The dubious trading practices that have long plagued cryptocurrency markets are now infiltrating traditional finance through Digital Asset Tokens (DATs), according to Shane Molidor of Forgd. As institutional products bridge the gap between crypto and TradFi, concerns mount over information asymmetry and front-running behaviors that could undermine market integrity in both sectors.
The cryptocurrency industry's persistent challenges with insider trading and market manipulation are beginning to contaminate traditional financial markets through emerging Digital Asset Token (DAT) products, according to a stark warning from Shane Molidor, a prominent figure at blockchain infrastructure firm Forgd.
Molidor's concerns center on the migration of problematic behaviors that have characterized crypto markets for years—particularly information asymmetry and front-running—into institutional financial products that serve as bridges between digital assets and traditional finance. DATs, which represent tokenized versions of real-world assets or securities, have gained traction as financial institutions seek exposure to blockchain technology while maintaining regulatory compliance.
The issue highlights a growing tension in the convergence of crypto and traditional finance. While proponents of tokenization argue that blockchain technology can enhance transparency and efficiency in financial markets, critics point out that the technology alone cannot eliminate human behaviors that lead to market manipulation. In fact, the pseudonymous nature of many blockchain transactions and the 24/7 nature of crypto markets may actually exacerbate these problems.
Front-running, a practice where traders exploit advance knowledge of pending transactions to profit at others' expense, has been a notorious problem in decentralized finance (DeFi) protocols. The practice, often executed by automated bots that monitor blockchain mempools, has cost regular traders millions in lost profits. Now, as institutional products incorporate blockchain technology, these same vulnerabilities may be introduced into traditionally regulated markets.
Information asymmetry—where some market participants have access to material information before others—compounds the problem. In crypto markets, this often manifests through insider knowledge of token listings, project developments, or whale movements. As DATs bring institutional capital into tokenized products, the risk increases that these unfair advantages could spread to markets that have historically maintained stricter oversight.
The warning comes at a critical juncture as regulatory bodies worldwide grapple with how to oversee the growing intersection of cryptocurrency and traditional finance. Market integrity protections that exist in conventional securities markets may prove insufficient or poorly adapted to the unique characteristics of tokenized assets, potentially creating regulatory blind spots that sophisticated actors could exploit.
For the nascent DAT market to mature responsibly, industry participants and regulators must proactively address these inherited vulnerabilities rather than allowing crypto's worst practices to become TradFi's new normal.