11 ms·

Crypto brothers front-ran the front-runners

112 points by feross 2y ago

client4 2y ago
https://archive.is/Lv3zB https://archive.is/Lv3zB
mmastrac 2y ago
At what point does a "clever technique" become a "hack" in the world where code is law? The biggest mistake I see those in the crypto space make is thinking that you can remove humans from the loop entirely and just rely on machines. It just cannot work.
- AlexandrB 2y ago
  "Code is law" was always just marketing. For example the original "DAO" had buggy code that allowed malicious actors to take money from the wealthy early investors. Suddenly "code is law" went out the window and the Ethereum chain was forked to get the investors their money back[1]. [1] https://www.gemini.com/cryptopedia/the-dao-hack-makerdao#section-the-dao-hack https://www.gemini.com/cryptopedia/the-dao-hack-makerdao#sec...
  - mrguyorama 2y ago
    Also, much more relevant than a bunch of hucksters showing that they care more about money than ideology, The DOJ doesn't GAF what you say, they care what the laws are. Tokens are property. They technically gain all the standard property protections, like people aren't supposed to steal them from you, and fraud is still fraud. If you want code to be law, you would have to pass legislation to that effect, and good luck. We tried wildly unregulated markets before and it was generally bad for the world economy. After FTX, good luck convincing regulators to let you play around with real money even more
    - aj3 2y ago
      > Tokens are property. What law says this? Technically, tokens are smart contracts, basically OOP classes with both data and behavior. They also by design have public methods which are meant to be triggered by anyone on the chain. It's not at all obvious that triggering these methods in an unexpected order or with unexpected data is breaking any laws whatsoever. It's bytecode anyway, so there's no human readable EULA's or explanations on what you're allowed to do with the token.
    - lmm 2y ago
      > Tokens are property Why/how? If someone "steals" "my" "property" in an online game, I don't get to call the real-world cops on them. Why should it be any different when you dress up your game in a bunch of finance words?
      - throwaway290 2y ago
        > Why/how? If someone "steals" "my" "property" in an online game, I don't get to call the real-world cops on them. Why should it be any different when you dress up your game in a bunch of finance words? I thought the main difference is that game is operated by a legal entity that is a game company so cops will tell you to complain to Epic or whoever. Imagine if some game is not operated by a single legal entity and becomes popular enough that many people routinely lose all savings etc, maybe justice system can start intervening in such cases. But anyway in this case there are so many things wrong about prosecuting one thief for outthieving another thief, I don't even know what is the logic.
      - fragmede 2y ago
        yeah, you can. theft online is recognized by police agencies. it's an old but there was this theft in 2007, in RuneScape that resulted in real world penalties for the thieves. https://www.reddit.com/r/2007scape/comments/klevi5/in_2012_the_dutch_supreme_court_ruled_that/ https://www.reddit.com/r/2007scape/comments/klevi5/in_2012_t...
zoklet-enjoyer 2y ago
These guys did nothing wrong.i was pretty happy when this happened. It's funny seeing the guys running MEV bots all butthurt when someone out smarts them. But it's scary that the DOJ is siding with them.
- blackmesaind 2y ago
  From my understanding as well, they didn't exploit a bug in Ethereum, but in the MEV bots' parsers. Hopefully all those Google searches for a Saul Goodman-esque Cryptocurrency lawyer will pay off.
joeldw 2y ago
Correct me if my understanding is wrong, but there are no crypto transactions involved with arbitrage in the common case. Arbitrage is concerned with the relative price of two assets, for example BTC/USD. There is no bitcoin transferred from exchange A to exchange B, simply the trade of USD to BTC on exchange A and BTC to USD on exchange B.
- hanniabu 2y ago
  That is done, but you need a lot of capital due to bitcoin's slow block times. You'll need to have capital on both places to take advantage of the price differential since the price will shift to much by the time you migrate funds from one CEX to another. But this post isn't about bitcoin, it's about Ethereum. Ethereum is where all the innovation and most of the financial activity occurs. Arbitrage MEV comes from different onchain decentralized exchanges, slippage, defi liquidations, etc.
- teh_infallible 2y ago
  Arbitrage definitely happens in crypto. It’s how prices stay consistent across exchanges. If you have a small decentralized exchange with relatively low liquidity, arbitrage bots come in to capitalize on price discrepancies across exchanges.
- tylersmith 2y ago
  The arbitrage is happening on on-chain exchanges which require transactions to work with.
- beaugunderson 2y ago
  sandwich bots exploit swap slippage on decentralized exchanges... e.g. a user submits a swap transaction from currency A to currency B with high allowed slippage, a sandwich bot notices and copies that transaction from the public mempool and constructs two swap transactions on either side of it where they swap from A to B before the user and swap from B to A after, profiting from the price move of the user's swap. they submit this as a bundle to MEV-relay with a tip high enough to have it included in a block, and if it's included they book the profit. if not included there's nothing at risk, not even wasted gas. there IS risk if the bundle is exposed to other searchers, which is what happened in this case. multiple bots will often find submit the same bundle with escalating tip amounts, so the profit eventually becomes slim with more participants trying the same sandwiches.
