There are several cryptocurrency exchanges that are experiencing “Flash Boys”-like trading manipulation.
According to a paper released by researchers at Cornell Tech and other universities, special arbitrage bots are profiting from trades that users make in decentralized exchanges (DEX). As per Bloomberg, the firms that deploy autonomous trading programs are able to get higher priority ordering by paying a larger fee.
Crypto Exchanges Experience Manipulation
These bots use the aforementioned advantage allowing them to perform front tunning practices in which the traders can see orders from others and place their own orders first. At the moment, this is happening in decentralized exchanges, that are responsible for just a small portion of the overall crypto trading volume.
One of the exchanges that is currently building a decentralized platform is Binance. The intention is to become a user-friendly crypto exchange that would be able to help users enjoy the benefits of a decentralized exchange.
During a presentation last week at a blockchain conference at Cornell Tech’s New York City Campus, Professor Ari Juels, commented:
“We have no idea what the extent of the malfeasance is on centralized exchanges. If we extrapolate from what we’ve seen on DEXes, it could well be on the order of billions of dollars.”
There are several exchanges that have been accused of manipulation during the last weeks. Bitwise Asset Management released a report in which they explained that 95% of the exchanges listed in CoinMarketCap have fake volume.
According to Mr. Juels, the DEX design has some flaws that threaten underlying blockchain security. These bots are currently exhibiting similar market-exploiting behaviours that are common on Wall Street and that are known as “Flash Boys.”
Michael Lewis, a Bloomberg contributor, explained that the equity market has been operating in favour of high-frequency trading firms that were profiting from high-speed data links with stock exchanges.
As Bloomberg reported, the authors of the paper analyzed six decentralized exchanges in real time since October. They were able to see more than 500 bots that could be making around $20,000 a day through these activities. One of the exchanges, Bancor, explained that they have some features that neutralize these bot manipulations.
Thus, the community will have to work in order to create exchanges with a different overall design. Additionally, the U.S. Securities and Exchange Commission (SEC) and other regulatory agencies around the world, would not accept these kinds of things to happen under their jurisdictions.