You're not just trading against the market, you're also trading against the exchange you're using.

In traditional markets this is banned.
The New York Stock Exchange is not allowed to have a stake in broker dealers and cannot run a trading desk against its own clients.
These functions are separated by law because the conflict of interest is obvious.
If you run the casino and play at the table you will always have the edge.
In crypto there is no such rule.
Multiple major exchanges operate internal trading desks that buy and sell on the same order books their customers use.
The exchange sees every order on its own platform in real time.
It knows where the liquidation levels are, it knows the size of pending orders, it knows exactly how much leverage its users are holding.
Then its own desk trades the same market with that same infrastructure.
FTX took this to the extreme.
Their sister trading firm Alameda Research was the primary market maker on FTX.
They sat in the middle of customer trades, but buried in FTX's code was a backdoor that gave Alameda a $65 billion line of credit on the platform.
Normal users would get automatically liquidated if their balance went negative.
Alameda could go $65 billion negative and keep trading.
When employees found this in the code, one of them flagged it internally.
She was fired within months.
FTX later paid off other whistleblowers who threatened to go public.
Alameda used that backdoor to borrow billions in customer deposits.
The money went to venture investments, real estate, political donations, and covering trading losses.
By mid 2022 the damage was $8 billion.
When customers tried to withdraw, the money was gone.
SBF got 25 years.
The CFTC hit FTX with a $12.7 billion judgment.
Customers lost everything.
The SEC pointed out that most crypto exchanges combine three functions that are always separated in traditional finance: the broker, the exchange, and the clearing house.
When one company controls all three and also runs a trading desk on top of it, the question isn't whether there's a conflict of interest.
It's how big.