How Blockchain Technology is Reshaping Financial Markets and Trading

Have you ever wondered how digital money works or how we can trade without banks? This article explores the world of blockchain – a modern technology – changing finance as we know it. From decentralized exchanges to tokenizing real estate, blockchain is revolutionizing how we buy, sell, and invest. 

But it’s not just about money; it’s about making finance fairer and more accessible for everyone. In this article, we will explain blockchain technology in detail, delineating its advantages, key challenges, and discussing popular blockchain platforms. Let’s get started. 

What is Blockchain Technology? 

Blockchain technology is a decentralized digital ledger system that records transactions across multiple computers. As one of its key attributes, this technology ensures the integrity and security of the data. Let’s understand the following fundamental components of this technology:

• Decentralized Ledger

 

• • • A blockchain is a distributed ledger.
    • This ledger is not stored in any single location but exists across a network of computers (nodes). 
    • Each node maintains a copy of the ledger, and any new transactions are validated and added to the ledger through a consensus mechanism.

• Consensus Mechanisms

 

• • • These are protocols or rules that govern:
      • How nodes agree on the validity of transactions and
      • How they reach consensus about the state of the ledger. 
    • Examples of consensus mechanisms include:
      • Proof of Work (PoW),
      • Proof of Stake (PoS), and 
      • Delegated Proof of Stake (DPoS). 
    • These mechanisms ensure that all nodes in the network agree on the validity of transactions without the need for a central authority.

• Smart Contracts

 

• • • Smart contracts are self-executing contracts with the terms of the agreement directly written into code. 
    • They automatically execute and enforce the terms of the agreement when predefined conditions are met.
    • Smart contracts run on the blockchain and enable decentralized applications (DApps) to operate autonomously without the need for intermediaries.

• Distributed Ledger Technology (DLT)

 

• • • DLT refers to any system that enables the decentralized storage and management of data across a network of nodes. 
    • This technology ensures data integrity and immutability by recording transactions in a chronological and tamper-proof manner. 

• Each new block of transactions is linked to the previous blocks in a chain.

 

• • This linking makes it extremely difficult to alter past transactions without consensus from the majority of nodes in the network.

How Do Miners Earn Coins?

Most miners earn coins by processing the next block. The two major and most popular reward methods are described in the following table:

Transaction Fees	Block Rewards
Users who initiate transactions on the blockchain pay a fee, known as a transaction fee or gas fee. This fee incentivizes miners to include their transactions in the next block. Miners prioritize transactions with higher fees to maximize their earnings.	In PoW-based blockchains like Bitcoin, miners compete to solve cryptographic puzzles. This helps to validate transactions and add new blocks to the blockchain.  The miner who successfully mines a new block is rewarded with: a) A fixed number of newly created coins, and b) The transaction fees associated with the transactions in that block.

 

Blockchain’s Impact on Financial Markets 

Blockchain technology is significantly disrupting financial markets. It has completely revolutionized the way transactions are conducted by:

• Removing intermediaries,
• Reducing costs, and
• Improving efficiency.

All these effects majorly influence the financial markets. Let’s gain a deeper understanding:

• Removal of Intermediaries

 

• • • Traditionally, financial transactions involve multiple intermediaries, such as:
      • Banks,
      • Clearinghouses, and
      • Payment processors.
    • This involvement of multiple layers adds complexity, time, and costs to the process. 
    • Blockchain eliminates the need for these intermediaries by enabling peer-to-peer transactions.
    • These peer-to-peer transactions allow individuals and businesses to transact directly with each other. 
    • Consequently, this disintermediation streamlines processes and reduces transaction fees.

• Cost Reduction 

 

• • • Blockchain technology reduces costs associated with financial transactions by
      • Eliminating intermediaries and
      • Automating processes. 
    • Additionally, blockchain-based solutions often operate on decentralized networks.
    • This feature lowers infrastructure and operational costs compared to centralized systems.

