[HN Gopher] Crypto brothers front-ran the front-runners
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Crypto brothers front-ran the front-runners
Author : feross
Score : 89 points
Date : 2024-05-16 17:32 UTC (5 hours ago)
(HTM) web link (www.bloomberg.com)
(TXT) w3m dump (www.bloomberg.com)
| client4 wrote:
| https://archive.is/Lv3zB
| mmastrac wrote:
| At what point does a "clever technique" become a "hack" in the
| world where code is law?
|
| The biggest mistake I see those in the crypto space make is
| thinking that you can remove humans from the loop entirely and
| just rely on machines. It just cannot work.
| AlexandrB wrote:
| "Code is law" was always just marketing. For example the
| original "DAO" had buggy code that allowed malicious actors to
| take money from the wealthy early investors. Suddenly "code is
| law" went out the window and the Ethereum chain was forked to
| get the investors their money back[1].
|
| [1] https://www.gemini.com/cryptopedia/the-dao-hack-
| makerdao#sec...
| mrguyorama wrote:
| Also, much more relevant than a bunch of hucksters showing
| that they care more about money than ideology,
|
| The DOJ doesn't GAF what you say, they care what the laws
| are. Tokens are property. They technically gain all the
| standard property protections, like people aren't supposed to
| steal them from you, and fraud is still fraud.
|
| If you want code to be law, you would have to pass
| legislation to that effect, and good luck. We tried wildly
| unregulated markets before and it was generally bad for the
| world economy. After FTX, good luck convincing regulators to
| let you play around with real money even more
| zoklet-enjoyer wrote:
| These guys did nothing wrong.i was pretty happy when this
| happened. It's funny seeing the guys running MEV bots all
| butthurt when someone out smarts them. But it's scary that the
| DOJ is siding with them.
| blackmesaind wrote:
| From my understanding as well, they didn't exploit a bug in
| Ethereum, but in the MEV bots' parsers. Hopefully all those
| Google searches for a Saul Goodman-esque Cryptocurrency lawyer
| will pay off.
| joeldw wrote:
| Correct me if my understanding is wrong, but there are no crypto
| transactions involved with arbitrage in the common case.
| Arbitrage is concerned with the _relative_ price of two assets,
| for example BTC /USD. There is no bitcoin transferred from
| exchange A to exchange B, simply the trade of USD to BTC on
| exchange A and BTC to USD on exchange B.
| hanniabu wrote:
| That is done, but you need a lot of capital due to bitcoin's
| slow block times. You'll need to have capital on both places to
| take advantage of the price differential since the price will
| shift to much by the time you migrate funds from one CEX to
| another.
|
| But this post isn't about bitcoin, it's about Ethereum.
| Ethereum is where all the innovation and most of the financial
| activity occurs. Arbitrage MEV comes from different onchain
| decentralized exchanges, slippage, defi liquidations, etc.
| teh_infallible wrote:
| Arbitrage definitely happens in crypto. It's how prices stay
| consistent across exchanges. If you have a small decentralized
| exchange with relatively low liquidity, arbitrage bots come in
| to capitalize on price discrepancies across exchanges.
| tylersmith wrote:
| The arbitrage is happening on on-chain exchanges which require
| transactions to work with.
| akira2501 wrote:
| I'm uncomfortable with the tax dollars of hard working people
| being used to defend the likes of those who use robots with
| million dollar wallets to rake up the low hanging fruit of
| digital arbitrage on an entirely unregulated network.
|
| They wanted the rewards that came with this risk. Now that they
| got hustled, they cry foul, and the DOJ is going to spend huge
| amounts of money litigating their case?
|
| Perhaps it is in and of itself just a new form of "front-running
| justice" or "administrative arbitrage." What wonderful new things
| our digital world has brought us.
| JumpCrisscross wrote:
| > _they got hustled, they cry foul, and the DOJ is going to
| spend huge amounts of money litigating their case?_
|
| Do we know how the case originated? I similarly agree this
| seems bizarre. It's probably illegal. But unless it's setting
| an important precedent it seems like a waste of public money.
