English

English

How insider trading continues to plague crypto investors

As Bitcoin and Ethereum prices have skyrocketed in recent months, the decentralized cryptocurrency market has seen a massive influx of new traders, especially stock traders, who have migrated to the crypto market. -currencies, with the aim of making a profit.

What has also evolved with them are some traditional day trading strategies used in the stock markets, which include scalping breakout tactics (trading small price movements without aiming for massive profits). But one stock market tactic in particular that has proven popular for intraday crypto traders is front running.

Pioneers are abusing cryptocurrency exchanges by absorbing hundreds of millions of cryptos from traders’ transactions on the Ethereum network.

Here we explain what front running is and if you are a crypto trader how you can play it safe.

What is front-running?

The race ahead is when a trader takes advantage of an insider ‘tip’ or knowledge of a future transaction that is about to dramatically affect the price of a crypto coin.

So, essentially, traders buy or sell a crypto coin based on prior, non-public knowledge or information that they believe will affect its price. This information is not yet public, which gives the trader an edge over other traders and the market as a whole. In fact, front running is a form of insider trading and market manipulation.

Traditionally, in an exchange, when stocks were traded on paper, on the floor of the exchange, front-running referred to rushing to the front of the line when you realized a huge trade was coming.

Aliasgar Merchant, Developer Relations Engineer, Tendermint, tells TechToSee.com: “For example, if you realized that someone was going to buy a colossal amount of stock, you could get it before them and then the sell at a higher market cost price after their huge purchase.

But how does this work in a crypto market?

The idea is not much different in the world of crypto. However, what is different is the technique. In the crypto world, bots can be used to automate trading. Simply put, bots are just programs that make trading easier. In this case, front-running robots automatically synthesize and evaluate the information available on the market and perform front-running for the users.

The robots deployed by the pioneers skip the queue and insert higher transaction fees to place the order, while the merchant who initiated the transaction is forced to pay the price he did not see coming.

For example, if a crypto trader knew that Tesla shares were about to be bought by Elon Musk for a volume of up to $ 15 million, the top bot could automatically buy the order right before that. , and when $ 15 million is bought, which drives up the price, the bot will immediately place a sell order, thus making maximum profit on the trade.

CyberNews researchers looked at the aggregate value mined, from April 24 to May 24, as well as the amount of value withdrawn from transactions in the last 24 hours of that monthly interval. Their investigation found that the pioneers mined more than $ 12 million in transactions every day, with the monthly losses suffered by traders reaching nearly $ 280 million in cryptocurrency, which can amount to billions of dollars in losses annually.

What is the solution ?

A basic way to apply to limit the front run is that instead of doing many large trades at the same time, users split their trade, which will reduce the attractiveness of trades to front-end bots due to the value that can be extracted.

Alternatively, investors can use Telos blockchain’s EVM Maine, a fully EVM-compatible layer 1 chain that can solve issues like frontrunning in the cryptocurrency market, high gas fees, and slow transaction speeds that affect the Ethereum network intermittently.

“Ethereum 2.0 has not allayed the prominent concerns of institutional investors to get into crypto investing. Miners continue to jump the line and increase their spread and de facto steal millions of dollars.” Says Douglas Horn, Chief Architect, Telos. “Telos EVM is faster, better, cheaper and works on a first come, first served basis. The ease of integration with Metamask allows investors to trade securely like they do on NASDAQ, ”he added.

Leave a Comment

Trending this Week