The Automation Tool in Blockchain Transactions: Analyzing the Sandwich Bots

In the context of the increasing popularity of Blockchain technology, the cryptocurrency trading ecosystem is also rapidly expanding. Decentralized exchanges (DEX) have become important platforms for digital asset trading due to their advantages of disintermediation and transparency. As the market matures, various automated trading tools have emerged. Maximum Extractable Value (MEV) Bots are automated programs used to execute strategies and other trading tactics on Blockchain networks. They extract maximum value by rearranging, inserting, or delaying Blockchain transactions. This article will delve into the definition, principles, implementation methods, determining factors, and optimization directions of sandwich Bots.

With the development of technology and market demand, clip Bots have also evolved into various types to adapt to different trading environments and strategy requirements. Here are several common types of clip Bots:

1. Sandwich Bots: By listening to large orders in the transaction pool, they submit transactions with higher Gas fees ahead of these orders before they are officially added to the Blockchain, thus completing the transaction before the user. This strategy involves inserting transactions before and after the target transaction (front-running and back-running) to manipulate prices and profit from it.

2. Arbitrage Bots: Focused on profiting from price differences between DEXs. It buys assets at a low price on one exchange and sells them at a high price on another exchange to realize profits. This strategy typically requires the bots to quickly identify price changes between different exchanges and execute trades swiftly.

3. New Token Release Bots: Focused on price fluctuations during new token issuance. In the early stages of a new token's launch on a DEX, prices are often unstable and highly volatile. The Sniper Bots will quickly buy in when the token goes live and sell after the price rises to capture the spread. This type of bot requires close attention to the release dynamics of new projects and the ability to place orders quickly.

4. Liquidity Pool Arbitrage Bots: Arbitrage by transferring assets between different liquidity pools. It looks for price differences between different pools, performing liquidity provision and withdrawal operations to realize profits. This requires the bots to efficiently manage liquidity and quickly respond to price changes within the pools.

5. Flash Loan Arbitrage Bots: Utilize the characteristics of flash loans to conduct trading. Flash loans allow users to borrow large amounts of funds in a single transaction without collateral. Bots can leverage these funds to manipulate market prices in a short period for arbitrage opportunities. For example, using a flash loan to drive up prices in one pool and then profiting in another pool.

6. Triangular Arbitrage Bots: Involves trading between three different token pairs to take advantage of exchange rate differences for arbitrage. For example, by trading A/B, B/C, and then trading C/A in a loop to realize a profit. This type of bot requires complex calculations and fast trade execution capabilities.

This article mainly analyzes sandwich clip bots.

1. Sandwich Clip Bots

The sandwich clipper bots are an automated trading tool specifically designed to profit from front-running trades on decentralized exchanges. They achieve this by quickly capturing on-chain trading opportunities and executing trades before or after the target transaction, thus earning the price difference. The core of the sandwich clipper bots lies in seizing trading opportunities with high efficiency and speed.

2. The Principle of Sandwich Clipper Bots

The profit operation of the sandwich clip Bots is based on the following fundamental principles:

1. Front Running: Before other users' buy orders are packed into a Block by miners, Bots purchase the target tokens at a lower price. Once the users' orders are executed and push the price up, the Bots quickly sell to profit from the price difference.

2. Back-running: The bots sell at a higher price before other users sell their tokens. When the sell orders from users drive the price down, the bots then repurchase at a lower price, thus making a profit.

The so-called clipper refers to trading users who earn the price difference. The success of clipper Bots relies on precise timing in trading and high priority in trade execution.

3. Implementation Approach

1. Real-time monitoring of transactions:

   • Use WebSocket to connect to Blockchain nodes and listen in real-time for transactions to be packaged.
   • Filter the target transactions by comparing the transaction.to or transaction.from fields to identify transactions related to the target DEX.

2. Screening and Filtering:

   • Filter out transactions that are unrelated to the strategy and transactions from one's own address to prevent self-trading from causing a deadlock.

3. Dynamic adjustment of Gas prices:

   • Manually set a higher Gas price to prioritize the Bots' transactions, allowing them to execute before regular users.

4. Decode transaction data:

   • Use smart contract interfaces (such as Interface in ethers.js) to decode transaction data and determine the tokens and amounts involved in the transaction.
   • Choose the appropriate contract calling method based on the decoding information, such as swapExactETHForTokens or swapTokensForExactTokens.

4. Code Ideas

Selected the wss provided by a certain node service, the script is implemented using ethers.js:

1. Create a listening ws service:

javascript const WSS_URL = wss://api.example.com/node/ws/v1/eth/mainnet/${YOUR_KEY} const WssProvider = new ethers.providers.WebSocketProvider(WSS_URL); WssProvider.on("pending", (tx) => { // TODO })

2. Filter these transactions:

javascript WssProvider.on("pending", (tx) => { if (transaction && transaction.to && transaction.to.toLowerCase() === ROUTER.toLowerCase() && transaction.from !== blackAddress) { // TODO } })

3. A method is also needed to determine the direction of the transaction, manually set the Gas price:

javascript function calculate_gas_price(action, amount) { if (action === "buy") { return amount.add(100000000) // 0.1 Gwei } else { return amount.sub(100000000) // 0.1 Gwei } }

4. decode trading method, call function:

javascript const iface = new ethers.utils.Interface(abi) const result = iface.decodeFunctionData('swapExactETHForTokens', transaction.data)

V. Determining Factors

The effectiveness and success of the clip robot are closely related to various factors:

1. Transaction Speed:

   • Network latency and node response speed will directly affect the reaction time of the Bots. Using high-performance node services can reduce latency.

2. Gas Fees:

   • When seizing trading priority, Gas fees are an important consideration. Excessively high Gas fees can eat into profits, so it's necessary to find a balance between speed and cost.

3. Market Liquidity:

   • High liquidity helps to execute large transactions quickly without significantly impacting market prices. Insufficient liquidity may lead to increased slippage or transaction failure.

4. Contract Security:

   • The security of the target contract is directly related to the risk of strategy operations. Bots need to have basic verification capabilities of the contract code to avoid transactions being exploited by malicious contracts.

5. Competitive Environment:

   • There may be multiple arbitrage Bots in the market competing for profit opportunities. When competition is fierce, the success rate of trades and profits may be affected.

Conclusion

MEV Bots provide an efficient solution for arbitrage in decentralized exchanges. By analyzing in real-time and executing quickly, they can gain an advantage in the market. However, sandwich bots also face challenges of high competition and high risk. Investors need to consider technology implementation, risk control, and market strategies comprehensively to remain competitive in the ever-changing cryptocurrency market. In the future, with technological advancements and the expansion of the DeFi ecosystem, sandwich bots are expected to unleash their potential in more areas, creating more value for users.