• Improved Efficiency

 

• • Blockchain enables faster and more efficient settlement of financial transactions compared to traditional systems. 
  • Transactions on a blockchain are processed in real time or within minutes.
  • This rapid processing eliminates the delays and inefficiencies associated with traditional settlement processes that can take days to complete.
  • Consequently, faster processing enables:
    • Quicker access to funds and
    • Greater liquidity in financial markets.

The Unique Case of El Salvador

El Salvador provides a unique example of blockchain adoption at a national level. In this country, Bitcoin (BTC) is recognized as legal tender. 

Despite initial challenges and skepticism, El Salvador has embraced Bitcoin and is actively exploring innovative solutions to facilitate its use for everyday transactions. In this quest, it has developed a lightning network, which is a second-layer protocol built on top of the Bitcoin blockchain.

The Advantages of Blockchain-based Solutions 

The blockchain-based solutions offer several advantages for clearing and settlement processes in financial markets. Let’s understand the two major advantages:

Real-time Settlements

Smart Contract Automation

Blockchain technology enables real-time settlement of financial transactions. It does so by recording and validating transactions on a distributed ledger in near real-time.  This real-time settlement eliminates the need for lengthy settlement periods. Such a fast settlement: a) Reduces counterparty risk and b) Improves liquidity in financial markets.

Smart contracts are self-executing contracts with predefined terms written in code. These are widely used to automate clearing and settlement processes on blockchain platforms.  Smart contracts automatically enforce the terms of an agreement and facilitate the transfer of assets once predefined conditions are met. This automation reduces the need for manual intervention and streamlining processes.

 

The Many Benefits of Blockchain in Financial Markets

Blockchain technology is fundamentally reshaping financial markets by:

• Driving innovation,
• Improving efficiency,
• Fostering greater transparency, and
• Boosting trust in financial transactions. 

It does so by providing:

• Transparent Record-keeping

 

• • • Blockchain maintains a transparent and immutable record of all transactions on a distributed ledger.
    • This record remains accessible to all participants in the network. 
    • Such transparency reduces the risk of fraud and manipulation by providing a single source of truth for transaction data.

• Auditable Transactions

 

• • • Every transaction recorded on a blockchain is cryptographically secured and time-stamped.
    • This recording provides an auditable trail of transactions, which can be further verified.
    • An analysis of the transactions trail helps regulators, auditors, and stakeholders to verify the integrity and legitimacy of transactions.

• Trustless Transactions

 

• • • Blockchain technology enables trustless transactions.

• This means that parties can transact with each other without the need for trust or reliance on intermediaries. 

 

• • Also, the inherent security and transparency of blockchain networks ensure that transactions are executed securely and reliably.

Efficiency and Cost Reduction 

Based on rapid technological advancements, blockchain technology streamlines financial processes and reduces operational costs across various sectors. Let’s see how:

The Benefits of Blockchain Technology	Explanation
Payment Processing	Blockchain-based payment processing systems offer faster, cheaper, and more efficient alternatives to traditional payment methods.  Cryptocurrencies like Bitcoin and Ethereum enable peer-to-peer transactions without the need for intermediaries, such as banks or payment processors.  These transactions are processed quickly and at lower fees compared to traditional payment systems.
Cross-Border Transactions	Blockchain technology is revolutionizing cross-border transactions by  a) Eliminating intermediaries and b) Reducing the time and cost associated with traditional remittance services.  Platforms like RippleNet use blockchain technology to enable real-time, low-cost cross-border payments. By leveraging blockchain-based solutions, companies can bypass the traditional correspondent banking network. This capability results in faster transaction settlements and lower fees.
Trade Finance	Blockchain is transforming trade finance by digitizing and automating processes, such as: a) Letters of credit, b) Trade finance documentation, and c) Supply chain financing.  Trade finance platforms are built on blockchain technologies, such as TradeLens and we.trade. These latest technologies enable stakeholders to securely and transparently exchange trade-related documents and information in real-time.  Blockchain technology has also: a) Streamlined trade finance processes and b) Reduced manual paperwork.