akira2501 2y ago
I'm uncomfortable with the tax dollars of hard working people being used to defend the likes of those who use robots with million dollar wallets to rake up the low hanging fruit of digital arbitrage on an entirely unregulated network. They wanted the rewards that came with this risk. Now that they got hustled, they cry foul, and the DOJ is going to spend huge amounts of money litigating their case? Perhaps it is in and of itself just a new form of "front-running justice" or "administrative arbitrage." What wonderful new things our digital world has brought us.
- JumpCrisscross 2y ago
  > they got hustled, they cry foul, and the DOJ is going to spend huge amounts of money litigating their case? Do we know how the case originated? I similarly agree this seems bizarre. It’s probably illegal. But unless it’s setting an important precedent it seems like a waste of public money.
  - hanniabu 2y ago
    > But unless it’s setting an important precedent It is
  - alchemist1e9 2y ago
    > Do we know how the case originated? This is a very curious question because it’s such a technical situation that it’s hard to believe DOJ wasn’t most likely explained it by outside parties, most likely the victims I assume.
  - beaeglebeachedd 2y ago
    Oh it won't be a waste. DoJ will seize, fine, and disgorge enough to cover the prosecution and some. An easy cash grab from an unsympathetic defendent who lacks the lawyers of the corporate bot runners.
- dheera 2y ago
  TFA: "They worry that this microsecond-scale competition between algorithms is socially wasteful" I would LOVE to see a stock market that (a) time-penalizes large orders -- 1 share trades in a microsecond, 10000 shares takes a week to execute OR (b) adds a random time delay to all orders in the range of [0,60] minutes for corporations, [0,10] minutes for residential traders, and [0,1] minutes for people who have provably low income This will restore opportunities to real humans and drastically reduce the advantages that institutions and robots have.
blackhawkC17 2y ago
I really don’t see what these guys did wrong. Good for them for making away with $25 million…the government should leave them alone. After all, crypto bros wanted decentralized finance where code is law. But they’ll run to the government when someone outsmarts them. Reminds me of people from corrupt countries parking their money in countries with strong rule of law, where they know it can’t be seized without due process. Sheer hypocrisy.
- hanniabu 2y ago
  It's not hypocrisy. These people aren't these ones advocating for cypherpunk. They are mostly wallstreet bros that have carved a lucrative market. They see stealing from others as completely fine, but if people do the same thing to them which they're doing to others they throw a hissy fit and use their connects to make an example and set precedent.
- wyager 2y ago
  > crypto bros wanted decentralized finance where code is law Ethereum and associated "defi" people are emphatically not the same people as the "code is law" people. One of the first things Ethereum did was throw out the whole notion of "the rules are the rules" during this event, when they rolled back the entire ethereum blockchain after a clever trade that wiped out a (now defunct) shitcoining operation: https://en.m.wikipedia.org/wiki/The_DAO https://en.m.wikipedia.org/wiki/The_DAO Lumping everyone into "crypto bro" is doomed to incorrectly predict the social-political dynamics here
  - TacticalCoder 2y ago
    > when they rolled back the entire ethereum blockchain The Ethereum did a dick move but there was no rollback of the chain. None. Zero. What happened is that the ETHs from the DAO hacks were locked for a few weeks (months?) in a smart contract, even after the hack. The (dark side) hacker couldn't get them immediately. So kid Vitalik quickly changed the code and pushed a new versions in which the rules of the game were modified, preventing the unlocking of the stolen ETHs. But at no point was a single transaction rolled back.
- 2y ago
mrkramer 2y ago
This story reminds me of when people accuse domain sellers like GoDaddy on snooping their domain queries, buying their domain and then selling it to them for more money.
- tazu 2y ago
  This happened to me with Namecheap a year ago. I bought a $XX .io domain for what I thought was a steal, paid for it and everything. Namecheap canceled the order, refunded me, and now it's on sale for $X,XXX. Apparently it was a "third party domain listing" and totally not their fault, of course.
miohtama 2y ago
Discussed yesterday on Hacker News https://news.ycombinator.com/item?id=40369522 https://news.ycombinator.com/item?id=40369522
robbyiq999 2y ago
This just screams arbitrary application of rules to an entirely new system. How can you enforce rules for something with such a murky definition of the actors and their actions? Sure it “looks like” old finance, but it most certainly isn’t. This exercise of arbitrary rules on a murky, hardly even legally defined entirely new system, is why I can see the reasoning for something like defi to want to exist.
chollida1 2y ago
The way they tracked this really leads me to think this was a fund like wintermute, Jump or DRW that got screwed in this case. They would have done all the detective work and then went to the authorities with a case fully done. I just don't see the government putting resources into tracking this the way that the fund that lost out on their sandwich trade would.
bluecalm 2y ago
