Listing: The Problem.
It has long been known that listing any project on DEX platforms is associated with powerful, uncontrolled price fluctuations in the first minutes. Investors caught unawares are the most affected. Thinking the rises are typically organic, they buy the token on the first rise and a few seconds later they lose most of their capital through a huge dump. Another example of exploiting market vulnerabilities are the so-called sandwich-bots, which buy a moment before an unknowing investor raises the price, then sell with a profit.
The graph below is exemplary of bot-related manipulation. As you can see, there is a huge upward jump in the price at first, followed by an equally sharp drop. It’s worth noting that the entire process happened in just one minute (it’s a minute chart). People who bought at that moment, hoping for an organic increase in the value of the token, remained at a loss for a short time. The price has not yet reached the value of the first seconds.
BOTS are to blame for everything.
Where does bot-trading come from? In addition to the speed in trading resulting from automation and the ability to execute an order without having to waste precious seconds clicking on the user interface — two additional mechanisms allow the bot to steal the march from humans:
- The ability to listen for pending transactions.
To trade on the DEX, the team needs to add so-called liquidity. Liquidity is nothing more than a pool of cryptocurrency pairs with a suitable ratio to one another. It is from this pool that the user buys or sells on DEX. A sensitive moment for trading on DEX is when liquidity is added. When the team adds liquidity to the DEX and allows you to start trading, it is done as a blockchain transaction which is subject to the same laws as all other transactions. Transactions wait in line for their turn to be approved — and bots can detect such a pending transactions and react to them accordingly. This brings us to the bots’ second strategic advantage.
- The ability to arrange your trades in the correct order
A bot can prime a buy transaction to execute immediately after an added-liquidity transaction. This means that from the user’s point of view, both of these trades will take place at the same time and when the DEX user receives information about the possibility of trading, it will be too late for any purchase at a reasonable price — as the bot has artificially raised the price. When unaware people start the purchasing process at an inflated price, the bot will sell purchased tokens with a huge profit after a few moments.
What volumes are we talking about here? Bots are able to execute a purchase order with a value exceeding the liquidity provided to the exchange when liquidity is added. For example, if a project adds 40 ETH of liquidity and it happens that the first bot trade is 60 ETH, the price will be pushed up to extremely high values. The example given above shows a 17 ETH buy at the moment of 40 ETH added liquidity. It is worth emphasizing that this is not an extreme example of such manipulation. The scale of the phenomenon can be much larger. Neither is this the only example of the use of bots on DEX exchanges — but it is one of the straightforward and familiar.
At Synapse Network, we have had dozens of talks with projects that carried out a listing on DEX as well as with investors on these platforms. We’ve seen a lot of infuriating situations in which investors lost tens of thousands of dollars or a promising project had its prices heavily manipulated. Committed to eliminating these problems associated with DEX, we developed Antibot.
What is Antibot?
Antibot is a solution which, by combining many innovative mechanisms, protects Synapse Network and its partners from bot interference. Antibot’s design and implementation is only the first part of the solution. The second is its proper configuration in such a way that it does not make life difficult for people who want to buy, sell or simply trade tokens. After analyzing hundreds of thousands of transactions of many tokens on ETH that came closer to BearMarket and dozens of simulations, we came to the following conclusions about the parameters to consider in the anti-bot settings:
- Time that the mechanism will be activated after liquidity has been added.
It should be remembered that a long protection period is not necessary — we want the market to regulate the token price to the maximum extent by itself. We know, however, that the first minutes after adding liquidity are the most susceptible to bot-related price manipulations. This is when the mechanism is most necessary.
- Time allowed between individual transactions in the anti-bot window.
One of the mechanisms for detecting bots is the speed of transaction execution — in particular the time between individual buy / sell transactions. Data analysis showed a very precise threshold that allows you to identify bots and block them effectively. Our mechanism also allows this threshold to be precisely adapted to the needs of the project.
- The maximum number of tokens to purchase the pool added as liquidity in the anti-bot window.
Another mechanism related to securing the token price and preventing an artificial influence on the rate is limiting the maximum number of tokens purchased. This value is defined as a percentage of the number of tokens in the pool when adding liquidity so that, as the value of the token increases, the amount for which you buy or sell the token also increases. The mechanism was designed in this way because, as the token price increases, the willingness to manipulate the rate decreases.
What proportion of transactions will be blocked by Antibot?
The system will block virtually all bot transactions that abuse innocent investors and unscrupulously reduce their capital by manipulating prices. Not only will it protect against typical pump and dump, but also against other attacks such as front-running. Thanks to this solution, listings will be safe and immune from ubiquitous forms of manipulation on DEX markets.
Sales and purchases in the first minutes of a listing will be much safer from price manipulation.
About Synapse Network
Synapse Network is developing a cross-chain investment and start-up acceleration ecosystem based on blockchain technology, to give everybody an equal chance to contribute to great upcoming projects and to do so early on. We are bridging the gap between the traditional & crypto market. The idea of the Synapse Network technology goes beyond the standard offer of launchpads available on the market, becoming a true technological brand providing tech solutions.