 

The Visible Impact of DeFi

Decentralized finance (DeFi) protocols are disrupting traditional banking services and lending practices. They are doing so by offering decentralized alternatives to traditional financial products and services. Let’s understand how DeFi is impacting traditional banking:

• Decentralized Lending

 

• • • DeFi platforms enable individuals to borrow and lend digital assets without the need for traditional financial intermediaries such as banks. 
    • These platforms use smart contracts to facilitate peer-to-peer lending and borrowing.
    • Such a facilitation allows users to:
      • Earn interest on their crypto assets or
      • Access liquidity through collateralized loans. 
    • Additionally, DeFi lending protocols like Compound and Aave are offering competitive interest rates and flexible borrowing options.
    • These protocols are actively attracting users looking for alternatives to traditional banking services.

• Tokenization of Assets

 

• • • DeFi protocols enable the tokenization of real-world assets, such as:
      • Real estate,
      • Stocks, and
      • Commodities.
    • This tokenization allows these assets to be traded and accessed on blockchain networks.
    • Trading opens up new opportunities for:
      • Fractional ownership,
      • Liquidity provision, and
      • Cross-border investment.
    • Platforms like Uniswap and SushiSwap facilitate the decentralized trading of tokenized assets.
    • This facilitation enables users to trade directly with each other without the need for centralized exchanges.

• Decentralized Exchanges (DEXs) 

 

• • DeFi platforms offer decentralized alternatives to centralized cryptocurrency exchanges.
  • These platforms allow users to trade digital assets directly from their wallets without relying on intermediaries. 
  • DEXs use automated market-making algorithms and liquidity pools to enable peer-to-peer trading.
  • Platforms like Uniswap, PancakeSwap, and SushiSwap have gained significant traction in the DeFi space, offering users:
    • Low fees,
    • High liquidity, and
    • Greater control over their assets.

Transparency and Trust

Blockchain technology promotes transparency and trust in financial markets through its:

• Decentralized nature and
• Cryptographic security.

Let’s see how blockchain technology ensures the integrity and immutability of transaction records:

Decentralization

Cryptographic Security

Blockchain operates on a distributed ledger system. In this system, transaction data is stored across multiple nodes in a network.  This multiple-node storage eliminates the need for a central authority or intermediary. Each participant in the network has access to the same transparent and immutable record of transactions. Decentralization helps in reducing: a) Risk of fraud, b) Manipulation, and c) Censorship.

Blockchain utilizes cryptographic techniques such as: a) hashing and  b) digital signatures. These techniques secure transaction data and prevent unauthorized tampering or alteration.  Since transactions are cryptographically linked and timestamped, it’s virtually impossible to modify past transactions without consensus from most network participants.  Cryptographic security ensures: a) Integrity, b) Authenticity, and  c) Trust in the financial system.

 

How Blockchain Technology Combats Fraud and Corruption?

Blockchain technology promotes transparency and combats fraud and corruption. Let’s see how:

• • Audit and Compliance: 
    • Blockchain enables transparent and auditable record-keeping.
      • This systematic maintenance of records makes it easier for auditors and regulators to verify the accuracy and completeness of financial data.
    • Auditors can access the blockchain to:
      • Trace the flow of funds,
      • Verify transaction details, and
      • Ensure compliance with regulatory requirements. 

• Supply Chain Traceability: 

 

• • • Blockchain facilitates supply chain traceability by recording the origin, movement, and ownership of goods and products on a transparent and immutable ledger.
    • Companies can use blockchain to track the entire lifecycle of products, from raw materials to finished goods.
    • Thus, blockchain-based supply chain solutions:
      • Enhance transparency,
      • Reduce counterfeiting, and 
      • Improve trust among supply chain participants.

• Identity Verification: 

 

• • Blockchain enables secure and verifiable identity management systems.
  • These systems allow individuals to control and share their identity information without relying on centralized authorities. 
  • Blockchain-based identity solutions use cryptographic techniques to
    • Authenticate users and
    • Protect sensitive information.