| hanniabu wrote:
| > But unless it's setting an important precedent
|
| It is
| alchemist1e9 wrote:
| > Do we know how the case originated?
|
| This is a very curious question because it's such a technical
| situation that it's hard to believe DOJ wasn't most likely
| explained it by outside parties, most likely the victims I
| assume.
| beaeglebeachedd wrote:
| Oh it won't be a waste. DoJ will seize, fine, and disgorge
| enough to cover the prosecution and some. An easy cash grab
| from an unsympathetic defendent who lacks the lawyers of the
| corporate bot runners.
| dheera wrote:
| TFA: "They worry that this microsecond-scale competition
| between algorithms is socially wasteful"
|
| I would LOVE to see a stock market that
|
| (a) time-penalizes large orders -- 1 share trades in a
| microsecond, 10000 shares takes a week to execute
|
| OR
|
| (b) adds a random time delay to all orders in the range of
| [0,60] minutes for corporations, [0,10] minutes for residential
| traders, and [0,1] minutes for people who have provably low
| income
|
| This will restore opportunities to real humans and drastically
| reduce the advantages that institutions and robots have.
| kevin_thibedeau wrote:
| IEX runs with similar goals in mind to ban HFTs with special
| access and level the playing field.
|
| https://en.wikipedia.org/wiki/IEX
| tcbawo wrote:
| > people who have provably low income
|
| You want to give all your financial info to your brokerage?
|
| What increasing latency will do is widen the markets. We'll
| go back to the days of multiple cents or dollars between the
| bid and offer prices of stocks.
|
| It will definitely increase the time horizon to make an
| investment profitable. But maybe that's a societal good for
| some people...
|
| In the modern era, adding a speed bump might just mean that
| all the trading moves overseas, to derivatives, or mutual
| funds. Money finds a way of flowing downhill
| phyalow wrote:
| Dumbest thing I have read all week. Trading will just move
| offshore. You cannot slow down the propagation of information
| or put another way physical reality.
| beaeglebeachedd wrote:
| Yeah it'll move offshore, but if you cut off dollar access
| and list on FATF black list any nation that does it, it
| will mostly stop, at least while USA has it's current
| influence. Not saying you should.
| Terr_ wrote:
| [delayed]
| tmn wrote:
| The government believes it's entitled to taxes on the usd value
| of any acquired digital coins/tokens. I'd have more sympathy to
| your perspective if this wasn't the case (although I'm still
| sympathetic)
| paulryanrogers wrote:
| My guess is the government is trying to disincentivize tax
| evasion and money laundering.
| blackhawkC17 wrote:
| I really don't see what these guys did wrong. Good for them for
| making away with $25 million...the government should leave them
| alone.
|
| After all, crypto bros wanted decentralized finance where code is
| law. But they'll run to the government when someone outsmarts
| them.
|
| Reminds me of people from corrupt countries parking their money
| in countries with strong rule of law, where they know it can't be
| seized without due process. _Sheer hypocrisy._
| hanniabu wrote:
| It's not hypocrisy. These people aren't these ones advocating
| for cypherpunk. They are mostly wallstreet bros that have
| carved a lucrative market. They see stealing from others as
| completely fine, but if people do the same thing to them which
| they're doing to others they throw a hissy fit and use their
| connects to make an example and set precedent.
| wyager wrote:
| > crypto bros wanted decentralized finance where code is law
|
| Ethereum and associated "defi" people are emphatically _not_
| the same people as the "code is law" people. One of the first
| things Ethereum did was throw out the whole notion of "the
| rules are the rules" during this event, when they rolled back
| the entire ethereum blockchain after a clever trade that wiped
| out a (now defunct) shitcoining operation:
| https://en.m.wikipedia.org/wiki/The_DAO
|
| Lumping everyone into "crypto bro" is doomed to incorrectly
| predict the social-political dynamics here
| TacticalCoder wrote:
| > when they rolled back the entire ethereum blockchain
|
| The Ethereum did a dick move but there was _no_ rollback of
| the chain. None. Zero.
|
| What happened is that the ETHs from the DAO hacks were locked
| for a few weeks (months?) in a smart contract, even after the
| hack. The (dark side) hacker couldn't get them immediately.
