(1) The word "frontrunning" applies only in a very specific context, where you trade in front of an entity with which you have a client relationship. That is different from capturing a trading opportunity because you are faster than another party. Frontrunning is illegal and law-abiding HFT firms don't do it. They often don't even have clients to which this applies! Being faster is not illegal. Can we please stop using this term to describe behavior we don't like.
(2) What do they mean they introduce the term MEV (miner extractable value)? Everyone calls it that, and it's part of the incentive that miners have to validate transactions.
(3) Might want to add (2019) to the title, this paper is pretty old. Perhaps this answers (2).
I think (1) is a bit harsh relating to the terminology. Technically front running is based on plainly “non-public” information. The term has been generalised and expanded to include crypto transactions which are slightly more obfuscated from the average user who doesn’t sit and watch the mempool. I think the term is completely appropriate.
I respectfully don't think it is too harsh. Every legal definition I know of frontrunning requires a client relationship. Even in the case of "non-public" information, frontrunning refers to trading ahead of your client based on non-public information related to the clients securities. Trading on non-public information when a client is not involved is referred to as insider trading.
Also in this context, the reason that these sandwich attacks can happen is because all the information is public. The adversary can see your transaction waiting to be validated, and pay the miner a higher gas fee to be executed first.
There is no way that every transaction signer whose transaction is added to a block should be considered a client of the miner of that block.
Most likely none of the transaction signers qualify as clients of the miner. Transactions are transmitted over the network anonymously via a gossip protocol, and hundreds or thousands of miners have the chance to include (or not include) any transaction in a block. Transactions are selected for inclusion in a block effectively randomly, through an entirely mechanical process, and no relationship is established or maintained between the miner and any transaction sender.
In order to assert that a transaction signer is a client of the miner that builds the block that includes the transaction, you would have to redefine what the word “client” means.
> There is no way that every transaction signer whose transaction is added to a block should be considered a client of the miner of that block.
This does not seem obvious to me; even if "client" is too strong a word, the transaction signer and miner have some social contract that's very similar to more traditional fiduciary duty, even if the technical details and enforcement mechanisms are totally different.
It is so curious that you use the term “fiduciary duty” to describe the relationship between a miner and the signers of the transactions it includes in its mined blocks.
The primary rationale of fiduciary duty is trust. In contrast, the whole reason that miners even exist is so that the service they provide can be performed in an entirely antagonistic environment, without trust.
I suppose it can be said that a miner’s “social contract is very similar to more traditional fiduciary duty”, but only in the sense that a thing is somehow conceptually related to the exact opposite of that thing.
Many cases of front running involved 3rd parties with access to client information. Anyway, my point was legally the information may be protected even if the protocol is open, though I seriously doubt that it would be considered so stranger results have happened.
Not sure why you are so hung up on the semantics. Obviously the "legal definition" of frontrunning is different from the crypto native definition. What matters is that it adeptly captures the nature of these actions.
Um, because I think words have meaning, and I think accusing people of actions that have legal implications when they are not in fact doing those things is bad.
It's not appropriate, because it's a poor generalization to begin with. People just see "frontrunning" and have a vague sense it's fundamentally illegitimate because of vague connections to the illegal practice, and yell things that make no sense on wsb and the like.
The usage is popularized because it makes sensationalist headlines and forum headers, that the "generalized usage" was either misguided or intended to confuse, which correlates poorly with accurately conveying the meaning of word or capturing the details of the blockchain phenomenon.
> It's not appropriate, because it's a poor generalization to begin with. People just see "frontrunning" and have a vague sense it's fundamentally illegitimate because of vague connections to the illegal practice
No, not because of vague connections, but because it does the same kind of destructive thing that’s bad (for the ecosystem) for the same reason it’s bad on the normal market: it extracts value from a transaction because of timing and a privileged position, disencentivizing positive-sum behavior. (In the broker’s case, because of knowing about the transaction; in the miner’s, because of having that mining power and being able to quickly execute on knowledge of upcoming transactions.)
Front-running means a very specific thing: a broker/dealer trading ahead of a client order they are supposed to honestly facilitate. It is rightly illegal.
Trading fast based on "slightly obfuscated" public domain information is categorically not any kind of front-running. It is as far as I can see just a pure execution arbitrage.
HFT firms are re-applying a lot of techniques that worked a decade or more ago in regular markets, except now there's way less competition and way less regulation. They are making a killing right now in crypto.
