The terminology came from the traditional stock market, which refers to insider information regarding progressing deals that are to enter the market before the competition, which turns out to be a type of insider trading.
However, for now, Front Running is not only limited to the stock market and DeFi, that is, decentralized finance; rather, it is also seen happening in NFT marketplaces too. It often occurs because some insider at the NFT platform knows which NFTs will be featured heavily on a marketplace or trading site.
More than with such knowledge, such people can buy NFTs before they could even get features, ultimately resulting in a rise in its price. The price of NFTs rises as they are available publicly for sale, and the insider person makes a huge profit.
So, such kind of front running is called insider trading, where the assets get traded based on information that is non public yet. For instance, in September 2021, the head of product at OpenSea NFT marketplace, Nate Chastain, was discovered for purchasing NFTs just before their being highlighted on site of OpenSea, which he sold for a profit.
This is how he took advantage of some insider information that NFTs OpenSea would push in order to gain an unfair advantage. But later on, an individual from the enterprise got to know such illicit activity after matching the transaction’s timestamps to top of page promotions of questions about NFTs on OpenSea.
Now, if you would ask if Front running is illegal. Yes, in the traditional market, it is illegal as the outsiders are not to provide insider information. But for the crypto market, it’s a little bit complicated because all the information is already stored in a digital ledger that is publicly auditable. So on the basis of the fact, in NFTs, front running could be considered to be illegal.
The power of the Internet to disperse information results in an increase of front running in the crypto market. While in traditional trading, Front running is banned because the trader uses non-public data while the trader on a DEX utilizes data available publicly on the blockchain, and technically it’s not even shorting the system.
Users could limit the front running by splitting their transactions into many smaller chunks of transactions and adjusting the low slippage. Like this, developers can also use the anti-front running measure to make the transactions private and use a hidden meme pool.
With a background in journalism, Ritika Sharma has worked with many reputed media firms focusing on general news such as politics and crime. She joined The Coin Republic as a reporter for crypto, and found a great passion for cryptocurrency, Web3, NFTs and other digital assets. She spends a lot of time researching and delving deeper into these concepts around the clock, and is a strong advocate for women in STEM.