THIS year’s rebound in cryptocurrencies is turning messaging platform Telegram into an unlikely marketplace for small traders fearful of missing out on the rally.

A new generation of trading bots, built mainly by anonymous developers, have become favourites among traders seeking to gain access to the wild west of cryptocurrencies: decentralised finance. Their popularity has escalated recently as altcoins have rallied sharply. Tokens tied to automated software programmes have more than doubled in market value in just a week to exceed US$241 million, according to CoinGecko data.

More crypto traders want to step up their game as the market recovers from last year’s losses. Bitcoin has climbed around 77 per cent this year, while other tokens such as XRP also saw their value jump from last year’s lows. Trading bots allow investors to easily access often complicated decentralised exchanges, or dexes, that offer more tokens than their centralised counterparts.

Just like everything that sounds too good to be true, the bot craze involves a huge compromise for users. In this case, it’s the risk of yet another rug pull or hack. But the upside is that the bots allow retail traders to execute manoeuvres – like front-running other users – that previously only sophisticated investors could do.

“The focus [among Telegram trading bots] is usually on low-market-cap coins, meme coins, and others with low volume,” said Philipp Zentner, CEO at cross-chain liquidity routing firm Li.Fi. “That by themselves attracts quite a lot of attention because the potential earning multiples are very large due to liquidity and price gaps.”

Among the new crop is Unibot, which has been created by anonymous developers. Once a Telegram user initiates a chat with Unibot, they can conduct crypto trades in DeFi as easily as sending a text message to a friend.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

But it isn’t just about basic buying and selling of tokens; the bot also allows traders to simplify complex transactions. For instance, an advanced feature known as the “mirror sniper” lets users target a specific wallet – owned by another trader – and potentially front-run their trades for potential profit.

Unibot alone has gained more than 6,000 unique users, according to data compiled by Dune Analytics user whale_hunter. The bot has generated revenue worth a total 3,715 Ether, or US$7 million, in just two months.

The explosive growth is in sharp contrast to that of the DeFi sector, a part of crypto industry that offers financial services without any middlemen thanks to blockchain technology. The total value of cryptocurrencies sent to the DeFi sector has been stuck around the US$40 billion to US$50 billion range for nearly a year, according to DeFiLlama. DeFi as a whole is still struggling to overcome a series of scandals, most notably the collapse of TerraUSD, an algorithmic stablecoin, and the blowup of the FTX exchange.

“The growth in these trading tools...shows some similarities with the growth that we saw in 2021, which is now known as ‘DeFi Summer,’” said Ben Yorke, vice president of ecosystem at crypto trading platform WOO Network. “It’s one of the first new narratives we’ve seen since the implosion of LUNA and FTX, which drove the current bearish digital asset cycle we’ve been in.”

Suki Yang, a former quantitative trader at crypto fund Pantera Capital, said she’s building a similar bot after she saw the explosive growth of Telegram-based trading bots. The phenomenon indicates that these bots have a “clear market fit” in crypto and they are a profitable business with little funding and resources required, she said.

“At the end of the day, you are starting a business and you would need to make money,” Yang said. “This is something we can build in a month and it’s something people want to use, which is rare in crypto.”

Risky business

Utilising some of these trading bots can be risky, though, because it could involve users having to sacrifice their privacy and security.

Some of these bots ask for private keys – the type of passwords that allow access to a user’s crypto funds – which may not be entirely safe, said Tarun Chitra, CEO and founder at crypto risk modelling firm Gauntlet. The collapse of FTX last year after it appeared to have lost the majority of customer assets in its care revived the popular phrase “not your keys, not your coins,” as many in the industry lost faith in entities that were supposed to protect clients’ accounts.

“Bot developers can rug any users’ wallets at any given time – or even worse, they can get hacked,” said Or Dadosh, CEO and co-founder of Web3 cybersecurity firm Ironblocks.

But in an industry that’s known for its high tolerance to risks, the questions around security with these bots aren’t top of mind for many users.

“The rise of these trading bots proves that, at least at this point, early adopters care more about ease of use than tail risk,” Alwin Peng, co-founder at decentralised exchange Vertex Protocol, said. BLOOMBERG