On February 17, a wallet previously accused of being at the forefront BinanceThe token listings of engaged in another transaction involving Gains (GNS) tokens just prior to their listing on Binance.
Lookonchain’s study found that the anonymous crypto trader earned over $100,000 within minutes after buying a token just before it was listed on Binance.
After further investigation, the on-chain sleuth discovered that just thirty minutes before listing on Binance, the trader had purchased Gains Network (GNS) tokens worth $208,335. Following its IPO, GNS experienced a remarkable 51% increase from $7.92 to $12.01, enabling the trader to turn his investment into profits of over one hundred thousand dollars in less than an hour .
Lookonchain jokingly called the trade “smart money” in its Twitter post. Yet, few people find it amusing, as insider trading is a legitimate practice in many countries like the United States and Canada, the European Union, and other jurisdictions around the world. As a general rule, trading with undisclosed information, such as news about an impending quote, can be considered unethical and risks undermining market fairness.
Understanding Front End Operation in Crypto Exchanges
When it comes to cryptocurrencies, front running occurs when a trader or exchange employee takes advantage of confidential information they have regarding an investor’s trade to put their transaction ahead of the customer. This results in unearned profits being made at someone else’s expense.
Front running gives insiders an unfair advantage in the market because it also violates any trust or obligation of confidentiality that may exist between them and other parties involved. It is a form of dishonesty that allows certain people to benefit from information that must remain confidential.
Over the past 12 months, many high-profile crypto exchanges have come under fire for claiming or confirming instances of front-running. This is when traders with inside information take large positions in digital tokens that are likely to increase in value due to their listing on a major centralized crypto exchange like Binance.
Recently, the old Coinbase product manager Ishan Wahi pleaded guilty to his role in an insider trading scheme that raised $1.1 million. This case is notable because it is the first time that federal prosecutors have faced criminal activity involving digital currencies.
Extensive academic research report conducted in August 2022 found that around 10-20% of new crypto listings on CoinBase were potentially exposed to front running.
Binance’s answer to front running in crypto exchanges
In July, after charges were brought against Wahi, Binance CEO Changpeng Zhao (CZ) strongly criticized the conduct and pointed out that insider trading and front running are illegal, whether they involve or not a cryptocurrency.
Binance has a self-regulatory policy in place to prevent employees from engaging in short-term trading. However, Coinbase’s Wahi was found guilty of sharing inside information about the upcoming tokens with his relatives.
During a recent WADA session, Changpeng Zhao said that most of the leaks and front runs are not from Binance but from the project/token side. To discourage anyone from attempting such behavior, Binance has implemented a strict system of blacklisting anyone who engages in this activity before being listed.
“At Binance, we make every effort not to release any listing information on our exchange until necessary. However, sometimes project teams are aware that they may be about to be listed once the wallet integration is complete.To prevent any announcement news from leaking prematurely, we do our best to keep the team members informed while remaining quiet and unobtrusive with other exchanges.