As an analyst with over two decades of experience in traditional finance and blockchain, I’ve seen how technology can shape markets and economies. Over the past few years, the rise of low-fee, scalable blockchains like Solana has been intriguing, especially given the surge in bot activity they attract.
Over the past year, as crypto prices surged from late Q3 2024, there’s been a significant rise in interest. This surge has attracted attention towards low-cost and scalable options that serve as alternatives to Ethereum. Primarily, blockchains like Solana have emerged, enabling users to implement smart contracts affordably, without compromising on trustlessness and, to an extent, dependability.
Bot Activity Is Not After All Bad–Here’s Why
On the other hand, although Solana and certain Ethereum layer-2 solutions have attracted users, they have also become hubs for bot activity. The almost non-existent fees on Solana are why there’s been an increase in both helpful and harmful bot activity, causing concern among analysts.
While the prevalence of these bots can be seen as detrimental to organic on-chain activity, one user on X thinks they are integral and aid in the growth of the broader ecosystem. The analyst argues that the community misinterprets the role of bots, with most dismissing them as “spam” and “not real” while maintaining their activity, should be excluded from economic calculations.
According to the user, this approach seems incorrect. However, from the analyst’s viewpoint, on-chain bots are indispensable, particularly in fostering liquidity and maintaining smooth market functions. In fact, useful bots contribute significantly to the system’s stability.
As a crypto investor, I’ve come to appreciate that automated trading bots on networks like Solana aren’t just annoyances, but rather integral parts of the system. You see, every on-chain action triggers a fee, and these bots, much like organic users, are willing to pay those fees. This activity and associated payments contribute significantly to the overall wellbeing of the network.
In a similar vein, the analyst pointed out that automated trading, often referred to as algos or quants, makes up approximately 60% to 70% of trades in conventional finance. These tools, while they may have different labels, play a vital role. They are regarded as advanced instruments that large investors employ for efficient trading.
In essence, the analyst proposed that bots in crypto and blockchain are beneficial rather than detrimental. They suggested viewing these automated systems as “algorithms” in traditional finance, a desirable aspect instead of something to be criticized. If bots weren’t present, on-chain transactions might suffer from poor liquidity and unacceptable market inefficiency, leading to a less satisfactory user experience.
The MEV Bot Menace, Solana Foundation Intervenes
Even though there’s ongoing debate about bots, their role is still unclear in many aspects. On one hand, certain bots support the system and enhance its functionality. However, other bots may negatively impact user experiences and potentially hinder the longevity of the blockchain’s prosperity.
The emergence of Maximal Extractable Value (MEV) bots, especially on low-fee platforms like Solana, remains a concern. The objective of these bots is to exploit inefficiencies and extract maximum profit from traders, thereby eroding trust.
While these MEV bots contribute by providing liquidity, similar to other useful bots, it’s important to note that they often do so not primarily for the benefit of the ecosystem, but rather at the cost of essential trading equality.
As a researcher in this field, I’ve observed that interventions have been necessary to combat the issue of MEV bots affecting leading blockchains such as Solana and Ethereum. Notably, the Solana Foundation has taken a significant step by disqualifying more than 30 validators. They assert that these validators were instrumental in facilitating MEV bots on their platform.
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2024-08-14 13:12