| Abstract [eng] |
Automated trading is a form of trading that relies on automated systems which execute numerous transactions in exchanges in a very short – in milisecords or seconds – period of time to earn profit. The main goal of this strategy is to exploit short-term price fluctuations in order to take an advantage of (un)suitable market situation. However, the strategy of algorithmic trading not only exploits existing price differences, but, how Jones (2013) notices, also uses available information manipulate the market to exploit other market participants who become victims. Such actions are contrary to the principles of fairness and fall under the definition of manipulation. According to the regulation of the European Parliament and the Council (2023), actions that are false or misleading in terms of demand or supply, or maintaining prices at an artificial level, are classified as market manipulation, which directly corresponds to the mechanics of frontrunning attacks in decentralized systems, where prices are artificially distorted. Blockchain technology is unique so that every information about past and ongoing transactions are publicly available, unchanging and decentralised. Gomez-Trujillo, Gonzalez-Perez ir Velez-Ocampo (2021) emphasizes this operational principle allows to execute real-time market analysis to assess how trades are done and to find suspicious trading patterns. In this context, the technical feature of replace-by-fee plays a key role, which, according to Narayanan, Bonneau, Felten, Miller and Goldfeder (2016), allows uncofirmed transactions to be replaced with new ones. This means that status of transactions prior to inclusion in a block is not final, and the order of transactions is technically adjustable. This intersection of automated trading strategies, blockchain characteristics and legal requirements creates conditions for the emergence of preventive measures – an automated protection system based on monitoring frontrunning attacks on the network and replace-by-fee mechanism that allows threats to be responded to at the same speed as market manipulation. |