What are Non-Fungible Tokens (NFTs)?

NFTs are a type of smart contract. These represent unique digital assets on the blockchain. Let’s explore some popular use cases of NFT across different blockchain platforms:

Types of NFTs	Explanation
VeChain (VET)	VeChain focuses on supply chain management. It uses NFTs to track the authenticity and provenance of products in industries, such as logistics and distribution.  NFTs on the VeChain blockchain represent unique identifiers for physical assets.
Ethereum (ETH)	Ethereum is a widely used platform for NFTs, especially for creating and trading digital art and collectibles.  Ethereum-based NFTs represent unique digital assets such as: a) Digital artwork, b) Music, and c) Virtual real estate.  The Ethereum blockchain provides a decentralized marketplace for buying, selling, and trading NFTs.

 

Understanding Public vs. Private Blockchains

Public and private blockchains have different implications for transparency and data privacy. Let’s understand both of them:

• Public Blockchains (such as Bitcoin and Ethereum)

 

• • • They are open and permissionless networks.
    • Anyone can participate as a node and access the blockchain data. 
    • Public blockchains offer:
      • High transparency and
      • Censorship resistance. 
    • However, public blockchains may compromise data privacy as transaction details are visible to all participants.

• Private Blockchains

 

• • Private blockchains, on the other hand, are permitted networks.
  • In them, access to the blockchain data is restricted to authorized participants. 
  • Private blockchains offer greater control over:
    • Data privacy and
    • Confidentiality.
  • However, they sacrifice transparency and decentralization compared to public blockchains. 
  • Private blockchains are commonly used in enterprise settings, where sensitive business data needs to be protected while still leveraging blockchain technology for efficiency and security. 

Transforming Trading Practices

Blockchain technology is transforming trading practices and investment strategies by:

• Increasing access to global markets,
• Enabling fractional ownership,
• Enhancing liquidity,
• Ensuring transparency and security, and
• Reducing costs.

As blockchain adoption continues to grow, its impact on trading and investing is expected to deepen, leading to further innovation in the financial industry. Blockchain technology enables investors to access global markets seamlessly besides allowing investors to purchase and trade fractional shares of high-value assets, such as real estate, art, and stocks. 

Also, blockchain provides transparency and security in trading practices by maintaining a decentralized and immutable ledger of transactions. 

The Emergence of Decentralized Exchanges (DEXs) 

The DEXs have emerged as innovative platforms that enable peer-to-peer trading of digital assets without intermediaries or central authorities. They operate on blockchain networks and provide several advantages over traditional centralized exchanges (CEXs), including increased security and user control. Let’s discuss some major advantages below:

• Security

 

• • • One of the key advantages of DEXs over CEXs is enhanced security. 
    • DEXs operate on decentralized networks, where transactions are executed directly between users’ wallets.
    • There is no need for a central authority to hold custody of funds. 
    • This benefit eliminates the risk of:
      • Centralized exchange hacks,
      • Exit scams, or
      • Insider manipulation.
    • Since users retain control of their private keys and funds at all times, the risk of unauthorized access or theft is significantly reduced on DEXs.

• User Control

 

• • • DEXs offer users greater control over their assets and trading activities compared to CEXs. 
    • On DEXs, users have full control of their private keys and funds.
    • They can execute trades directly from their wallets without the need to deposit funds onto the exchange platform. 
    • This benefit eliminates the risk of funds:
      • Being frozen or
      • Seized by the exchange operator.
    • All the users on DEXs maintain ownership and control of their assets throughout the trading process. 
    • Additionally, DEXs typically do not require users to undergo lengthy KYC (Know Your Customer) procedures.

• Censorship Resistance

 

• • • DEXs are censorship-resistant platforms.
    • These cannot be easily shut down or controlled by external authorities. 

• Since DEXs operate on decentralized networks, there is no single point of failure and no central authority that can censor transactions or restrict access to the platform.