| So kid Vitalik quickly changed the code and pushed a new
| versions in which the rules of the game were modified,
| preventing the unlocking of the stolen ETHs.
|
| But at no point was a single transaction rolled back.
| TacticalCoder wrote:
| The term they googled makes it clear they fully knew they
| weren't doing something clean.
|
| I totally see what they did wrong and here's the proof they
| knew too:
|
| > "allegedly "searched online for, among other things, 'money
| laundering,' 'exploit,' 'computer fraud abuse act,'5 and 'does
| the united states extradite to [foreign country]."
|
| But you may be seeing different things than others, including
| the perpetrators of this crime.
| OutOfHere wrote:
| All those web search terms are relevant for indirectly
| helping find useful defense attorneys. If doesn't in itself
| demonstrate any guilt.
|
| I am not saying they're not guilty of fraud, only that a jury
| needs to be massively more objective than look to such
| searches as evidence of guilt.
|
| Also, there are probably thousands of people who do the same
| searches without participating in any fraud.
| miohtama wrote:
| Discussed yesterday on Hacker News
|
| https://news.ycombinator.com/item?id=40369522
| mrkramer wrote:
| This story reminds me of when people accuse domain sellers like
| GoDaddy on snooping their domain queries, buying their domain and
| then selling it to them for more money.
| tazu wrote:
| This happened to me with Namecheap a year ago. I bought a $XX
| .io domain for what I thought was a steal, paid for it and
| everything. Namecheap canceled the order, refunded me, and now
| it's on sale for $X,XXX.
|
| Apparently it was a "third party domain listing" and totally
| not their fault, of course.
| robbyiq999 wrote:
| This just screams arbitrary application of rules to an entirely
| new system. How can you enforce rules for something with such a
| murky definition of the actors and their actions? Sure it "looks
| like" old finance, but it most certainly isn't.
|
| This exercise of arbitrary rules on a murky, hardly even legally
| defined entirely new system, is why I can see the reasoning for
| something like defi to want to exist.
| chollida1 wrote:
| The way they tracked this really leads me to think this was a
| fund like wintermute, Jump or DRW that got screwed in this case.
|
| They would have done all the detective work and then went to the
| authorities with a case fully done. I just don't see the
| government putting resources into tracking this the way that the
| fund that lost out on their sandwich trade would.
| bluecalm wrote:
| DOJ statement reads like a crypto bro has written it. Is it the
| usual style those statements are written in?
| hn_throwaway_99 wrote:
| Things like this truly make me wonder what the whole point of
| crypto is. On one hand, if it is truly "decentralized finance"
| and "code is law", then, well, hats off to these MIT brothers who
| executed their code. I mean, nearly a decade ago the DAO was
| hacked due to code bugs, and despite the hard fork of Ethereum
| (which was quite controversial), many people thought it was
| essentially a fair bug bounty.
|
| If though, crypto requires things like the FBI and the legal
| system to enforce fair rules for participants, what benefit does
| it give over "traditional" finance? That is, isn't the whole
| reason for crypto existing in the first place is that it _doesn
| 't_ depend on governmental backing?
| snarf21 wrote:
| You are so close...... Honestly, crypto was an interesting
| experiment that has devolved into nothing more than digital
| penny stocks.
| the_gastropod wrote:
| Yep. And penny stocks are also already digital, for all
| intents and purposes. So, not sure what remains, apart from
| long-in-the-tooth unfounded hype and cultists.
| earnesti wrote:
| Penny stocks rarely have similar market caps...
| dgfitz wrote:
| I'm a big fan of Warren Buffet. If he says it's shit, then
| it's probably shit.