It’s not just HFT firms. Every professional trader in the world who got put out of business in the regular markets for being too inefficient is running old fashioned games on the crypto exchanges and making money.
Watching the full depth order book on any crypto exchange is like “Back To the Future”.
Just imo, I think some of the "games" are fair play. Spoofing only became illegal when computerised trading started. When it was just humans trading electronically, everyone knew spoofing happened, the evidence was in the order book, and people traded accordingly (and, ofc, spoofing involved taking on monumental levels of risk).
The rules we have are pretty bent. Everything is geared towards transparency but if algos work out your trades are actually moving the price, the liquidity is gone. So vanishing liquidity is okay, but spoofing isn't? Hiding your intention is an innate part of markets, and is a way to defend yourself against other traders.
I actually support more consumer protection, the pump and dumps indicate that some consumers shouldn't be in these markets. But trading has always been the Wild West (and still is but the banditos run the town instead of the Sheriff now).
In past few years, I got calls with offer to build artificial market making models (aka pump and dump) for crypto exchanges, with 7 figures payout per model + commission, I refuse to do such work, this is just disgusting, don't care how legal or illegal this is, it did not seem they have infrastructure for HFT in terms of Order Routing like it is on stock exchanges like BATS etc ...
To my knowledge the most money people make in crypto are from token services.
Traditional HFT market-making is still somewhat competitive in crypto, and it's not helped by the fact the exchanges aren't sufficiently technologically literate to provide a fair playing ground for all participants.
This was the paper that got it started, but now a few years later, strategies have gotten much more advanced. There was an entire conference day devoted to it a few weeks ago, with some interesting talks, if you are interested in the state of the art: https://flashbots.notion.site/MEV-DAY-836f88806995412dabc1c7...
I tell people who are interested in the crypto market: just look at the structures and concepts that exist in "centralized finance" and replicate them for the crypto world. (Eg: risk systems, custodial systems, index calculators, portfolio management, the list goes on, etc... )
This 2019 paper simply re-confirms that thought. Crypto today is no different than the 1900 turn-of-the-century bucket-shop pump-and-dump scams of previous Wall Street iterations.
Please tell me where in the world of centralized finance I can go to take out a zero-collateral multi-million dollar loan, transact with it, and immediately pay it back?
The process is permissionless, meaning, among other things, that it can be automated, and it carries almost zero fees (only the Ethereum gas fee for EVM instructions).
To take another example, the world's leading decentralized exchange, Uniswap, has now overtaken centralized exchanges in market depth for some major trading pairs:
This is a credibly neutral value exchange protocol that major centralized exchanges are coalescing around as a source of liquidity. The market depth is truly impressive. For example, you can sell hundreds of thousands of dollars worth of ETH in one trade with almost zero slippage.
So crypto is not just another iteration of Wall Street.
And to the point of past iterations of Wall Street: the 19th century banking system was not rife with scams as the caricature suggests:
Anyone who doesn’t like crypto doesn’t have to play with it. It’s a tiny blip of nothing in size when compared to actual markets, and the “crime” that exists in crypto is nothing compared to what large banks facilitate for drug kingpins and oligarchs every single day.
Let this weird parallel financial system develop for another decade and see what comes out of it. Might actually solve some problems.
Except that is mostly printed money. You can't take the crypto market cap seriously. If a significant portion of it tries to get converted from "magic internet money" to real money the price will plummet.
Stock has some intrinsic value though. When we talk about Europe - the stockmarket is not so inflated: mostly boring companoes doing boring stuff -> that brings a lot of cash flow.
Yeah. Furthermore, I don’t know how CMC calculates their total but if it uses fully diluted market cap, the crypto total would be even less by a large amount.
A lot of it is wash trading though and a lot of the market cap is paper gains too.
I still think it should be regulated and we would be better without the crypto market, but I doubt a crypto crash would have much of an impact on the economy in general.
(1) The word "frontrunning" applies only in a very specific context, where you trade in front of an entity with which you have a client relationship. That is different from capturing a trading opportunity because you are faster than another party. Frontrunning is illegal and law-abiding HFT firms don't do it. They often don't even have clients to which this applies! Being faster is not illegal. Can we please stop using this term to describe behavior we don't like.
(2) What do they mean they introduce the term MEV (miner extractable value)? Everyone calls it that, and it's part of the incentive that miners have to validate transactions.
(3) Might want to add (2019) to the title, this paper is pretty old. Perhaps this answers (2).