 

• • This benefit makes DEXs particularly attractive to users in jurisdictions with strict financial regulations or censorship.

What is the Tokenization of Assets?

Tokenization refers to the process of representing real-world assets, such as real estate, stocks, commodities, or artwork, as digital tokens on a blockchain. These tokens are programmable, divisible, and can be traded or transferred easily on blockchain networks. Let’s understand two of its major benefits as explained in the given table:

Fractional Ownership

Liquidity

Asset tokenization enables fractional ownership.  It allows investors to purchase and trade fractional shares of high-value assets.  By dividing assets into smaller units represented by digital tokens, asset tokenization makes it easier for investors to access investment opportunities that were traditionally out of reach due to high costs or minimum investment requirements. Fractional ownership democratizes access to assets such as real estate, art, and private equity.

Asset tokenization enhances liquidity in traditionally illiquid markets. It creates liquidity pools on decentralized exchanges.  By tokenizing assets and trading them on blockchain networks, investors can buy and sell assets more easily. This ease of trade leads to increased market liquidity and price discovery. Tokenized assets can be traded 24/7 on decentralized exchanges, providing greater flexibility and accessibility to investors seeking to liquidate their holdings or capitalize on investment opportunities.

 

The ETH404 chain

The ETH404 chain is a relatively new blockchain platform. It introduces innovative mechanisms for:

• Fractional ownership and
• Asset tokenization.

The ETH404 chain interrelates fractional ownership with NFTs by allowing users to tokenize real-world assets and represent ownership stakes as NFTs. These NFTs can then be fractionally divided and traded on the ETH404 chain, enabling investors to buy and sell fractional shares of high-value assets.

ETH404 follows a unique mechanism and represents unique and indivisible assets. It comes loaded with the advantages of fractional ownership and allows for greater accessibility and liquidity in investment opportunities. 

Decentralized Exchanges

Decentralized exchanges (DEXs) play a crucial role in facilitating peer-to-peer trading of digital assets by operating on blockchain networks without the need for intermediaries or centralized control. These exchanges offer:

• Censorship resistance,
• Transparency, and
• Financial autonomy. 

Additionally, popular DEXs like Uniswap, SushiSwap, and PancakeSwap provide users with efficient trading mechanisms and additional features, such as yield farming and liquidity provision. Let’s perform an in-depth analysis of DEXs and their role in the cryptocurrency ecosystem:

The Role of DEXs

DEXs enable users to trade cryptocurrencies and digital assets directly with each other without relying on a centralized intermediary. They operate on decentralized networks, allowing users to:

• Retain control of their funds and 
• Trade assets securely and transparently.

DEXs utilize smart contracts and automated market-making algorithms to facilitate trades and ensure liquidity on the platform. These provide a censorship-resistant and permissionless environment for trading digital assets.

Comparison of Popular DEXs

DEXs	Explanation
Uniswap	Uniswap is one of the most popular decentralized exchanges built on the Ethereum blockchain.  It pioneered the concept of automated market makers (AMMs) and liquidity pools.  Uniswap allows users to: a) Swap ERC-20 tokens directly from their wallets and b) Earn fees by providing liquidity to the platform.  Its simple user interface and efficient trading mechanism have contributed to its widespread adoption.
SushiSwap	SushiSwap is a decentralized exchange forked from Uniswap with additional features and functionalities.  It offers yield farming, staking, and token incentives to liquidity providers. SushiSwap aims to create a community-driven decentralized exchange ecosystem with decentralized governance and tokenomics.
PancakeSwap	PancakeSwap is a decentralized exchange built on the Binance Smart Chain (BSC). It offers lower transaction fees and faster transaction speeds compared to Ethereum-based DEXs. It features automated market-making, yield farming, and token-swapping functionalities.  PancakeSwap has gained popularity among users looking for alternatives to high gas fees on Ethereum.
Opensea	While not strictly a DEX, Opensea is the largest decentralized marketplace for non-fungible tokens (NFTs). It allows users to buy, sell, and trade digital collectibles, art, and virtual assets directly on the Ethereum blockchain.