DOJ statement reads like a crypto bro has written it. Is it the usual style those statements are written in?
- DANmode 2y ago
  Example(s) of what you mean from the text?
  - bluecalm 2y ago
    >>Unfortunately for the defendants, their alleged crimes were no match for Department of Justice prosecutors and IRS agents, who unraveled this first-of-its kind wire fraud and money laundering scheme. As cryptocurrency markets continue to evolve, the Department will continue to root out fraud, support victims, and restore confidence to these markets.” >>Regardless of the complexity of the case, we continue to lead the effort in financial criminal investigations with cutting-edge technology and good-ole-fashioned investigative work, on and off the blockchain.”
hn_throwaway_99 2y ago
Things like this truly make me wonder what the whole point of crypto is. On one hand, if it is truly "decentralized finance" and "code is law", then, well, hats off to these MIT brothers who executed their code. I mean, nearly a decade ago the DAO was hacked due to code bugs, and despite the hard fork of Ethereum (which was quite controversial), many people thought it was essentially a fair bug bounty. If though, crypto requires things like the FBI and the legal system to enforce fair rules for participants, what benefit does it give over "traditional" finance? That is, isn't the whole reason for crypto existing in the first place is that it doesn't depend on governmental backing?
- snarf21 2y ago
  You are so close...... Honestly, crypto was an interesting experiment that has devolved into nothing more than digital penny stocks.
  - the_gastropod 2y ago
    Yep. And penny stocks are also already digital, for all intents and purposes. So, not sure what remains, apart from long-in-the-tooth unfounded hype and cultists.
  - earnesti 2y ago
    Penny stocks rarely have similar market caps...
    - dgfitz 2y ago
      I’m a big fan of Warren Buffet. If he says it’s shit, then it’s probably shit.
- ToucanLoucan 2y ago
  The reason for crypto to exist is to be a secondary financial system that you didn't need to be well connected to old-money entities or families in order to "win" from. The 2008 financial crash spurred many anti-capitalist and hyper-capitalist movements, one of the latter being cryptocurrency. They saw how nakedly well-connected people absolutely cashed the fuck out with the near-collapse of the banking system permitting absurd amounts of money to flow to the markets that had created the problem in the first place, and led to tons of well-paid executives being given golden parachutes out of their industry, so fucking rich they would never have to work again. The anti-capitalist response to that sort of thing is "this system is broken and should be destroyed" and the hyper-capitalist response is "how do I get in on this thing" and the truth of the matter was, there wasn't really a way to get in on it if you weren't already in on it. Hence the creation of an entire second financial sector, recreating all of the failures of the existing one, without any of the regulations, and resulting in the exact same outcomes: the little guys get screwed, and the whales sail away into the sunset with unfathomable profits for basically doing nothing. I'm not saying blockchain based technology itself is useless. Of course it has uses, some really good ones too. But cryptocurrency has always been 100% grift.
sneak 2y ago
The contrast between this article and the DOJ press release yesterday is astounding. They really should beat this case. They didn’t do a single thing wrong, no fraud occurred.
mtnGoat 2y ago
Interesting, I know this is possible on a few other blockchains as well. I was asked to write code to front run trades on one of them, but laughed and turned it down. Seemed like it would end up something like this article.
- px43 2y ago
  This is possible in any market scenario where there exists buyers and sellers separated by a physical medium bound by the speed of light. Front-running is a fundamental property of market dynamics.
joemazerino 2y ago
The DOJ wants the traditional finance market to be the only keyholders in arbitrage. Anyone who has experienced market open slippage will understand this.
smeej 2y ago
$28M of somebody else's money seems like a small price to pay for securing enough attention to either address the situation that made this possible, or create a new market in it to close the arbitrage gap...and this is especially true when the "somebody else" got that money in shady-but-not-illegal ways in the first place. It's like the bug bounty system is built into the code.
- nativeit 2y ago
  Let's hope federal prison sentences for bounty hunters and full restitution of the bounty itself doesn't become a hallmark feature of other bug bounty schemes.
jiveturkey 2y ago
I'm not really sure how this is a crime. Can someone explain?
- OutOfHere 2y ago
  The MEV bots had a protocol that they were expected to follow. These two guys were running a secret cluster of their own bots that strongly violated the expected protocol.
  - jiveturkey 2y ago
    I get that. Where's the criminality in that?
    - OutOfHere 2y ago
      At the minimum it would be a CFAA violation. Consider this simple case: if you visit me, and I show you a paper with keys to 0.1 BTC. You secretly take a picture of it while I step into the bathroom for a minute. Later you go home and you drain the wallet. In this scenario, did you really do a crime? You only violated protocol. It is not illegal to try random BTC keys. But I think, yes, you did.
  - aj3 2y ago
