0 technologies and recommendations for further developing cybersecurity at banks.
Digital currencies primarily operate online, but there is growing interest in enabling offline transactions to improve digital inclusion. Existing offline methods struggle with double-spending risks, often limiting transaction amounts. In this work, we propose a quantum-state-based currency system that uses the non-cloning theorem to enable secure, multi-channel transactions without the risk of double spending. We demonstrate this system's implementation with experimental results, including use cases for currency transfers and swaps. To mitigate credit risks in swaps, we also integrate blockchain to show its wide applicability. Our approach paves the way for quantum-secure digital currencies and opens new possibilities for optimizing multi-channel tokens.
In this era, significant transformations in industries and tool utilization are driven by AI/Large Language Models (LLMs) and advancements in Machine Learning. There's a growing emphasis on Machine Learning Operations(MLOps) for managing and deploying these AI models. Concurrently, the imperative for richer smart contracts and on-chain computation is escalating. Our paper introduces an innovative framework that integrates blockchain technology, particularly the Cosmos SDK, to facilitate on-chain AI inferences. This system, built on WebAssembly (WASM), enables interchain communication and deployment of WASM modules executing AI inferences across multiple blockchain nodes. We critically assess the framework from feasibility, scalability, and model security, with a special focus on its portability and engine-model agnostic deployment. The capability to support AI on-chain may enhance and expand the scope of smart contracts, and as a result enable new use cases and applications.
H.C. Zhang, Shike Li, Shike Li, Hang Bao · 6 authors
The rapid development of blockchain technology has driven the widespread application of decentralized applications (DApps) across various fields. However, DApps cannot directly access external data and rely on oracles to interact with off-chain data. As a bridge between blockchain and external data sources, oracles pose potential risks of malicious behavior, which may inject incorrect or harmful data, leading to trust and security issues. Additionally, with the surge in data requests, the disparity in oracle trustworthiness and costs has increased, making the dynamic selection of the most suitable oracle for each request a critical challenge. To address these issues, this paper proposes a Trust-Aware and Cost-Optimized Blockchain Oracle Selection Model with Deep Reinforcement Learning (TCO-DRL). The model incorporates a comprehensive trust management mechanism to evaluate oracle reputation from multiple dimensions and employs an improved sliding time window to monitor reputation changes in real time, enhancing resistance to malicious attacks. Moreover, TCO-DRL uses deep reinforcement learning algorithms to dynamically adapt to fluctuations in oracle reputation, ensuring the selection of high-reputation oracles while optimizing node selection, thereby reducing costs without compromising data quality. We implemented and validated TCO- DRL on Ethereum. Experimental results show that, compared to existing methods, TCO-DRL reduces the allocation rate to malicious oracles by more than 39.10% and saves over 12.00% in costs. Furthermore, simulated experiments on various malicious attacks further validate the robustness and effectiveness of TCO-DRL
Ethereum has adopted a rollup-centric roadmap to scale by making rollups (layer 2 scaling solutions) the primary method for handling transactions. The first significant step towards this goal was EIP-4844, which introduced blob transactions that are designed to meet the data availability needs of layer 2 protocols. This work constitutes the first rigorous and comprehensive empirical analysis of transaction- and mempool-level data since the institution of blobs on Ethereum on March 13, 2024. We perform a longitudinal study of the early days of the blob fee market analyzing the landscape and the behaviors of its participants. We identify and measure the inefficiencies arising out of suboptimal block packing, showing that at times it has resulted in up to 70% relative fee loss. We hone in and give further insight into two (congested) peak demand periods for blobs. Finally, we document a market design issue relating to subset bidding due to the inflexibility of the transaction structure on packing data as blobs and suggest possible ways to fix it. The latter market structure issue also applies more generally for any discrete objects included within transactions.
Financial Sentiment Analysis (FSA) traditionally relies on human-annotated sentiment labels to infer investor sentiment and forecast market movements. However, inferring the potential market impact of words based on their human-perceived intentions is inherently challenging. We hypothesize that the historical market reactions to words, offer a more reliable indicator of their potential impact on markets than subjective sentiment interpretations by human annotators. To test this hypothesis, a market-derived labeling approach is proposed to assign tweet labels based on ensuing short-term price trends, enabling the language model to capture the relationship between textual signals and market dynamics directly. A domain-specific language model was fine-tuned on these labels, achieving up to an 11% improvement in short-term trend prediction accuracy over traditional sentiment-based benchmarks. Moreover, by incorporating market and temporal context through prompt-tuning, the proposed context-aware language model demonstrated an accuracy of 89.6% on a curated dataset of 227 impactful Bitcoin-related news events with significant market impacts. Aggregating daily tweet predictions into trading signals, our method outperformed traditional fusion models (which combine sentiment-based and price-based predictions). It challenged the assumption that sentiment-based signals are inferior to price-based predictions in forecasting market movements. Backtesting these signals across three distinct market regimes yielded robust Sharpe ratios of up to 5.07 in trending markets and 3.73 in neutral markets. Our findings demonstrate that language models can serve as effective short-term market predictors. This paradigm shift underscores the untapped capabilities of language models in financial decision-making and opens new avenues for market prediction applications.
