The billion dollar battle between bots and crypto players

 The billion dollar battle between bots and crypto players

Many people cannot keep up with the processing speed of automated bots, causing them to have to buy cryptocurrencies at high prices.

Sandwich deals

On most digital currency platforms today, it's not just humans involved in buying and selling. Like the stock market, many people use bots that are programmed to automatically process the stitches. Although it looks fraudulent, this method is accepted in blockchain transactions.

According to Fortune, "sandwich trading" describes the process by which a bot detects that someone is trying to buy a token. Thanks to automation, the bot's token purchase will be faster and after the purchase, the token price will increase a bit. If the other person still wants to buy that code, they must choose this new price. That's when the bot completes the "sandwich", sells tokens at the new price, and earns some profit.

"The best part is the middle of the bread, but in crypto trading, being stuck between prices means you've fallen into a bot's trap," commented Fortune.

Although the amount that each bot earns is quite small, Bloomberg statistics show that the "sandwich transaction" process has brought in hundreds of millions of dollars, even billions of dollars for the people behind them. This method is so successful that it is becoming more difficult to implement a monetization bot on the Ethereum network because there are so many bots working at the same time.

Cryptocurrency exchange networks are rife with bots. Photo: Bloomberg

Cryptocurrency exchange networks are rife with bots. Photo: Bloomberg

Spread to small platforms

Ethereum is the network that has the most "sandwich transactions" today. This dense existence of bots on the blockchain causes players to switch to smaller networks like Solana, Polygon or Avalanche. Several blockchain networks are struggling with an exponential increase in bot traffic.

In January, the Solana network - a blockchain that is popular for its fast transaction speeds - was hit by bots sending more than two million transactions per second. In September 2021, this network also "down" for more than 17 hours due to bot activity.

Solana is not alone. Polygon, Avalanche and Binance Smart Chain also appear more and more bots. According to Flashbots, a company that specializes in providing bots to investors, more than 25% of MEV — the term for maximum extracted value in "sandwich transactions" — currently takes place on blockchains other than Ethereum.

"Downtime on a decentralized blockchain is always a concern. Solana's recent troubles are a reminder that the new consensus mechanism on the blockchain is inherently flawed and needs to be tested again and again. ", Avi Felman, a portfolio manager at BlockTower, told Bloomberg.

Constantly pushing the price with "sandwich trades" causes crypto players to lose more money than they originally planned. "When there's bot activity, it's normal players who suffer," said Sandeep Nailwal, co-founder of Polygon.