A lot of people suspect there's ""official"" insider trading at the exchanges; there's no reason for the exchange not to front-run orders or fake the order book if they think they can get away with it. Or trade against heavily leveraged positions to liquidate them. Or prop-trade with the customers' money.
Crypto people love to talk about incentives when referring to things like crypto adoption by the market, or corrupt actions on the part of incumbent powers like bankers or politicians.
They are much less enthusiastic about discussing incentives when it comes to things like exchange operatiors front running their clients, centralizing forces in crypto generally, etc.
What makes you say that? In my experience, centralized exchanges are perceived as public enemy #1 by a lot of crypto people. They are seen as a necessary (but temporary) evil to bridge the "legacy" fiat world.
I just don't see it going away. Services like Coinbase have done more for adoption than any crypto-evangelists on message boards ever have if we're being honest with ourselves. People need it to feel familiar, and these pseudo-banks/stock exchange platforms feel close enough to the "real thing" that people are making the jump. I mean the fact that over a decade later and wallets are still this incredibly high-friction experience for users says a lot. Just having an easy place where you go "input debit card, get crypto," makes all the difference - and that's a service large exchanges have covered, thus locking people into their platform(s).
Edit: Also, Uniswap...ehhhh. Not a great example for your point.
Is it me or "decentralised" almost always means "crippled"? The critical function that exchanges have is to allow people to buy and sell tokens. Decentralised exchanges can't do that. They only allow trading a token for another token.
"Decentralized" doesn't mean crippled. "On-chain" does.
At some point, you need to interact with the off-chain world (say, when you want US dollars and not tokenized US dollars), and that path to the physical world becomes a point of failure that can be controlled by mundane means such as uniformed people with guns. The crypto-utopian solution is to move everything on-chain. The pragmatist solution is centralized exchanges that more-or-less plays by the rules of wider society and is allowed by society to move stuff in and out of the blockchain.
But we have stablecoins, like USDC, to act as on-chain dollars. The point is in a world of very robust decentralized exchanges, it's easy to buy tokens with dollars (or vice versa), by sending dollars from your bank account to Circle, who will send USDC to your wallet, which will then buy the token of your choice from a decentralized exchange.
In this context Circle is still a centralized party that's necessary to interact with the off-chain banking world. But Circle has much less room for chicanery than a traditional centralized exchange. There's no opportunity to front-run, insider trade, liquidate your customers or anything else that OP brought up in the context of centralized exchanges, because all Circle is doing is filling the very simple task of converting 1.00 USD to 1.00 USDC and nothing else.
The tokens being traded on DEXes can be stablecoins. In a world where most usage of fiat is in the form of using stablecoins, or one where most financial institutions provide conversion of off-chain fiat to/from stablecoin fiat, most trading can happen on DEXes.
The primary purpose of a centralised order book is pool liquidity and enable price discovery. Interaction with the fiat system is fairly easy once you have 1 reputable party willing to issue a digital token with 1:1 redemption
Correct me if I'm wrong, but Uniswap doesn't allow people to buy crypto currency with fiat. It only exchanges between various crypto currencies. There will always be a need for fiat-crypto exchanges like Coinbase, that are centralized by necessity.
Sure, but that role could be truncated to "convert between financial system currencies and stablecoins" while DeFi handles all the other work of an exchange, displacing centralized exchanges.
And even that role might be obviated once enough people transact directly in the stablecoins.
(Not necessarily saying it's likely, just delineating the hypothetical word where DeFi has maximally taken over.)
>>Sure, but that role could be truncated to "convert between financial system currencies and stablecoins"
Coinbase has already started doing that, by abolishing the distinction between the stablecoin, USDC, and its bank deposit USD.
It's entirely plausible that other financial institutions, beyond commpanies like Coinbase which are heavily involvd in the cryptocurrency market, begin doing that as stablecoins gain wider credibility and adoption.
Huh? I was talking about a world where they only concert between those assets. If coinbase is additionally doing that, then that’s not what I’m describing.
And it’s it’s not even the service I was referring to (which requires that the asset classes be kept distinct).
I swear, something about that comment just set people off, when it should be uncontroversial with the caveats I gave.
I was agreeing with you. I was citing an example of a financial institution providing that particular utility, to support the idea you presented, that it's plausible that one day financial institutions could be relegated to only providing that utility.
Your point was well supported, so I don't see the reason why it got downvoted.
>>which requires that the asset classes be kept distinct
Yes it's not exactly what you described, but functionally speaking, it is quite similar as it enables on-chain and off-chain fiat to be converted one for one.