 

Challenges Facing DEX Adoption

• Liquidity Concerns 

 

• • • DEXs rely on liquidity providers to maintain sufficient liquidity in trading pairs.
    • However, liquidity can be fragmented across different DEXs.
    • This fragmentation leads to:
      • Lower liquidity and
      • Higher slippage for less popular tokens. 
    • Automated market makers (AMMs) help mitigate liquidity concerns but may still face challenges in maintaining optimal liquidity for all trading pairs.

• Regulatory Uncertainty

 

• • • Most often, DEXs face regulatory scrutiny or enforcement actions.
    • This enhanced vigilance leads to restrictions or shutdowns in certain jurisdictions.

• User Experience

 

• • User experience is a significant barrier to entry for DEX adoption. 
  • While DEXs offer decentralized and non-custodial trading, the user interface and onboarding process may be complex for beginners. 
  • Additionally, when trading on DEXs, users need to be mindful of:
    • Gas fees,
    • Slippage, and
    • Impermanent loss.

Tokenization of Assets

Asset tokenization is the process of representing traditional assets, such as:

• Real estate,
• Art,
• Commodities, and
• Securities, as digital tokens on a blockchain. 

These tokens are programmable, divisible, and can be traded or transferred easily on blockchain networks. Asset tokenization helps in the following:

• Digitizing ownership,
• Increasing liquidity, and
• Expanding investment opportunities. 

Some Common Tokenized Assets

Tokenized Assets	Explanation
Real Estate	Real estate tokenization allows investors to own fractional shares of properties. This flexible ownership allows them to high-value real estate assets with lower investment requirements.  Platforms like RealtyShares and RealT tokenize properties and offer investment opportunities through blockchain-based platforms.
Art	The tokenization of art enables investors to own fractional shares of valuable artworks. It allows for broader participation in the art market.  Platforms like Maecenas and Masterworks tokenize art assets and provide investment opportunities for art enthusiasts and collectors.
Commodities	Asset tokenization enables investors to trade fractional shares of commodities, such as gold, silver, and oil on blockchain-based platforms.  Tokenized commodities provide investors with exposure to commodity markets without the need for physical ownership or storage.

 

What are Some Benefits of Asset Tokenization?

• Fractional Ownership

 

• • • Asset tokenization allows for fractional ownership of high-value assets.
    • It democratizes access to investment opportunities. 
    • It allows investors to purchase and trade fractional shares of assets.
    • Such fractional trading promotes diversification and reduces barriers to entry for individual investors.

• Increased Liquidity

 

• • • Tokenized assets can be traded 24/7 on blockchain-based platforms.
    • This enhanced trading improves liquidity in traditionally illiquid markets. 
    • By facilitating secondary market trading, asset tokenization improves:
      • Price discovery and
      • Market efficiency.

• Automated Compliance

 

• • Smart contracts can be used to automate compliance with regulatory requirements, such as:
    • Know Your Customer (KYC) and
    • Anti-Money Laundering (AML) regulations. 
  • Tokenized assets enforce compliance rules programmatically and reduce administrative burden.

Challenges and Considerations

Efficient integration of blockchain technology into financial markets and trading practices requires addressing several issues such as scalability, regulatory hurdles, interoperability challenges, and much more. Let’s understand them in depth as explained in the table below:

Scalability Issues	Regulatory Hurdles	Interoperability Challenges
Blockchain networks face scalability limitations in terms of transaction throughput and processing speed. As transaction volumes increase, blockchain networks become congested. This congestion leads to delays and higher transaction fees. The following scalability solutions are being developed to address these challenges: a) Sharding, b) Layer-2, and  c) Protocol upgrades.	Regulatory uncertainty and compliance requirements pose challenges for blockchain adoption in financial markets. Regulatory frameworks vary by jurisdiction and impact the legality and regulatory compliance of blockchain-based financial products and services.  Clarifying regulatory guidelines and establishing a conducive regulatory environment are essential for fostering blockchain adoption in financial markets.	Interoperability between different blockchain networks and protocols is crucial for seamless integration and interoperability of financial systems. Currently, interoperability standards and protocols are still being developed. Interoperability leads to fragmentation and silos within the blockchain ecosystem. The following interoperability solutions are being developed to address these challenges: a) Cross-chain bridges and b) Interoperability protocols.

