Protecting Your Trades from Sandwich Bots: Tips for DeFi Users

The growth of decentralized Finance (DeFi) has opened up new opportunities for traders and business owners looking for more control, lower fees, and better returns. But along with these benefits come new risks, one of the most common being sandwich bots. These bots take advantage of how trades work on decentralized exchanges (DEXs), often leading to unexpected losses for regular users. In this article, we discuss what sandwich bots are, how they affect your trades, and how understanding them can also benefit those involved in crypto trading bot development.

What Are Sandwich Bots?

Sandwich bot is the type of Crypto Trading Bot. It is designed to take advantage of DeFi trades by placing orders before and after the trade on a decentralized exchange. A typical sandwich attack works this way:

Front-run: The bot finds a large pending trade to execute and places the buy order immediately before it.

User trade executes: The original trade is executed, often raising the price.

Back-run: The bot executes its sell order at the improved price it just helped create.

This "sandwiches" the users trade between the bots buy and sell orders and profits from price movements while resulting in the user getting a worse deal, often significantly worse.

How Sandwich Bots Impact DeFi Traders

Sandwich bots are not just annoying, they can cost profits and destabilize trading strategies. Here are a few ways in which they are harmful to traders:

Slippage: When a sandwich bot impacts price action, your trade may be filled at a worse price than you'd expect.

Higher Costs: Sandwich bots artificially increase the price of the asset you want to purchase, leading you to have to pay more or get a worse price for the sale of your asset.

Unfair Market: Sandwich bots very much counter the premise of decentralization and fairness towards making it impossible for honest traders to succeed.

Strategy Disruption: If you are using some sort of automated tools or have particular trading patterns, sandwich bots could disrupt the potential outcome of your trade.

Top Tips to Protect Your Trades

Make Private Transactions

More and more wallets and protocols support private or shielded transactions today. These hold your trade details from being accessed until execution, preventing front running from bots.

Set Slippage Tolerance Low

Most decentralized exchanges (DEXs) provide slippage options. By limiting slippage tolerance (e.g., .1%- .5%) will lessen the chance of bots taking advantage of your trade.

Splitting a Large Order

Rather than placing one trade for a large transaction, place multiple small trades. Splitting the trade lessens the price impact of a single trade and finding you out as a target for bot activity.

Timing

Bots take action on high volume networks. If you make a trade during off-hours, you reduce your risk of getting sandwiched.

Bot-resistant DEXs

Some new decentralized exchanges are being constructed with anti-bot features. These platforms are emerging with algorithmic defenses that neutralize sandwich action to preclude predictable outcomes.

Benefits of Sandwich Bots

Sandwich Bots are commonly viewed as a negative, but there are some positives as well, especially if you view it from a crypto trading bot development standpoint. Here are a few benefits:

Faster Market Analysis: Sandwich bots allow immediate reaction to market shifts, which pushes developers to create systems that can evaluate and respond to data in the moment in a more streamlined manner.

High Frequency Trading Strategies: With a better understanding of how a sandwich bot works, both developers and entrepreneurs can build smarter and more robust trading algorithms suitable for high stub environments.

Enhanced Liquidity: Although they can be controversial, the constant movement of bots can be a net positive for liquidity, enabling other users to transact, even at times of extreme volatility.

Conclusion

Sandwich bots are real in the DeFi universe, but they don't have to ruin your experience as a trader. If you understand how they operate and understand how to take slightly smarter precautions, you can protect your trades and make more confident trading decisions.

KoinKart is a top-notch Crypto Trading Bot Development Company. We specialize in developing Custom Sandwich bots to meet your needs, ensuring a profitable entry into automated crypto trading. Our skill in blockchain technology and proven success ensure your sandwich bot is smoothly integrated and built for performance.