Analysis of NEST Oracle Machine Facing Mining Pool Denial of Service Attack

The NEST distributed Oracle Machine aims to enhance the reliability of price data and the security of the system through extensive on-chain user participation. To address malicious quoting, NEST has designed a quoting-eating order validation mechanism that allows validators to trade based on the quotes and propose corrections.

However, the effectiveness of this mechanism relies on the timely appearance of market orders and new quoted trades in the new blocks on the chain. With the rise of Mining Pools, the rights to package transactions are monopolized, and large mining pools tend to select transactions that are beneficial to themselves or have higher fees for packaging, which may result in new quotes not being verified in a timely manner.

In this case, NEST may output incorrect price data, creating arbitrage opportunities for certain Mining Pools, threatening the security of the entire DeFi ecosystem.

Attack Process Analysis

Assuming all mining participants are Mining Pools and are aware of each other's hash power ratios. The attack process is as follows:

1. Malicious mining pools hoard cryptocurrencies for arbitrage in advance through methods like flash loans.

2. Submit quotes to NEST that differ significantly from the actual market price.

3. During the validation period, other Mining Pools have two options: to package the corrected quoted transactions or not to package them.

4. Each Mining Pool makes decisions based on its own hash rate share and potential earnings, forming a fully informed static game with multiple independent instances.

The decisions of the Mining Pool are based on two potential returns:

• Immediately correct the profits obtained from the quotation a
• No correction of the quote, waiting for the malicious quote to be established to profit from arbitrage b (usually b > a)

Actual return considerations:

• The hash rate share of the Mining Pool (affects the probability of obtaining accounting rights)
• The probability of all verification period blocks not appearing to modify the quoted price.

In the end, the Mining Pool makes a choice based on its own hash power ratio and the profit ratio a/b, reaching a Nash equilibrium state.

Summary

Mining Pools may delay or hinder price corrections due to their computational power advantage, exploiting the NEST Oracle Machine for arbitrage. This is not only a challenge faced by NEST but also an issue confronting the entire decentralized philosophy of blockchain. Addressing the problems brought by Mining Pools is a significant challenge on the path to achieving true decentralization.