 

Additionally, privacy and data security are paramount considerations in blockchain implementations, especially in financial markets, where sensitive financial data is involved. 

While blockchain offers transparency and immutability, ensuring data privacy and confidentiality is essential to protecting user information and preventing unauthorized access or data breaches. Privacy-enhancing technologies, such as zero-knowledge proofs and secure multi-party computation can help address privacy concerns in blockchain implementations.

Governance issues such as centralization of decision-making power, conflicts of interest, and lack of transparency also impact the stability and trustworthiness of blockchain networks. Thus, transparent and inclusive governance mechanisms should be established to ensure the long-term sustainability and decentralization of blockchain networks.

The Role of Vampire or Sandwich Bots and Slippage

Vampire or sandwich bots are automated trading algorithms that exploit price discrepancies and liquidity imbalances across decentralized exchanges (DEXs). These bots mine available liquidity by:

• Front-running trades and
• Arbitraging fractional differences across liquidity pools.

These tactics lead to slippage and reduced profitability for retail traders. Let’s understand the modus operandi with a hypothetical example:

What happened? – The Event

• Suppose a trader wants to buy 1 Ethereum (ETH) using a decentralized exchange like Uniswap. 
• They checked the current market price of ETH and saw that it was $2,000. 
• However, when they went to execute their trade on Uniswap, they noticed that the price had suddenly increased to $2,050. 
• This unexpected price movement is known as slippage.

Why did it happen? – The Cause

• This sudden surge in price was caused due to the operations of vampire/sandwich bots.
• These bots exploited price discrepancies and liquidity imbalances on decentralized exchanges like Uniswap.

How did it happen? – The Process

• Before you execute your trade, vampire or sandwich bots detect your intention to buy ETH.
• They quickly place their buy orders ahead of yours, causing the price of ETH to increase before your trade is executed. 
• By front-running your trade, these bots can profit from the price increase at your expense.
• Additionally, vampire or sandwich bots monitor liquidity pools on Uniswap and other DEXs for any discrepancies in prices. 
• If they detect a lower price for ETH on one liquidity pool compared to another, they exploit this difference by:
  • Buying ETH at a lower price and
  • Selling it at a higher price.

What have we got to learn? – The Outcome

• As a result of the activities of vampires or sandwich bots, the price of ETH on Uniswap was higher than expected when the traders went to execute their trade. 
• This caused slippage, and the trader ended up paying a higher price for ETH than what was initially anticipated. 
• So, the presence of these bots exacerbates slippage and reduces profitability for retail traders.

What is “jared from subway.eth,”?

The vampire or sandwich bots are named after notable figures or humorous aliases like “jared from subway.eth,”.  During the rise of certain assets or meme coins like PEPE, these bots become particularly active and take advantage of:

• Heightened volatility and
• Trading volumes to execute profitable trades. 

In the case of “jared from subway.eth”, these bots reportedly made 50 ETH every few hours. 

Conclusion

Blockchain technology has significantly transformed financial markets and trading. It offers numerous benefits, such as enhanced accessibility, transparency, and efficiency. Through blockchain, financial processes have become more accessible and affordable for everyone. 

It records transactions in a secure and immutable ledger, thereby boosting transparency and trust. This technology has democratized access to financial services, allowing individuals from all backgrounds to participate in trading and investing. 

As blockchain continues to evolve, it will further streamline financial operations and promote inclusivity in the global economy. Dive deeper into the conversation about blockchain, smart money, and trading volume with an experienced trader by clicking here.