1. What is an IDO bot?
IDO bot is a bot that always buys a large amount of tokens in the pool, usually from 50-70% of the pool as soon as a project is listed on a DEX like Uniswap pool. When the pool is bought a large amount at the beginning, plus the demand is very high as soon as it is listed on the DEX to make a profit, the price of the token will suddenly jump to x10, x20, even x50 or x100. The bot now begins to sell a large amount of previously purchased tokens in batches with the price being multiplied by several dozen times
IDO bot first appeared from about late 2020 to early 2021, when IDO platforms exploded (Polkastarter, DAO Maker, Ignition, …) projects after IDO implementation, usually will be listed on DEXs like Uniswap, and this is the golden time for BOT
2. How an IDO bot make profit?
Blockchain projects or tokens after launching on Uniswap will be IDO listed in the pool for amount of 100k-300k USD, equivalent to about 50-150 ETH. The bot will buy about 50-70% of the pool, especially there are projects that investors are able to buy up to 30~100 ETH, meaning that they can make a profit when selling up to x10 equivalent several hundred ETH. In particular, there are projects that do IDO up to thousands of ETH, equivalent to several hundred thousand USD to several million USD for an IDO. In the past few months, IDO launchings happen almost every day, these bot systems are calculated to have made profit at least a few hundred million dollars. The bot here is not AI or anything too complicated, but the bot here is simply a script (code) that works directly with the smart contract to buy without going through Uniswap’s web interface. This piece of code only needs less than a hundred lines of code.
3. Bot Operation Principle
Uniswap works on the principle of AMM – Automated Market Maker with a very simple formula
x * y = k, where k is a constant
Accordingly, when a token is purchased, the amount of that token in the pool will decrease, leading to an increase in the price of that token, and vice versa.
Bot will use a smart strategy to be the first one to buy in the pool (it will be explained later in more details)
When the bot first buys in extremely large number right at the price when it is first listed on Uniswap, then:
- It will buy at the lowest price
- The number of the token in the pool after the Bot has been purchased will be very small
- Immediately after this purchase, the price will be pushed up very high (you go to the DEX chart tool and you will see that most IDO projects have a very high green candle at the beginning, then gradually decrease)
- Later coming buyers will have to buy at a very high price
At this time, the bot proceeds to sell and make a huge profit
4. Why can the bot buy the IDO first? Can we buy prior to the bot does?
Ethereum has a mechanism, before being gathered in a block, all transactions are brought to a place called MEMPOOL, bots will listen to transactions appearing in this mempool, when encountering profitable transactions, they will perform front-running (insert a transaction right before the listening transaction) or back-runnning (insert a transaction right after the listening transaction) to make a profit.
How can we the first move? This is the key point in running a bot, which is working with Miners. A large number of miners today join an underground network that, in addition to verifying transactions and closing blocks, also runs the transaction reordering service, serving for front-running, back-running and some other arbitrage strategies. The price of these services is not cheap, there is a monthly cost & transaction based cost, the price of each reordered transaction is a few ETH depending on the service. When the bot uses the service, it inserts its bulk purchase transaction right after the Uniswap pool’s liquidity-adding transaction, resulting in the bot being almost always the first buyer in the pool. You can check this by going to a pool of any IDO on Etherscan, on the last page, right after the pool-adding transaction, there will always be a transaction to buy the first with a very large amount, which is the bot.
Can we buy before the BOT does?
If we use the miner’s service as above, we will also be another BOT, and usually the bot that pays more will be given a higher priority to reorder transaction. And if we don’t use the service, using infura, full-node or listening to the mempool in any way will not help us to be faster than the bot, the result is that we will always buy as x10 times higher as the price at the IDO.
5. How to avoid this kind of bots?
It is almost impossible to prevent miner reorder, but it can be proactively prevented at the token level, for example:
- Blacklist: Write a function to block bots not for transfer (bot will have a few fixed addresses, we can block before or right after IDO) → this way my project is applying. If any project that is about to run IDO can also be considered, I am willing to share my experience.
- Use private node services like Taichi Network: If there are miners with transaction reorder service at the mempool, there are also miners with transaction security service, it is sent directly to private nodes without going through mempool. This will avoid the prying eyes of bots.
- Some other traps are not very popular
6. Are there any other bots besides this bot?
There are many, and bots now reaches the realm of art, not tricks anymore. If anyone is interested, you can read about FlashBot & MEV (Miner Extract Value) keywords to further research the dark art of Blockchain. There are both attack & defense, very interesting.
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