Cryptographic Order Obfuscation to Prevent Front-Running
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Solution Overview
Problem
Current trading systems are vulnerable to front-running and high-frequency trading due to the lack of obfuscation of order intent, allowing traders to exploit publicly available information about upcoming trades to influence market prices.
Innovation Solution
The implementation of distributed and cryptographic techniques to obfuscate the intent of orders until execution, using cryptographic key pairs to create, match, and execute transactions while maintaining a public record that is only revealed after the transaction is completed.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Loss of information
If order intent is made publicly visible for transparency, then market transparency is improved, but front-running and high-frequency trading are enabled
Solution Approach 1:
The patent applies preliminary action by creating a committed transaction that reserves order intent in advance on the blockchain before actual execution. This allows the system to lock in trading intentions prior to public visibility, preventing front-runners from exploiting unexecuted order information while maintaining the ability to reveal executed transactions for transparency.
Solution Approach 2:
The patent uses a committed transaction as an intermediary layer between order placement and execution. This intermediary structure holds the order intent in a reserved state on the blockchain, acting as a buffer that prevents direct exposure of unexecuted orders to the public while still providing verifiable transaction records after execution.
2Object-affected harmful factors
If cryptographic obfuscation is applied to order intent, then front-running is prevented, but transaction verification complexity increases
Solution Approach 1:
The patent uses cryptographic hashing to create a simplified copy or representation of the order intent that can be publicly verified without revealing the actual order details. The hash acts as a verifiable copy that proves the existence and integrity of the original order without exposing sensitive information, reducing verification complexity while maintaining security.
3Ease of operation
If all transaction details are revealed on blockchain, then public verification is simplified, but trader privacy and strategic information are compromised
Solution Approach 1:
The patent applies local quality by selectively revealing different levels of information for different aspects of the transaction. Critical verification data such as hashes and execution confirmations are made publicly visible, while sensitive order intent details remain obfuscated until execution. This allows public verification of transaction integrity without compromising trader privacy or strategic information.
Data Source
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AI summary
Methods and systems described herein prevent traders from using order intent and hardware solutions to advance their order position by obfuscating the order until execution and by using a digital ledger to assign priority of the orders. As described herein, using a series of cryptographic key pairs, one side of a transaction can be created, matched, and executed while a public record is recorded and maintained but obfuscated (i.e., not publicly transparent) until after the transaction is completed.