Telegram has become the home of a new generation of trading bots that toe the line between convenience and chaos.
A new type of trading bot is sweeping through crypto communities with the promise of faster transactions and advanced techniques, but the dangers could far outweigh the benefits. They also pose a new trade opportunity for those who want to ride the wave of rapidly rising demand.
Telegram trading bots (TTBs) are trading interfaces contained entirely within Telegram, a messaging app already popular with crypto communities. Through a single chat window, users can buy and sell cryptocurrency on-chain using shortcuts, predefined strategies, automation and even utilize MEV and front-running protection.
And the benefits are substantial.
Trades are much faster to execute than using a normal keyboard, mouse and web browser, and certain features would be otherwise inaccessible to anyone without good knowledge of coding Ethereum or smart contracts. For instance, features such as "sniping" allows users to buy new coins the moment they list on a decentralized exchange (DEX), which can help traders get an edge on trending coins.
Traders can access multiple decentralized exchanges from a single message thread with a simple user interface anywhere they have a half-decent mobile connection. Typically for DeFi, you need a computer rather than a phone, and the UX leaves a lot to be desired.
The tradeoff, however, is enormous.
Users are required to hand over their private keys, which means that the bot — and its developers — have access to all the funds in that account. Given many of these bots are built by anonymous developers and operate outside most jurisdictions, the risk of losing all your funds is very real.
Despite the risks, users are piling into the new trend.
The rise of Telegram trading bots
Maestro, the largest trading bot by volume, has generated $14.7 million in fee revenue alone since April, according to data from DeFiLlama.
By comparison, Aave, the largest DeFi lending market, generated $24.5 million in revenue over the same time frame.
Normally, Total Value Locked would be used to measure popularity in DeFi, but because users are motivated to withdraw their funds from TTBs frequently, fee revenue is a better measure of popularity.
Several bots are tokenized, too, with the market capitalization worth over $190 million, according to data from CoinGecko.
Of these tokenized bots, Unibot is by far the largest in terms of market cap.
Unibot's user count has grown rapidly since its inception in May, boasting lifetime volume of $116 million spread across 175,000 trades, according to data from Dune Analytics.
How Telegram trading bots work
Telegram trading bots largely revolve around automation and speed. For example, the most popular trading bot, Unibot, is designed to make extremely fast swaps on Uniswap. Unibot claims to execute trades 6 times faster than trading on the traditional website Uniswap.
In addition to making simple transactions faster and easier, many bots have specialized features, such as:
- Limit orders: Normally, decentralized exchanges use an Automated Market Maker (AMM) model, which means that any trades can only be done instantly. There is no way to queue up a trade using a limit order like you would on a regular exchange. TTBs introduce limit order functionality as well as order types like stop loss and take profit orders, which fundamentally changes the experience of trading on a DEX.
- Rug pull and honeypot protection: These are security-oriented features to help traders avoid scams. Rug pull protection features detect if a token has been rugged (i.e., the liquidity has been removed by the developers) and prevent you from buying it. Honeypot features detect if a token has been set up as a trap (i.e., the token is not sellable) and warn you before buying it.
- Copy Trading: This is a social trading feature that allows traders to copy other successful wallet addresses or Telegram users.
- Sniping: Various sniping tools allow users to purchase newly listed tokens as soon as they list on Uniswap to help traders get an early mover advantage.
- Manage multiple wallets: This allows traders to connect to multiple wallets and switch between them easily, all from within one interface.
In return for these services, the bot usually takes a small transaction fee. As a result, several trading bots are now tokenized, which allows traders to either share in the revenue, reduce fees or simply speculate on their success.
Telegram trading bots are very high risk
Despite their efficiencies, there is a huge tradeoff.
To function properly, TTBs require access to your private keys, which is how they rapidly sign and automate transactions on your behalf.
This means that if they were ever compromised or simply managed by a malicious developer, your wallet could be drained of its funds.
Understandably, many traders are urging caution when using TTBs. Best practices suggest utilizing a fresh address and only depositing an amount you can afford to lose, with the understanding that all funds could easily be lost. Any profits should be immediately sent to a separate address where the private keys are, in fact, private.
As they gain in popularity, issues may also emerge in regards to front-running or duping, where other traders intentionally create market dynamics that could exploit the preset strategies of the bots and all their users. There is also the possibility that the developers of bots will sell user data to third parties who could leverage it to manipulate markets or commit a type of quasi-insider trading.
Like most blockchain technology, TTBs are a nascent field and prone to error. They rely on the availability and functionality of the Telegram platform and the blockchains and exchanges they are connected to. If there is any downtime, outage or error, the bot may not work properly or execute a trade with unintended consequences.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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