    The strategy that MEV bots use is not a law. It is not even defined or endorsed by Ethereum standards, and arguably is not an intended feature of the network. You could alternatively claim that the guys defined their own protocol which addressed market inefficiency (which MEV is). Imo it's insane to claim that a trading technique you invented should have zero risk, and any losses you take are an indication of theft.
    - OutOfHere 2y ago
      To my knowledge, the imprecision of the CFAA is sufficient to prosecute them.
TacticalCoder 2y ago
> But to me what is wild about this case is that the Justice Department is bringing down the full weight of US federal criminal law to protect Ethereum front-running bots. What is surprising about that? The US tax man is making shitload of money happily taxing gains US citizens are making on cryptocurrencies. Not to mention businesses like Coinbase and Circle that are not only paying their taxes in the US but are also, at times, buying a lot of US government debt. The US government is, literally, indebted to these companies and functioning partly thanks to the taxes paid by crypto holders. You cannot have your cake and eat it too: if you want to collect taxes, you take care of the bad actors. If you want Coinbase to operate in Dubai and all crypto-related companies in the US to move to the UAE or Switzerland, you outlaw crypto altogether in the US once and for all. But then you don't come crying from the taxpayers dollars you don't get.
- mavelikara 2y ago
  There is plenty of commerce happening in Dubai/UAE and Switzerland that US does not collect taxes on. I have never heard anyone complain about missing out on those. Only if US tax residents are involved in the commerce does the US care. IRS will find a way to tax the commerce if US tax residents are involved, irrespective of where the crypto-related companies are located.
gumby 2y ago
I’m glad to see that fraternal crypto fraud is no longer a monopoly of the Winkelvoss twins. Also glad to see my alma mater in the press.
sharkjacobs 2y ago
It's heartbreaking to me that these guys aren't just allowed to get away with this. What's even the point of cryptocurrency if the algorithm isn't law?
wslh 2y ago
Sorry, don't get it. We can also say that Vitalik manipulated Ethereum protocol when the DAO hack ocurred, even if the DAO hack was a crime. There is no precise line to define what is right or wrong in crypto. Rephrasing it: there are a lot of things that happen in crypto, MEV itself, that are no different than what these brothers did.
Electricniko 2y ago
I feel like the people who wonder why this is a crime are missing something pretty important: this isn't the SEC attempting to regulate a crypto market by prosecuting securities fraud, it's the DOJ prosecuting straight-up old fashioned fraud. The crime is changing the terms of the transaction within the 12 second time frame after it had begun but before it had finished, and ultimately selling something different than what was promised. It doesn't matter that it's crypto, you could similarly be prosecuted for fraud by selling counterfeit pokemon cards if prosecutors could prove you knew that you were misrepresenting the cards as genuine cards. Here, the prosecutors have all the evidence they need from the code, and the Google searches showing what their intent was in writing that code.
- b0r3datw0rk 2y ago
  how is the blockchain under the purview of the us govt? these were transactions submitted to a blockchain created for the sole purpose of not being controlled by the government all these code is law folks are constantly exposed as just looking to get rich quick
  - tmn 2y ago
    They did decide they’re entitled to taxes on transactions..
    - aj3 2y ago
      I bet this indictment will be used as a case study to justify the need for government oversight and taxation.
  - lbwtaylor 2y ago
    The fraudsters are American so the US Government certainly has jurisdiction over their actions. Blockchain doesn't really matter to that.
  - Arrath 2y ago
    > how is the blockchain under the purview of the us govt? Likely some inter-state commerce clause that gets used to bring many things under the purview of the feds. It may be more appropriate to ask how it was supposed to not be under the rule of law? > these were transactions submitted to a blockchain created for the sole purpose of not being controlled by the government Simply creating a blockchain with that intent in mind seems to be no more effective than a sovereign citizen ranting to a LEO that they are 'traveling by conveyance' in their car and thus not subject to traffic laws.
resolutebat 2y ago
A (very) technical explanation of the attack: https://collective.flashbots.net/t/post-mortem-april-3rd-2023-mev-boost-relay-incident-and-related-timing-issue/1540 https://collective.flashbots.net/t/post-mortem-april-3rd-202... @scrlk summed it up: MEV bots sandwich attacking traders = okay MEV bots sandwich attacking other MEV bots = fraud
- baobun 2y ago
  > In particular, the malicious proposer constructed their own block that broke the sandwich bots’ sandwiches up and effectively stole their money. Deep cognitive disonnance or do these people really think they have enshrined privilege now?
ChrisArchitect 2y ago
[dupe] More discussion: https://news.ycombinator.com/item?id=40375258 https://news.ycombinator.com/item?id=40375258 And on official Justice post: https://news.ycombinator.com/item?id=40371371 https://news.ycombinator.com/item?id=40371371 https://news.ycombinator.com/item?id=40369522 https://news.ycombinator.com/item?id=40369522
anonymousDan 2y ago
Such a BS case. Why are these frontrunners being protected, live by the sword, die by the sword.
ubikuitous84 2y ago
[dead]
aubreydalbert 2y ago
[dead]
1vuio0pswjnm7 2y ago
Information asymmetry.
MightyHacker 2y ago
[dead]
isabelremirez 2y ago
[dead]

