Attacking Invalid Augur (REP) Markets: Binance Research Warns of “Design Flaw Attack”

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The cryptoeconomy’s most high-profile decentralized prediction marketplace, Augur (REP), has been identified as having a problematic design flaw according to the research arm of the space’s most high-profile crypto exchange, Binance.

In the report, Binance Research outlined some general and technical problems facing the platform and also offered an analysis on what they characterized as a so-called “design flaw attack” — a phenomena involving a malicious agent intentionally making vague Augur markets in order to manipulate them for financial gain.

Binance Augur

The researchers noted that the lack of Augur user interfaces (UI) to date has led to a bottleneck effect where users are relying on one of two platforms, or an IPFS-backed UI. This pigeonhole dynamic can facilitate manipulation since artificial trade volume can more readily raise the profile of attackers’ markets.

Binance Research noted that volume was low enough on the platform that, at least for now, an agent could use a relatively small amount of ether (ETH) to easily boost the exposure of attack markets. The team also highlighted that REP validity bonds, which are confiscated if markets resolve as “invalid,” are small enough that malicious agents can rather cheaply create many problematic markets.

As for the design flaw attack, Binance’s researchers said it involves an attacker creating a market that has a nearly impossible result and an extremely likely result.

The agent would then artificially boost awareness around the market with fake volume, drawing in organic bettors. The attacker, hoping for an eventual invalid market determination, then sells shares of the reasonable outcome at what appears to be a discount.

The problem? If the “invalid” ploy works, then all outcomes in that market will be “priced equally” and thus return equal shares of ether. That means the purchaser, having bought what they thought was a safe bet, would be guaranteed to lose money while the malicious agent makes off with a profit.

Where to Go From Here?

Binance’s researchers credited Augur’s builders with being aware of the aforementioned issues but argued that users may still be vulnerable in the interim:

“To their credit, the Augur team has already identified several of the considerations mentioned, as well as other potential improvements to consider for the 2nd version of the platform.

However, the improvements were released nearly 6 months ago, yet no official release of upgrades for a version 2 has been announced, while users have been potentially exposed to such concerns this entire duration.”

The authors put forth their own ideas regarding how the Augur team might go about addressing the design flaw attack. For one, they suggested a somewhat tedious “price-based funding mechanism” that would offer the advantage of paying users back in full when markets are invalidated.

The researchers also said enforcing clarity around “ambiguous terms” like “time-zones, currencies, denominations, and units” could be fruitful in stopping the kinds of markets that build the foundations for design flaw attacks:

“If the UI were designed to create default times, currencies, and denominations, the chance of accidentally making an invalid market would be much lower.”

To that end, Augur’s builders have taken a step in that direction in their recent Augur App version v1.11.0 release, which brings further clarity around timezones during the market creation process.

Another community-driven advancement is recent discussions around description templates for “common market topics,” per Richard Chen of 1confirmation. These templates would help standardize language and further rhetorical clarity where possible.

It’s the reality of building in an industry whose lifeblood is game theory. Edge cases are worth heavily considering precisely because if a system’s gameable, there’s a good chance someone’s going to try to play it.

Undoubtedly, Augur’s makers will strive to make invalid markets less gameable going forward.


William M. Peaster is a professional writer and editor who specializes in the Ethereum, Dai, and Bitcoin beats in the cryptoeconomy. He's appeared in Blockonomi, Binance Academy, Bitsonline, and more. He enjoys tracking smart contracts, DAOs, dApps, and the Lightning Network. He's learning Solidity, too! Contact him on Telegram at @wmpeaster

1 Comment

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    Peter Vecchiarelli Reply

    A fix for this design flaw attack was just released, you can read more about it here

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