Zaros Part 1

Summary

Large orders that flip the skew are treated differently from multiple smaller orders that achieve the same net effect, potentially discouraging larger trades.

Vulnerability Details

Consider a market with the following conditions:

• Current skew: +95 (long-heavy)

• Maker fee: 0.05% (0.0005)

• Taker fee: 0.1% (0.001)

• Mark price: $1000

Option 1: Single large order of 200

• Fee calculation:

  • Maker portion: 95 * $1000 * 0.0005 = $47.5

  • Taker portion: 105 * $1000 * 0.001 = $105

  • Total fee: $47.5 + $105 = $152.5

Option 2: Split the order

1. First order: Sell 95 units

   • Fee: 95 * $1000 * 0.0005 = $47.5 (maker fee)

2. Second order: Sell 105 units

   • Fee: 105 * $1000 * 0.001 = $105 (taker fee)

Total fee for split orders: $47.5 + $105 = $152.5

1. Optimized split:

• First order: Sell 96 units

  • Fee: 96 * $1000 * 0.0005 = $48 (maker fee)

• Second order: Sell 104 units

  • Fee: 104 * $1000 * 0.0005 = $52 (now a maker fee because it's reducing skew)

• Total fee: $48 + $52 = $100

In this optimized split, the trader saves $52.5 in fees by carefully sizing their orders.

https://github.com/Cyfrin/2024-07-zaros/blob/d687fe96bb7ace8652778797052a38763fbcbb1b/src/perpetuals/leaves/PerpMarket.sol#L190C9-L220C10

Impact

The protocol may earn less in fees than intended, as traders optimize their order placement to minimize fees. Sophisticated traders with advanced algorithms can consistently pay lower fees than less sophisticated market participants, creating an unfair playing field.

Tools Used

Manual Review

Recommendations

Not an easy solution but Zaros could consider implementing a more uniform fee structure that doesn't create such stark differences based on order size or market impact. Alternatively, it could implement a sliding scale fee structure based on order size and market impact, making it more difficult to game the system through order splitting.