Trading Bots Growing on Cryptocurrency Exchanges
Cornell Tech, as well as several other universities, revealed on April 15th that arbitrates bots is becoming rampant on various cryptocurrency exchanges. These bots anticipate and profit from the trades of ordinary users at decentralised exchanges. The brokerage firms that have been deploying these autonomous trading programs have been able to take advantage of certain things like front running, where traders can see the trades being made by other brokers or investors. Subsequently, this lets these firms manage their trades.
DEXes is more commonly known as a decentralised exchange, accounts for a small fraction of the trading volume for the cryptocurrency market. However, it’s expected to grow in the coming months. This is thanks primarily to Binance, a crypto exchange that has been able to become the largest centralised crypto exchange market. Luckily, Binance is also building its decentralised exchange to avoid the growing issue of trading bots.
The Finance Professor at Cornell Tech, Ari Jules, stated: “We have no idea what the extent of the wrongdoing is on centralised exchanges. If we extrapolate from what we’ve seen on DEXes, it could well be on the order of billions of dollars.”
Cornell Tech’s Study
This study, completed by eight different financial university programs shows a massive red flag for the market. The recent allegations of manipulation in the market have become a reality, and analysts now expect that exchange volumes will drop by 90% until decentralised markets become widely available.
Crypto bots have become so widely used by scammers that they are attacking exchanges 51% of the time, allowing them to taking over a computers network and data-mine on a particular call. Scam programs are making money from people without their knowledge, and this is what prompted the study by Cornell Tech.
Michael Lewis, a contributor to the Bloomberg Express and an author, worked alongside the universities to determine the issues plaguing crypto markets today. His findings revealed that the market has become rigged in favour of high-volatility trades and trading firms. This is what has allowed for the increase in bots, as trading firms everywhere have begun to use them. The downside though is that the average crypto-investor has now been forced to leave centralised markets slowly.
Wall Street Traders have thoroughly denied that they ever manipulated the market with criminal behaviour and that Mr Lewis blatantly is creating lies for his benefit. However, as cataloguing any illegal activity on these markets is incredibly difficult, it would be easy for a Wall Street Trader to have full deniability. However, as investigations into these trading bots go further, new information could be revealed and could see traders in Wall Street face prison time.
Bots Making $20k Daily
Eight universities tracked six crypto exchanges in real time since October 2018. They examined their historical data as well, and within just six months their research revealed that five hundred bots are currently making upwards of $20,000.00 a day. However, companies like Bancor and EtherDelta both have solutions to neutralise the threat of manipulation from bots.