According to a paper published by researchers at Cornell Institute of Technology and several other universities, high-frequency trading manipulations are rampant in some cryptocurrency exchanges.
The report released last week pointed out that professional arbitrage robots will predict the trading behavior of ordinary traders and profit from the transactions of ordinary users . This usually happens on decentralized exchanges where users can trade more directly. Companies deploying automated trading programs try to prioritize by paying higher fees and use this advantage for Front running, where traders can see orders from others and try to place their orders first. .
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Although the Decentralized Exchange (DEX) currently accounts for only a small portion of the overall transaction volume, with the introduction of a decentralized trading platform by a large centralized exchange such as Kanan, many other centralized encryption exchanges follow suit, DEX The usage is expected to increase. However, Ari Juels, a professor at Cornell Tech, said that this market manipulation behavior may also appear more and more in centralized exchanges .
He delivered a speech at the blockchain conference at Cornell Technologies' New York campus last week:
“We don’t know how bad it is in the centralized exchanges. If we infer from what we saw on DEX, the amount of money involved could reach orders of magnitude of billions of dollars.”
The encryption market has been plagued by market manipulation allegations. Not long ago, it was reported that nearly 90% of the transaction volume in the encryption market was suspected of fraud.
Juels then said in an interview that the use of encrypted robots could be very profitable, and it would pay the miners to perform a 51% attack.
This article also states:
“We explained that DEX's design flaws threaten the security of the underlying blockchain. These robots show many similar market profit-making behaviors—preemptive trading, high latency optimization, etc. These are common on Wall Street, just like Michael Lewis. The best-selling book "High-frequency Traders: The Flash Boys on Wall Street" reveals."
The book, published in 2014, says the stock market is being manipulated in a way that favors high-frequency trading companies that profit from high-speed data links to stock exchanges.
Anyone trying to document the illegal conduct of an electronic exchange faces many difficulties. In the market where smart contracts are executed, the challenges are equally huge. Five years after the publication, Wall Street traders were still angry that Lewis had exposed their “criminal behavior” (Lewis called manipulation), which they thought was inevitable on the exchange. The meaning of the term “preemptive trading” is also ambiguous. Some people think that it is only the advantage of professional market makers facing ordinary investors.
The author of the paper has been tracking the selected six decentralized exchanges in real time since October last year and checking historical data. First author Philip Daian said in an interview that only six exchanges – only a small part of the total number of DEXs – found that more than 500 trading robots currently earn up to $20,000 a day through such activities . Researchers say that exchanges such as EtherDelta and Bancor are happening, although Bancor says it has the ability to "neutralize" robots to manipulate threats. The company partially curbed the robot's manipulation by setting the highest gas price to ensure that the attacker could not raise the bid.
Juels said the researchers even set up their own robots to better understand how this trading method is implemented. And, to their surprise, they even received an offer. They refused.
“This should prompt the community to consider the design of the new exchange.”