112 points by feross 2y ago

https://archive.is/Lv3zB https://archive.is/Lv3zB

At what point does a "clever technique" become a "hack" in the world where code is law? The biggest mistake I see those in the crypto space make is thinking that you can remove humans from the loop entirely and just rely on machines. It just cannot work.

AlexandrB 2y ago
"Code is law" was always just marketing. For example the original "DAO" had buggy code that allowed malicious actors to take money from the wealthy early investors. Suddenly "code is law" went out the window and the Ethereum chain was forked to get the investors their money back[1]. [1] https://www.gemini.com/cryptopedia/the-dao-hack-makerdao#section-the-dao-hack https://www.gemini.com/cryptopedia/the-dao-hack-makerdao#sec...
- mrguyorama 2y ago
  Also, much more relevant than a bunch of hucksters showing that they care more about money than ideology, The DOJ doesn't GAF what you say, they care what the laws are. Tokens are property. They technically gain all the standard property protections, like people aren't supposed to steal them from you, and fraud is still fraud. If you want code to be law, you would have to pass legislation to that effect, and good luck. We tried wildly unregulated markets before and it was generally bad for the world economy. After FTX, good luck convincing regulators to let you play around with real money even more
  - aj3 2y ago
    > Tokens are property. What law says this? Technically, tokens are smart contracts, basically OOP classes with both data and behavior. They also by design have public methods which are meant to be triggered by anyone on the chain. It's not at all obvious that triggering these methods in an unexpected order or with unexpected data is breaking any laws whatsoever. It's bytecode anyway, so there's no human readable EULA's or explanations on what you're allowed to do with the token.
  - lmm 2y ago
    > Tokens are property Why/how? If someone "steals" "my" "property" in an online game, I don't get to call the real-world cops on them. Why should it be any different when you dress up your game in a bunch of finance words?
    - throwaway290 2y ago
      > Why/how? If someone "steals" "my" "property" in an online game, I don't get to call the real-world cops on them. Why should it be any different when you dress up your game in a bunch of finance words? I thought the main difference is that game is operated by a legal entity that is a game company so cops will tell you to complain to Epic or whoever. Imagine if some game is not operated by a single legal entity and becomes popular enough that many people routinely lose all savings etc, maybe justice system can start intervening in such cases. But anyway in this case there are so many things wrong about prosecuting one thief for outthieving another thief, I don't even know what is the logic.
    - fragmede 2y ago
      yeah, you can. theft online is recognized by police agencies. it's an old but there was this theft in 2007, in RuneScape that resulted in real world penalties for the thieves. https://www.reddit.com/r/2007scape/comments/klevi5/in_2012_the_dutch_supreme_court_ruled_that/ https://www.reddit.com/r/2007scape/comments/klevi5/in_2012_t...

zoklet-enjoyer 2y ago

These guys did nothing wrong.i was pretty happy when this happened. It's funny seeing the guys running MEV bots all butthurt when someone out smarts them. But it's scary that the DOJ is siding with them.

blackmesaind 2y ago
From my understanding as well, they didn't exploit a bug in Ethereum, but in the MEV bots' parsers. Hopefully all those Google searches for a Saul Goodman-esque Cryptocurrency lawyer will pay off.

joeldw 2y ago

Correct me if my understanding is wrong, but there are no crypto transactions involved with arbitrage in the common case. Arbitrage is concerned with the relative price of two assets, for example BTC/USD. There is no bitcoin transferred from exchange A to exchange B, simply the trade of USD to BTC on exchange A and BTC to USD on exchange B.

hanniabu 2y ago
That is done, but you need a lot of capital due to bitcoin's slow block times. You'll need to have capital on both places to take advantage of the price differential since the price will shift to much by the time you migrate funds from one CEX to another. But this post isn't about bitcoin, it's about Ethereum. Ethereum is where all the innovation and most of the financial activity occurs. Arbitrage MEV comes from different onchain decentralized exchanges, slippage, defi liquidations, etc.
teh_infallible 2y ago
Arbitrage definitely happens in crypto. It’s how prices stay consistent across exchanges. If you have a small decentralized exchange with relatively low liquidity, arbitrage bots come in to capitalize on price discrepancies across exchanges.
tylersmith 2y ago
The arbitrage is happening on on-chain exchanges which require transactions to work with.
beaugunderson 2y ago
sandwich bots exploit swap slippage on decentralized exchanges... e.g. a user submits a swap transaction from currency A to currency B with high allowed slippage, a sandwich bot notices and copies that transaction from the public mempool and constructs two swap transactions on either side of it where they swap from A to B before the user and swap from B to A after, profiting from the price move of the user's swap. they submit this as a bundle to MEV-relay with a tip high enough to have it included in a block, and if it's included they book the profit. if not included there's nothing at risk, not even wasted gas. there IS risk if the bundle is exposed to other searchers, which is what happened in this case. multiple bots will often find submit the same bundle with escalating tip amounts, so the profit eventually becomes slim with more participants trying the same sandwiches.

akira2501 2y ago

I'm uncomfortable with the tax dollars of hard working people being used to defend the likes of those who use robots with million dollar wallets to rake up the low hanging fruit of digital arbitrage on an entirely unregulated network. They wanted the rewards that came with this risk. Now that they got hustled, they cry foul, and the DOJ is going to spend huge amounts of money litigating their case? Perhaps it is in and of itself just a new form of "front-running justice" or "administrative arbitrage." What wonderful new things our digital world has brought us.