| ToucanLoucan wrote:
| The reason for crypto to exist is to be a secondary financial
| system that you didn't need to be well connected to old-money
| entities or families in order to "win" from. The 2008 financial
| crash spurred many anti-capitalist and hyper-capitalist
| movements, one of the latter being cryptocurrency. They saw how
| nakedly well-connected people absolutely _cashed the fuck out_
| with the near-collapse of the banking system permitting absurd
| amounts of money to flow to the markets that had created the
| problem in the first place, and led to tons of well-paid
| executives being given golden parachutes out of their industry,
| so fucking rich they would never have to work again. The anti-
| capitalist response to that sort of thing is "this system is
| broken and should be destroyed" and the hyper-capitalist
| response is "how do I get in on this thing" and the truth of
| the matter was, there wasn't really a way to get in on it if
| you weren't already in on it. Hence the creation of an entire
| second financial sector, recreating all of the failures of the
| existing one, without any of the regulations, and resulting in
| the exact same outcomes: the little guys get screwed, and the
| whales sail away into the sunset with unfathomable profits for
| basically doing nothing.
|
| I'm not saying blockchain based technology itself is useless.
| Of course it has uses, some really good ones too. But
| cryptocurrency has always been 100% grift.
| mrguyorama wrote:
| >you didn't need to be well connected to old-money entities
| or families in order to "win" from.
|
| And this was always a lie. One of the biggest boosters of
| crypto is Andreesen-Horowitz FFS, and plenty of the rest of
| the people well known in the industry are just Wall Street
| Finance bros or dotcom boom lottery winners.
| llamaimperative wrote:
| And to the extent that there are "normal people" making
| money in crypto, they're doing it in all the same slimey
| ways the slimeballs of ye olde traditional finance did it:
| rent-seeking, speculation, and insider trading.
|
| Like seriously, how laughably obvious can the whole spiel
| be? Let's all switch to this other currency because it's
| "more fair," and yes I do happen to already have a gigantic
| stake in this new currency and I'm just looking for you to
| come in at the ground floor so you can inflate my wealth!
|
| Anything productive happening at any point in any of this?
| Well considering my entire motto is HODL, how could I
| possibly be doing anything productive? It is the _purest,
| most naked_ form of rent-seeking someone could invent.
| sneak wrote:
| The contrast between this article and the DOJ press release
| yesterday is astounding.
|
| They really should beat this case. They didn't do a single thing
| wrong, no fraud occurred.
| mtnGoat wrote:
| Interesting, I know this is possible on a few other blockchains
| as well. I was asked to write code to front run trades on one of
| them, but laughed and turned it down. Seemed like it would end up
| something like this article.
| px43 wrote:
| This is possible in any market scenario where there exists
| buyers and sellers separated by a physical medium bound by the
| speed of light. Front-running is a fundamental property of
| market dynamics.
| joemazerino wrote:
| The DOJ wants the traditional finance market to be the only
| keyholders in arbitrage. Anyone who has experienced market open
| slippage will understand this.
| smeej wrote:
| $28M of somebody else's money seems like a small price to pay for
| securing enough attention to either address the situation that
| made this possible, or create a new market in it to close the
| arbitrage gap...and this is especially true when the "somebody
| else" got that money in shady-but-not-illegal ways in the first
| place.
|
| It's like the bug bounty system is built into the code.
| jiveturkey wrote:
| I'm not really sure how this is a crime. Can someone explain?
| OutOfHere wrote:
| The MEV bots had a protocol that they were expected to follow.
| These two guys were running a secret cluster of their own bots
| that strongly violated the expected protocol.
| TacticalCoder wrote:
| > But to me what is wild about this case is that the Justice
| Department is bringing down the full weight of US federal
| criminal law to protect Ethereum front-running bots.
|
| What is surprising about that? The US tax man is making shitload
| of money happily taxing gains US citizens are making on
| cryptocurrencies. Not to mention businesses like Coinbase and
| Circle that are not only paying their taxes in the US but are
| also, at times, buying a lot of US government debt. The US
| government is, literally, indebted to these companies and
| functioning partly thanks to the taxes paid by crypto holders.
|
| You cannot have your cake and eat it too: if you want to collect
| taxes, you take care of the bad actors. If you want Coinbase to
| operate in Dubai and all crypto-related companies in the US to
| move to the UAE or Switzerland, you outlaw crypto altogether in
| the US once and for all.
|
| But then you don't come crying from the taxpayers dollars you
| don't get.
