Decentralized finance (DeFi) has an opportunity to democratize access to financial markets that have normally only been open to the rich and powerful. But DeFi will only survive and continue to grow if we take steps to ensure things are safe, private, and fair for both retail and institutional investors. When confronted with predatory market behaviors such as miner extractable value (MEV) and front-running attacks, old wounds are opened to the “Flash Boys” era of traditional finance.
DeFi can and must do better, not allowing the failures of the past to creep back into the future. Fortunately, by implementing cryptographic mechanisms that embed transaction privacy into public blockchains, information can be proven against things like an order book without being revealed. This seemingly magical mathematical tactic not only protects transactions from the aforementioned behavior, but also enables auditability, all while preserving the privacy of individual or institutional accounts. This approach will foster a more accessible DeFi industry and provide a more equitable and liquid market for all.
The boys are coming back to town The phrase Flash Boys entered the lexicon after Michael Lewis wrote a highly influential book detailing the phenomenon. When we moved from the open trading floors of old Wall Street to a world of fully electronic trading, traders immediately started coming up with new ways to game the system. Simply put, early tech-savvy brokers used the lightning-fast processing power of modern computer systems to monitor and facilitate high-frequency trades that undercut, or advanced, legitimate incoming trades posted by slower systems. The crypto equivalent of the Flash Boys are the Flash Bots.
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