Blockchain-based cryptocurrencies and decentralized finance (DeFi) protocols that rely on “miners” to verify transactions are inherently vulnerable to front running and other forms of market manipulation, according to new research.
In a bulletin from the Bank for International Settlements (BIS), researchers suggest that regulators may need to address practices in the crypto world that would be illegal in traditional securities markets.
Specifically, they point to an inherent feature of pseudo-anonymous blockchains, which involve miners validating transactions and updating the shared ledger.
“[E]ach of the validators or ‘miners’ updating the blockchain can determine which transactions are executed and when, thus affecting market prices and opening the door to front running and other forms of market manipulation,” the report noted.
The profit generated by taking advantage of transaction sequencing is known as “miner extractable value” (MEV), it said, noting that, since 2020, total MEV...
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