There’s a telltale sign in the fully automated world of decentralised finance for traders who know something that others don’t: They’re at the front of the line and they pay the highest door fees. So say three Columbia University academics who argue that those who pay the most to access the blockchain get preferential treatment and often possess private, potentially-market moving information.
But whoever pays the most has their order processed first, according to Agostino Capponi, Ruizhe Jia and Shihao Yu, revealing a system of favouritism driving crypto markets. The study used statistical methods to measure the price impact of trades that indicated the actors had private information.
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