Sandwich trading bots have made billions in crypto in recent years – Fortune
The best part of any sandwich usually lies between the bread.
But when it comes to trading cryptocurrencies, being stuck in the middle of a sandwich trade is far from ideal, and typically means you’ve been bested by a bot.
It’s not just humans that are trading cryptocurrency. Robots, or bots, are created and deployed by developers to automate crypto trading. And across the Ethereum ecosystem, these bots have accumulated hundreds of millions—and potentially billions—of dollars in profits in recent years by implementing a common maneuver called “sandwich trading,” according to a recent Bloomberg report.
“Sandwich trading” refers to the process in which a bot is programmed by software developers to spot when another trader is trying to purchase a token or a bit of cryptocurrency on a blockchain network, like Ether or Cardano. The bot then places an order on that same token. If the bot is successfully able to complete the purchase before the other trader, it will push up the price of the in-demand token. But it’s likely that the person who was trying to buy the token in the first place still wants it. That’s when the bot “completes the sandwich” and sells the token to the trader for a higher price than the trader would have paid if the bot had never showed up.
And even though it’s unsportsmanlike, experts told Bloomberg that sandwiching trades are an allowed method of blockchain trading.
Developers deploying these bots have completely flooded the Ethereum market in recent years, racking up enormous profit along the way. The method has had so much success that, according to Bloomberg, it has become harder for other traders deploying bots to make money on Ethereum…because there are so many bots.
As a result, traders are now sending their bots to pull a sandwich maneuver on smaller blockchains like Solana, Polygon and Avalanche. And several of those blockchains are struggling with the sudden exponential increase in traffic, according to recent reports.
In January, after months of experiencing major congestion issues, Solana announced a series of recent developments meant to address the increase in bot traders, including implementing a series of “flow control” measures designed to enhance network performance and manage the influx of sandwich trading bots.
Never miss a story: Follow your favorite topics and authors to get a personalized email with the journalism that matters most to you.
FORTUNE is a trademark of Fortune Media IP Limited, registered in the U.S. and other countries. FORTUNE may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.
S&P Index data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Terms & Conditions. Powered and implemented by Interactive Data Managed Solutions.