JumpCrisscross 2y ago
> they got hustled, they cry foul, and the DOJ is going to spend huge amounts of money litigating their case? Do we know how the case originated? I similarly agree this seems bizarre. It’s probably illegal. But unless it’s setting an important precedent it seems like a waste of public money.
- hanniabu 2y ago
  > But unless it’s setting an important precedent It is
- alchemist1e9 2y ago
  > Do we know how the case originated? This is a very curious question because it’s such a technical situation that it’s hard to believe DOJ wasn’t most likely explained it by outside parties, most likely the victims I assume.
- beaeglebeachedd 2y ago
  Oh it won't be a waste. DoJ will seize, fine, and disgorge enough to cover the prosecution and some. An easy cash grab from an unsympathetic defendent who lacks the lawyers of the corporate bot runners.
dheera 2y ago
TFA: "They worry that this microsecond-scale competition between algorithms is socially wasteful" I would LOVE to see a stock market that (a) time-penalizes large orders -- 1 share trades in a microsecond, 10000 shares takes a week to execute OR (b) adds a random time delay to all orders in the range of [0,60] minutes for corporations, [0,10] minutes for residential traders, and [0,1] minutes for people who have provably low income This will restore opportunities to real humans and drastically reduce the advantages that institutions and robots have.

blackhawkC17 2y ago

I really don’t see what these guys did wrong. Good for them for making away with $25 million…the government should leave them alone. After all, crypto bros wanted decentralized finance where code is law. But they’ll run to the government when someone outsmarts them. Reminds me of people from corrupt countries parking their money in countries with strong rule of law, where they know it can’t be seized without due process. Sheer hypocrisy.

hanniabu 2y ago
It's not hypocrisy. These people aren't these ones advocating for cypherpunk. They are mostly wallstreet bros that have carved a lucrative market. They see stealing from others as completely fine, but if people do the same thing to them which they're doing to others they throw a hissy fit and use their connects to make an example and set precedent.
wyager 2y ago
> crypto bros wanted decentralized finance where code is law Ethereum and associated "defi" people are emphatically not the same people as the "code is law" people. One of the first things Ethereum did was throw out the whole notion of "the rules are the rules" during this event, when they rolled back the entire ethereum blockchain after a clever trade that wiped out a (now defunct) shitcoining operation: https://en.m.wikipedia.org/wiki/The_DAO https://en.m.wikipedia.org/wiki/The_DAO Lumping everyone into "crypto bro" is doomed to incorrectly predict the social-political dynamics here
- TacticalCoder 2y ago
  > when they rolled back the entire ethereum blockchain The Ethereum did a dick move but there was no rollback of the chain. None. Zero. What happened is that the ETHs from the DAO hacks were locked for a few weeks (months?) in a smart contract, even after the hack. The (dark side) hacker couldn't get them immediately. So kid Vitalik quickly changed the code and pushed a new versions in which the rules of the game were modified, preventing the unlocking of the stolen ETHs. But at no point was a single transaction rolled back.
2y ago

mrkramer 2y ago

This story reminds me of when people accuse domain sellers like GoDaddy on snooping their domain queries, buying their domain and then selling it to them for more money.

tazu 2y ago
This happened to me with Namecheap a year ago. I bought a $XX .io domain for what I thought was a steal, paid for it and everything. Namecheap canceled the order, refunded me, and now it's on sale for $X,XXX. Apparently it was a "third party domain listing" and totally not their fault, of course.

miohtama 2y ago

Discussed yesterday on Hacker News https://news.ycombinator.com/item?id=40369522 https://news.ycombinator.com/item?id=40369522

robbyiq999 2y ago

This just screams arbitrary application of rules to an entirely new system. How can you enforce rules for something with such a murky definition of the actors and their actions? Sure it “looks like” old finance, but it most certainly isn’t. This exercise of arbitrary rules on a murky, hardly even legally defined entirely new system, is why I can see the reasoning for something like defi to want to exist.

chollida1 2y ago

The way they tracked this really leads me to think this was a fund like wintermute, Jump or DRW that got screwed in this case. They would have done all the detective work and then went to the authorities with a case fully done. I just don't see the government putting resources into tracking this the way that the fund that lost out on their sandwich trade would.

bluecalm 2y ago

DOJ statement reads like a crypto bro has written it. Is it the usual style those statements are written in?

