This month I want to highlight an article, Crypto Brothers Front-Ran the Front-Runners by Matt Levine. Matt’s newsletter, Money Stuff, covers a plethora of topics from the financial industry point of view (free to subscribe, highly recommend, not a paid endorsement). Occasionally a financial topic touches on technology in very interesting ways.

In May, 2024, the Justice Department announced they arrested two brothers for exploiting a vulnerability in the Ethereum relay implementation that enabled the attackers to spoof trades. These trades were designed to capture the attention of blockchain bots that front-run trades and extract value via dubious methods. The spoofed trades were then modified such that the front-running bots ended up purchasing the crypto from the attackers, leaving the bots with undesirable crypto and less money.

I find two things fascinating about this story. First – on human behavior. Front running trades are considered bad behavior, yet when a bad actor exploits the system, we must uncomfortably acknowledge that unpalatable behavior must be defended against illicit behavior.

Second- a technical observation. One highly touted benefit of crypto is the public nature of every transaction, which is meant to expose, and hopefully minimize, fraud. Even with crypto’s setup, this event is a reminder that all technical systems are vulnerable to exploits, and humans are sufficiently creative and motivated to find those vulnerabilities. No matter how secure we believe our systems are, we should treat every system as if it will be continually attacked from all angles, and act accordingly.

https://www.bloomberg.com/opinion/articles/2024-05-16/crypto-brothers-front-ran-the-front-runners

“Ethereum and its decentralized exchanges have a market structure that is like ‘bots can look at your transactions and front-run them if that’s profitable.‘ And these guys, allegedly, front-ran the front-runners; they turned the market structure around so that they could get an early look at the front-running bots’ front-running transactions and front-run them instead. By hacking, sure, sure, it’s bad. But it leaves the Justice Department in the odd position of saying that the integrity of crypto front-running is important and must be defended.”