Frontrunning is a practice in which traders buy or sell an asset before a major announcement or event in order to take advantage of the price movement caused by the announcement or event. This practice has been seen in traditional markets for decades, but recently it has become more common in the crypto space, with traders taking advantage of the volatile prices of many digital assets.
Recently, a trader was able to profit from frontrunning the listing of Gains Network (GNS) tokens on the crypto exchange Binance. According to blockchain sleuth Lookonchain, the trader bought $208,000 worth of GNS tokens less than 30 minutes before the token was listed on Binance and sold them after the price had surged, making a profit of $106,000.
GNS, the token that underlies Gains Network’s decentralized exchange, jumped to $12.01 from $7.92 immediately following the listing. The trader bought the tokens on decentralized exchange aggregator 1Inch before selling them on the same venue after the price had surged.
This incident has sparked a debate on the ethics of frontrunning. Last month, Conor Grogan, head of product at rival exchange Coinbase, said in a Twitter thread that what appeared to be frontrunning had been occurring on Binance for more than 18 months. He suggested that it could be due to insider MNPI, such as a rogue employee connected to the listings team who would have details on new asset announcements, or a trader who found some sort of API or staging/test trade exchange leak.
Binance chief strategy officer Patrick Hillmann responded by saying company policy restricts Binance employees from trading over short periods, with a 90-day lock being imposed on token sales. The policy has been in place since 2021, he said. Binance did not immediately respond to comment.
The incident has raised questions about the ethics of frontrunning, and whether it is an acceptable practice or not. While it is difficult to draw a clear line between what is and isn’t acceptable, it is clear that traders need to be aware of the potential risks of frontrunning and be sure to conduct their trading in a responsible manner.
At the same time, exchanges need to ensure that they have policies and procedures in place to prevent frontrunning and other forms of market manipulation. This includes ensuring that employees and other insiders do not have access to sensitive information that could be used to take advantage of the market. Additionally, exchanges should have systems in place to detect and prevent suspicious trading activity.
The incident with Gains Network is a reminder of the importance of ethical trading practices in the crypto space. It is essential that traders and exchanges alike take steps to ensure that the markets remain fair and transparent for all participants. It is also important for traders to be aware of the potential risks associated with frontrunning and to take steps to protect themselves from potential losses. By taking these steps, traders can help to ensure that the crypto markets remain safe and secure for everyone.