DANmode 2y ago
Example(s) of what you mean from the text?
- bluecalm 2y ago
  >>Unfortunately for the defendants, their alleged crimes were no match for Department of Justice prosecutors and IRS agents, who unraveled this first-of-its kind wire fraud and money laundering scheme. As cryptocurrency markets continue to evolve, the Department will continue to root out fraud, support victims, and restore confidence to these markets.” >>Regardless of the complexity of the case, we continue to lead the effort in financial criminal investigations with cutting-edge technology and good-ole-fashioned investigative work, on and off the blockchain.”

hn_throwaway_99 2y ago

Things like this truly make me wonder what the whole point of crypto is. On one hand, if it is truly "decentralized finance" and "code is law", then, well, hats off to these MIT brothers who executed their code. I mean, nearly a decade ago the DAO was hacked due to code bugs, and despite the hard fork of Ethereum (which was quite controversial), many people thought it was essentially a fair bug bounty. If though, crypto requires things like the FBI and the legal system to enforce fair rules for participants, what benefit does it give over "traditional" finance? That is, isn't the whole reason for crypto existing in the first place is that it doesn't depend on governmental backing?

snarf21 2y ago
You are so close...... Honestly, crypto was an interesting experiment that has devolved into nothing more than digital penny stocks.
- the_gastropod 2y ago
  Yep. And penny stocks are also already digital, for all intents and purposes. So, not sure what remains, apart from long-in-the-tooth unfounded hype and cultists.
- earnesti 2y ago
  Penny stocks rarely have similar market caps...
  - dgfitz 2y ago
    I’m a big fan of Warren Buffet. If he says it’s shit, then it’s probably shit.
ToucanLoucan 2y ago
The reason for crypto to exist is to be a secondary financial system that you didn't need to be well connected to old-money entities or families in order to "win" from. The 2008 financial crash spurred many anti-capitalist and hyper-capitalist movements, one of the latter being cryptocurrency. They saw how nakedly well-connected people absolutely cashed the fuck out with the near-collapse of the banking system permitting absurd amounts of money to flow to the markets that had created the problem in the first place, and led to tons of well-paid executives being given golden parachutes out of their industry, so fucking rich they would never have to work again. The anti-capitalist response to that sort of thing is "this system is broken and should be destroyed" and the hyper-capitalist response is "how do I get in on this thing" and the truth of the matter was, there wasn't really a way to get in on it if you weren't already in on it. Hence the creation of an entire second financial sector, recreating all of the failures of the existing one, without any of the regulations, and resulting in the exact same outcomes: the little guys get screwed, and the whales sail away into the sunset with unfathomable profits for basically doing nothing. I'm not saying blockchain based technology itself is useless. Of course it has uses, some really good ones too. But cryptocurrency has always been 100% grift.

sneak 2y ago

The contrast between this article and the DOJ press release yesterday is astounding. They really should beat this case. They didn’t do a single thing wrong, no fraud occurred.

mtnGoat 2y ago

Interesting, I know this is possible on a few other blockchains as well. I was asked to write code to front run trades on one of them, but laughed and turned it down. Seemed like it would end up something like this article.

px43 2y ago
This is possible in any market scenario where there exists buyers and sellers separated by a physical medium bound by the speed of light. Front-running is a fundamental property of market dynamics.

joemazerino 2y ago

The DOJ wants the traditional finance market to be the only keyholders in arbitrage. Anyone who has experienced market open slippage will understand this.

smeej 2y ago

$28M of somebody else's money seems like a small price to pay for securing enough attention to either address the situation that made this possible, or create a new market in it to close the arbitrage gap...and this is especially true when the "somebody else" got that money in shady-but-not-illegal ways in the first place. It's like the bug bounty system is built into the code.

nativeit 2y ago
Let's hope federal prison sentences for bounty hunters and full restitution of the bounty itself doesn't become a hallmark feature of other bug bounty schemes.

jiveturkey 2y ago

I'm not really sure how this is a crime. Can someone explain?

OutOfHere 2y ago
The MEV bots had a protocol that they were expected to follow. These two guys were running a secret cluster of their own bots that strongly violated the expected protocol.
- jiveturkey 2y ago
  I get that. Where's the criminality in that?
  - OutOfHere 2y ago
    At the minimum it would be a CFAA violation. Consider this simple case: if you visit me, and I show you a paper with keys to 0.1 BTC. You secretly take a picture of it while I step into the bathroom for a minute. Later you go home and you drain the wallet. In this scenario, did you really do a crime? You only violated protocol. It is not illegal to try random BTC keys. But I think, yes, you did.
- aj3 2y ago
  The strategy that MEV bots use is not a law. It is not even defined or endorsed by Ethereum standards, and arguably is not an intended feature of the network. You could alternatively claim that the guys defined their own protocol which addressed market inefficiency (which MEV is). Imo it's insane to claim that a trading technique you invented should have zero risk, and any losses you take are an indication of theft.
  - OutOfHere 2y ago
    To my knowledge, the imprecision of the CFAA is sufficient to prosecute them.

