INSUBCONTINENT EXCLUSIVE:
Frontrunning has caused a loss of $280 million to unsuspecting traders each monthThe global cryptocurrency juggernaut rolls on - attracting
A Chainalysis recent report pegged India at the second place in cryptocurrency adoption
But while India is seeing a spurt in cryptocurrency trading and usage, the threat of frontrunning cannot be discounted
Frontrunning, simply put, is trading of cryptocurrencies based on publicly unavailable information about a future transaction
While the statement may sound innocuous, frontrunning has caused a loss of $280 million to unsuspecting traders each month worldwide,
reports Cybernews."I like to compare front running to insider trading in financial markets
In frontrunning, traders make use of non-public information like pending transactions to maximise profits before a transaction can be
confirmed," explains Aliasgar Merchant, Developer Relations Engineer, Tendermint.Raj Kapoor, a global blockchain expert based out of Mumbai,
lists down several factors that contribute to frontrunning: "Information asymmetry, where common traders have no inside information but
miners have prior information about future transactions, play a major role in frontrunning
There is always some time delay in completing a transaction in blockchain
Miners sometimes exploit the time lag to book a transaction and earn undue profits".In a Medium blog, Mr Merchant notes how block producers
(called leaders) wait for information on exchanges in the mempool and try to broadcast their own exchanges before traders
Mempool is a place which keeps the data on all the unconfirmed crypto transactions
He also notes two possible frontrunning attackers
Miners, Mr Merchant writes, are in the best position to attack since they are the ones who build the blocks in transactions, while "full
nodes" - users monitoring transactions - can front-run pending transactions by quoting a higher gas fee.For the uninitiated, gas fee is the
charge paid to successfully conduct a blockchain transaction
Higher the gas fee, higher the chances of a successful transaction.Mr Kapoor, the Founder of India Blockchain Alliance, also blames
seemingly inconsequential, but factual factors such as network issues and personal prejudices for the rampant frontrunning in the
"Someone with a better network can break the queue and place his order ahead of everyone
Sometimes, miners with personal prejudices can also block the transactions too," he shares.Apart from the obvious monetary loss,
frontrunning can also break the trust of many existing and potential investors
To fight frontrunning, several blockchain platforms have devised methods to mitigate it.Recently, blockchain platform Telos announced the
launch of EVM Mainnet, which aims to not only mitigate frontrunning but also high gas fee and slow transaction speeds
Noting that frontrunning has been turning depressing and complex, Douglas Horn, Telos chief architect, says, "Telos EVM is faster, better
The simplicity of integrating with Metamask (a cryptocurrency wallet) allows investors to trade safely.""Telos is making use of hierarchy to
This means they give execution of orders a priority on the basis of when they arrive
It's a good approach and can prevent frontrunning to an extent," opines Mr Merchant
Mr Kapoor prefers a more wait-and-watch approach for a viable solution
"There are a few, but not really tested
Telos EVM seems like a good idea, but we need to see how it pans out in real scenarios."While Telos, according to Mr Merchant, uses the
"hierarchy" to execute orders, there are other reported ways to fight frontrunning
Gas fees limiting, where the gas fee is limited to be less than or equal to the maximum gas fee defined by the owner of smart contract, and
off-chain ordering where the ordering is done on a traditional system and settlement is done on blockchain.Given that decentralisation is
considered the biggest USP of blockchain, can a regulatory body such as SEBI or SEC be the ultimate solution against frontrunning? Mr Kapoor
believes that the establishment of a regulatory authority will be the end of the crypto sector
It will defeat the concept of decentralisation
"The solution will come from within the blockchain community
It is all within the family," he adds.