Himanshu Udupi, Ashutosh Sahoo, Akshay S. P., Gurukiran S. · 6 authors
Modern society functions on trust. The onchain economy, however, is built on the founding principles of trustless peer-to-peer interactions in an adversarial environment without a centralised body of trust and needs a verifiable system to quantify credibility to minimise bad economic activity. We provide a robust framework titled zScore, a core primitive for reputation derived from a wallet's onchain behaviour using state-of-the-art AI neural network models combined with real-world credentials ported onchain through zkTLS. The initial results tested on retroactive data from lending protocols establish a strong correlation between a good zScore and healthy borrowing and repayment behaviour, making it a robust and decentralised alibi for creditworthiness; we highlight significant improvements from previous attempts by protocols like Cred showcasing its robustness. We also present a list of possible applications of our system in Section 5, thereby establishing its utility in rewarding actual value creation while filtering noise and suspicious activity and flagging malicious behaviour by bad actors.
Decentralized finance (DeFi) markets spread across Layer-1 (L1) and Layer-2 (L2) blockchains rely on arbitrage to keep prices aligned. Today most price gaps are closed against centralized exchanges (CEXes), whose deep liquidity and fast execution make them the primary venue for price discovery. As trading volume migrates on-chain, cross-chain arbitrage between decentralized exchanges (DEXes) will become the canonical mechanism for price alignment. Yet, despite its importance to DeFi-and the on-chain transparency making real activity tractable in a way CEX-to-DEX arbitrage is not-existing research remains confined to conceptual overviews and hypothetical opportunity analyses. We study cross-chain arbitrage with a profit-cost model and a year-long measurement. The model shows that opportunity frequency, bridging time, and token depreciation determine whether inventory- or bridge-based execution is more profitable. Empirically, we analyze one year of transactions (September 2023 - August 2024) across nine blockchains and identify 242,535 executed arbitrages totaling 868.64 million USD volume. Activity clusters on Ethereum-centric L1-L2 pairs, grows 5.5x over the study period, and surges-higher volume, more trades, lower fees-after the Dencun upgrade (March 13, 2024). Most trades use pre-positioned inventory (66.96%) and settle in 9s, whereas bridge-based arbitrages take 242s, underscoring the latency cost of today's bridges. Market concentration is high: the five largest addresses execute more than half of all trades, and one alone captures almost 40% of daily volume post-Dencun. We conclude that cross-chain arbitrage fosters vertical integration, centralizing sequencing infrastructure and economic power and thereby exacerbating censorship, liveness, and finality risks; decentralizing block building and lowering entry barriers are critical to countering these threats.
Thomas Eisermann, Carlo Campajola, Claudio J. Tessone, Andreia Sofia Teixeira
Blockchain-based systems are frequently governed through tokens that grant their holders voting rights over core protocol functions and funds. The centralisation occurring in Decentralised Finance (DeFi) protocols' token-based voting systems is typically analysed by examining token holdings' distribution across addresses. In this paper, we expand this perspective by exploring shared token holdings of addresses across multiple DeFi protocols. We construct a Statistically Validated Network (SVN) based on shared governance token holdings among addresses. Using the links within the SVN, we identify influential addresses that shape these connections and we conduct a post-hoc analysis to examine their characteristics and behaviour. Our findings reveal persistent influential links over time, predominantly involving addresses associated with institutional investors who maintain significant token supplies across the sampled protocols. Finally, we observe that token holding patterns and concentrations tend to shift in response to speculative market cycles.
Blockchain technology, with implications in the financial domain, offers data in the form of large-scale transaction networks. Analyzing transaction networks facilitates fraud detection, market analysis, and supports government regulation. Despite many graph representation learning methods for transaction network analysis, we pinpoint two salient limitations that merit more investigation. Existing methods predominantly focus on the snapshots of transaction networks, sidelining the evolving nature of blockchain transaction networks. Existing methodologies may not sufficiently emphasize efficient, incremental learning capabilities, which are essential for addressing the scalability challenges in ever-expanding large-scale transaction networks. To address these challenges, we employed an incremental approach for random walk-based node representation learning in transaction networks. Further, we proposed a Metropolis-Hastings-based random walk mechanism for improved efficiency. The empirical evaluation conducted on blockchain transaction datasets reveals comparable performance in node classification tasks while reducing computational overhead. Potential applications include transaction network monitoring, the efficient classification of blockchain addresses for fraud detection or the identification of specialized address types within the network.
This paper introduces 3MEthTaskforce (https://3meth.github.io), a multi-source, multi-level, and multi-token Ethereum dataset addressing the limitations of single-source datasets. Integrating over 300 million transaction records, 3,880 token profiles, global market indicators, and Reddit sentiment data from 2014-2024, it enables comprehensive studies on user behavior, market sentiment, and token performance. 3MEthTaskforce defines benchmarks for user behavior prediction and token price prediction tasks, using 6 dynamic graph networks and 19 time-series models to evaluate performance. Its multimodal design supports risk analysis and market fluctuation modeling, providing a valuable resource for advancing blockchain analytics and decentralized finance research.