| gumby wrote:
| I'm glad to see that fraternal crypto fraud is no longer a
| monopoly of the Winkelvoss twins.
|
| Also glad to see my alma mater in the press.
| sharkjacobs wrote:
| It's heartbreaking to me that these guys aren't just allowed to
| get away with this. What's even the point of cryptocurrency if
| the algorithm isn't law?
| wslh wrote:
| Sorry, don't get it. We can also say that Vitalik manipulated
| Ethereum protocol when the DAO hack ocurred, even if the DAO hack
| was a crime. There is no precise line to define what is right or
| wrong in crypto.
|
| Rephrasing it: there are a lot of things that happen in crypto,
| MEV itself, that are no different than what these brothers did.
| Electricniko wrote:
| I feel like the people who wonder why this is a crime are missing
| something pretty important: this isn't the SEC attempting to
| regulate a crypto market by prosecuting securities fraud, it's
| the DOJ prosecuting straight-up old fashioned fraud. The crime is
| changing the terms of the transaction within the 12 second time
| frame after it had begun but before it had finished, and
| ultimately selling something different than what was promised. It
| doesn't matter that it's crypto, you could similarly be
| prosecuted for fraud by selling counterfeit pokemon cards if
| prosecutors could prove you knew that you were misrepresenting
| the cards as genuine cards. Here, the prosecutors have all the
| evidence they need from the code, and the Google searches showing
| what their intent was in writing that code.
| b0r3datw0rk wrote:
| how is the blockchain under the purview of the us govt? these
| were transactions submitted to a blockchain created for the
| sole purpose of not being controlled by the government
|
| all these code is law folks are constantly exposed as just
| looking to get rich quick
| tmn wrote:
| They did decide they're entitled to taxes on transactions..
| aj3 wrote:
| I bet this indictment will be used as a case study to
| justify the need for government oversight and taxation.
| lbwtaylor wrote:
| The fraudsters are American so the US Government certainly
| has jurisdiction over their actions. Blockchain doesn't
| really matter to that.
| Arrath wrote:
| > how is the blockchain under the purview of the us govt?
|
| Likely some inter-state commerce clause that gets used to
| bring many things under the purview of the feds. It may be
| more appropriate to ask how it was supposed to not be under
| the rule of law?
|
| > these were transactions submitted to a blockchain created
| for the sole purpose of not being controlled by the
| government
|
| Simply creating a blockchain with that intent in mind seems
| to be no more effective than a sovereign citizen ranting to a
| LEO that they are 'traveling by conveyance' in their car and
| thus not subject to traffic laws.
| aj3 wrote:
| But you're not signing EULA's in order to participate in the
| network. Moreover, there are no real "laws / regulations"
| within the network either, specifying what you are or are not
| allowed to do. Ethereum standards merely determine how the
| software is supposed to work, but even then I'm sure Ethereum
| devs would oppose treating their docs as an agreement (because
| they don't offer any warranty, licensing or attestation).
| Moreover, there is an express goal to have a diverse set of
| software clients, so even developing your own software to be
| interoperable with existing standards can't be constructed as
| "an attack".
|
| All this to say, I just fail to say how this can be constructed
| as "changing the terms of the transaction". There was no legal
| agreement between parties and no existing precedent to treat
| this as a malicious attack at all.
|
| All I see is a Wall Street establishment pulling strings in
| order to protect their investment, by asking for a sudden
| government oversight in the system that was built with the
| express goal of not requiring any government oversight.
| resolutebat wrote:
| A (very) technical explanation of the attack:
| https://collective.flashbots.net/t/post-mortem-april-3rd-202...
|
| @scrlk summed it up:
|
| MEV bots sandwich attacking traders = okay
|
| MEV bots sandwich attacking other MEV bots = fraud
| ChrisArchitect wrote:
| [dupe]
|
| More discussion: https://news.ycombinator.com/item?id=40375258
|
| And on official Justice post:
|
| https://news.ycombinator.com/item?id=40371371
|
| https://news.ycombinator.com/item?id=40369522
| anonymousDan wrote:
| Such a BS case. Why are these frontrunners being protected, live
| by the sword, die by the sword.
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