TacticalCoder 2y ago

> But to me what is wild about this case is that the Justice Department is bringing down the full weight of US federal criminal law to protect Ethereum front-running bots. What is surprising about that? The US tax man is making shitload of money happily taxing gains US citizens are making on cryptocurrencies. Not to mention businesses like Coinbase and Circle that are not only paying their taxes in the US but are also, at times, buying a lot of US government debt. The US government is, literally, indebted to these companies and functioning partly thanks to the taxes paid by crypto holders. You cannot have your cake and eat it too: if you want to collect taxes, you take care of the bad actors. If you want Coinbase to operate in Dubai and all crypto-related companies in the US to move to the UAE or Switzerland, you outlaw crypto altogether in the US once and for all. But then you don't come crying from the taxpayers dollars you don't get.

mavelikara 2y ago
There is plenty of commerce happening in Dubai/UAE and Switzerland that US does not collect taxes on. I have never heard anyone complain about missing out on those. Only if US tax residents are involved in the commerce does the US care. IRS will find a way to tax the commerce if US tax residents are involved, irrespective of where the crypto-related companies are located.

gumby 2y ago

I’m glad to see that fraternal crypto fraud is no longer a monopoly of the Winkelvoss twins. Also glad to see my alma mater in the press.

sharkjacobs 2y ago

It's heartbreaking to me that these guys aren't just allowed to get away with this. What's even the point of cryptocurrency if the algorithm isn't law?

wslh 2y ago

Sorry, don't get it. We can also say that Vitalik manipulated Ethereum protocol when the DAO hack ocurred, even if the DAO hack was a crime. There is no precise line to define what is right or wrong in crypto. Rephrasing it: there are a lot of things that happen in crypto, MEV itself, that are no different than what these brothers did.

Electricniko 2y ago

I feel like the people who wonder why this is a crime are missing something pretty important: this isn't the SEC attempting to regulate a crypto market by prosecuting securities fraud, it's the DOJ prosecuting straight-up old fashioned fraud. The crime is changing the terms of the transaction within the 12 second time frame after it had begun but before it had finished, and ultimately selling something different than what was promised. It doesn't matter that it's crypto, you could similarly be prosecuted for fraud by selling counterfeit pokemon cards if prosecutors could prove you knew that you were misrepresenting the cards as genuine cards. Here, the prosecutors have all the evidence they need from the code, and the Google searches showing what their intent was in writing that code.

b0r3datw0rk 2y ago
how is the blockchain under the purview of the us govt? these were transactions submitted to a blockchain created for the sole purpose of not being controlled by the government all these code is law folks are constantly exposed as just looking to get rich quick
- tmn 2y ago
  They did decide they’re entitled to taxes on transactions..
  - aj3 2y ago
    I bet this indictment will be used as a case study to justify the need for government oversight and taxation.
- lbwtaylor 2y ago
  The fraudsters are American so the US Government certainly has jurisdiction over their actions. Blockchain doesn't really matter to that.
- Arrath 2y ago
  > how is the blockchain under the purview of the us govt? Likely some inter-state commerce clause that gets used to bring many things under the purview of the feds. It may be more appropriate to ask how it was supposed to not be under the rule of law? > these were transactions submitted to a blockchain created for the sole purpose of not being controlled by the government Simply creating a blockchain with that intent in mind seems to be no more effective than a sovereign citizen ranting to a LEO that they are 'traveling by conveyance' in their car and thus not subject to traffic laws.

resolutebat 2y ago

A (very) technical explanation of the attack: https://collective.flashbots.net/t/post-mortem-april-3rd-2023-mev-boost-relay-incident-and-related-timing-issue/1540 https://collective.flashbots.net/t/post-mortem-april-3rd-202... @scrlk summed it up: MEV bots sandwich attacking traders = okay MEV bots sandwich attacking other MEV bots = fraud

baobun 2y ago
> In particular, the malicious proposer constructed their own block that broke the sandwich bots’ sandwiches up and effectively stole their money. Deep cognitive disonnance or do these people really think they have enshrined privilege now?

ChrisArchitect 2y ago

[dupe] More discussion: https://news.ycombinator.com/item?id=40375258 https://news.ycombinator.com/item?id=40375258 And on official Justice post: https://news.ycombinator.com/item?id=40371371 https://news.ycombinator.com/item?id=40371371 https://news.ycombinator.com/item?id=40369522 https://news.ycombinator.com/item?id=40369522

anonymousDan 2y ago

Such a BS case. Why are these frontrunners being protected, live by the sword, die by the sword.

ubikuitous84 2y ago

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aubreydalbert 2y ago

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1vuio0pswjnm7 2y ago

Information asymmetry.

MightyHacker 2y ago

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isabelremirez 2y ago

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