Uniswap v3 TWAP Oracles in Proof of Stake

Abstract

In the Uniswap Protocol, a price oracle is a tool used to view price information about a given asset over time and enables developers to build highly decentralized protocols with quantifiable manipulation costs using price feeds. With the adoption of Proof of Stake (PoS), oracles are theoretically less secure because a malicious validator knows whether they control the next block created, allowing them to avoid value lost to back-running an attempted oracle manipulation. However, manipulation on most Uniswap v3 TWAP oracles is not currently possible, because bad actors both need to source vast amounts of capital and then earn enough to make up for value lost to fees. This paper studies the difficulty, potential cost, and likelihood of oracle manipulations on Uniswap v3 under Ethereum PoS. We also discuss potential future innovations to create the next generation of PoS manipulation resistant oracles.

Keywords: Automated market makers, blockchain, distributed ledger technology, ora- cles, financial stability