Uniswap is *so* easy to slander to the ground from centralized exchanges if push came to shove. It's the primary tool for exit scams, there's barely any qualifications or criteria to mint a coin, ICOs simply don't matter anymore - all are particularly easy points to hit if you're competitors fall short on handling them. And that's just mentioning the pragmatic on how Uniswap neglects fixing the BAD side of crypto, it doesn't even go over how Uniswap delivers only niche features on the good side of crypto - and doesn't do things like foster easier crypto buying/selling for mass adoption from the average person.
Please, come back to me when Uniswap's market cap isn't 1/3 of Coinbase's.
I work for a company that provides financial services to/on centralized exchanges, but none of us really like the centralization there; even if it's our bread and butter (for now) I think most "crypto people" are more excited about decentralized exchanges.
Depends on how you use the exchanges. If you just buy and sell BTC and keep your coins off-exchange, there is little reason to care about whatever schemes the exchanges are doing. If you start playing with leverage, you will be putting much more trust at stake, and it is your individual decision to do that. I have been involved with BTC community for many years and most Bitcoiners I know do not trade back and forth, do not buy that much shitcoins and do not store their coins on exchanges, so these schemes do not affect them.
Depends on who you're talking to, but I think the interest by crypto people in Uniswap suggests they're pretty aware of this problem and not excusing it.
Say what? The whole DeFi ecosystem basically exists to bring transparency to operations like exchanges. With e.g. liquidity pools, you can see exactly what trades it's processing and how it handles them.
It’s legal for the company to do it. Not legal for individuals. Coinbase could have bought assets ahead of time and done the same thing legally.
There was a case where a person had access to the credit card transaction data[1] and used that data to figure out sales prior to earning calls. That same data is available to hedgefunds willing to purchase it from Bloomberg. They call legally get a companies sales data prior to earnings and trade off that information.
bloomberg doesn't trade on that information, heck I didn't work on anything financially oriented while at Bloomberg (worked on BLAW) and I was still restricted in the type of investments they allowed me to make.
i.e. by definition bloomberg buying the data and making it available to the terminal is making the data public.
"A lot of people suspect"? Are we being overt? Am I the only one that not very subtly got offered insider trading of NFT tokens as a perk for joining a crypto company?
Not my intention! I hold no crypto stake apart from the free Keybase one and work for a non-crypto company. But the fact that you read that in my message indicates that it has been a clear part of the "offering" of crypto - that it's permissionless. i.e. there are no rules and no law enforcement.
If you look at the details in this case it appears that the actual charges are for exploiting confidential company information for his own gain and not insider trading.
Misappropriating fiduciary information is literally the legal basis for insider trading. There's a common fallacy that insider trading is illegal because the government wants to enforce a "level playing field". Nothing could be further from the truth. Insider trading is illegal because as an employee of the company, you're profiting off your job in a way that doesn't share any of the profits with your employer. In other words the "victim" of insider trading is actually the company itself, not the poor schmuck who you dumped a losing trade on.
Many things that are colloquially thought of as insider trading, are not against the law. For example it's perfectly legal for a hedge fund to hire a helicopter to circle an oil refinery day and night with an infrared camera, so they can get a precise estimate of how much revenue an energy company will announce in its quarterly earnings. This is perfectly legal because at no point was any of this information "misappropriated" in violation of a fiduciary duty. Very clearly the little guy in this case has no chance of competing, and this isn't a level playing field in any sense. But the law simply does not care.
I appreciate the clarification! But maybe you took it too far?
Publicly traded companies themselves are subject to regulations that impede varrious kinds of unfair and prejudicial behavior. Isn't the colloquially interpretation less far from reality than someone might extract from your comment? Since if regulations keep the company from doing it, and 'insider trading' keeps the insiders from doing it-- you're left with those that have superhuman insight from satellite photos or whatever (technically public, but maybe only practically available to billion dollar corporations) -- and at least the hedge funds are vulnerable to noise and misinterpretation. You might get thoroughly out traded, but hopefully not through actually privileged information.
The reason I bring it up is was really the reason behind my original comment: I think that nothing about this prosecution should make people investing in crypto-commodities, ICOs, etc. particularly obscure and thinly traded ones feel any safer from exchange insiders trading against them to their detriment.
All you we can extract from this is that if exchange staff do it for their personal benefit they might get prosecuted. But the staff doing it personally in their own accounts is probably a minor problem compared to the exchange engaging in it for its own profits.
I mean this is probably true for all exchanges, also for the traditional stock market; it's the financial incentive they have on top of the regular commissions they charge.
The person in question was sloppy, and as others said, this is probably just the tip of the iceberg.
