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patio11's profile
Patrick McKenzie
Patrick McKenzie
Patrick McKenzie
@patio11

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Patrick McKenzie

@patio11

I work for the Internet, at @stripe, mostly on accelerating startups. Opinions here are my own.

東京都 Tokyo
kalzumeus.com
Joined February 2009

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    1. Patrick McKenzie‏ @patio11 15 Apr 2019
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      Since frontrunning is again being talked about by technologists, would like to explain the classical version of it, which is almost the opposite of the way that most technologists think it works:

      6 replies 25 retweets 134 likes
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    2. Patrick McKenzie‏ @patio11 15 Apr 2019
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      Client Charlie tells Broker Bob to procure him a share of Google, currently trading at $100 a share. Technologists think "Bob now races Charlie to the market." This is not the classical understanding of frontrunning. No. Bob buys one share immediately.

      2 replies 4 retweets 18 likes
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    3. Patrick McKenzie‏ @patio11 15 Apr 2019
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      Bob then waits "a little while" and sees what happens to Google. If Google goes up to $100.15, Bob tells Charlie: "Good news, I got you a share at $100.15" and fulfills that share with the share Bob bought at $100. If Google goes to $99.85, Bob tells Charlie: "Got it at $100."

      2 replies 6 retweets 34 likes
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    4. Patrick McKenzie‏ @patio11 15 Apr 2019
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      Broker Bob thereby gets to play short-term speculation with his client's capital at risk and no material chance of loss. The underlying theft is not because Bob was faster, it was because Bob was willing to lie about Bob's intentions after the fact.

      1 reply 7 retweets 35 likes
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      Patrick McKenzie‏ @patio11 15 Apr 2019
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      From this follows pretty automatically "Front-running is at 2019 at an all time low because computers are really good at keeping accurate paper trails." Technologists think it is close to an all-time high because high-frequency computers make it easier to race clients / etc.

      7:52 PM - 15 Apr 2019
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      2 replies 6 retweets 42 likes
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        2. Patrick McKenzie‏ @patio11 15 Apr 2019
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          Note that this frontrunning also structurally requires an informational asymmetry (Charlie can't know what the true price of Google was with sufficient resolution to catch Bob on the lie), which is something which computers/open feeds/etc work to substantially mitigate.

          3 replies 3 retweets 35 likes
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        3. Patrick McKenzie‏ @patio11 15 Apr 2019
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          When people propose e.g. "You need to let large positional traders somehow execute their trades without exposing this fact to other market participants, or they will be 'front run'", they are proposing substantially rolling back effective front-running protection mechanisms.

          7 replies 10 retweets 49 likes
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        4. End of conversation
        1. Bombadil Brin‏ @bjorn_daporn 16 Apr 2019
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          Replying to @patio11

          They do? Derp derp... Universities aren't sending us their best...

          0 replies 0 retweets 0 likes
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