DeFi bots will pour Solana’s stable coin volume

The rampant bot activity on DeFi platforms boosted the transaction volume of on-chain stablecoins to over $1 trillion in the first two months of this year.

As of Feb. 22, Solana's monthly stablecoin turnover reached $643 billion, up from $531.32 billion in January, according to data from crypto analytics platform Artemis.

Most of Solana's transactions occur on its decentralized exchanges (DEXs), especially in Phoenix, which have attracted the attention of media outlets, information providers and social media influencers.

Data provider Helomoon said it had a record amount of USDC transfers, hitting $27.5 billion on February 20 alone.

To put that figure into perspective, one DEX on Solana saw more USDC volume transferred than Ethereum's entire stablecoin on February 20th, $20.9 billion.

It's worth noting that Solana has $2.2 billion worth of stablecoins in the ecosystem, compared to Ethereum's $71.6 billion, according to Defillama.

Phoenix has yet to respond to Cointelegraph's comments.

Cointelegraph's analysis of transactions on Phoenix shows that most of the trading is done by bots, not humans. Trading bots automate complex strategies such as arbitrage, which involves buying assets in one platform and selling in another to profit from price differences in the market.

Blockchain logs from Solana's blockchain explorer Solscan show that most of Phoenix's countless daily orders are spammed by a handful of addresses.

Slava Demchuk, founder of blockchain intelligence platform AMLBot, told Cointelegraph that “a constant stream of transactions far from human speed, often collapses in haste.”

“The notion that bots may be processing these transactions is not far-fetched.”

What are bots doing on Solana Phoenix DEX?

Phoenix uses an on-chain ledger, which means every transaction sent to the exchange is published on the blockchain.

Cointelegraph ran an arbitrage bot to analyze the activity of one of the suspected addresses, FreyaXYaCwVy86BdNECd7BXnqEvFUbt3p6d2B5eS5zDv (for simplicity we'll call Freya), to better understand Solana's trading volume.

Freya generates 150 orders per minute in Phoenix, most of these transactions fail for various reasons, such as slippage and insufficient balance. Checking one of Freya's failed transactions shows that the address runs a program called “my-arb-program” when connecting to Phoenix and other Solana-based DEXs.

The program log shows a series of calls and responses consistent with how trading bots interact with blockchain networks. They often rely on programmatic interfaces to execute action sequences based on specific triggers.

Freya's instruction sequence includes multiple swaps and transfers on various DX (Orca, Phoenix and Radium), reflecting the trading activity of an arbitrage bot that attempts to profit from price differences across platforms.

While Phoenix volumes are inflated by bots, this is not necessarily their intention.

“My guess is ‘normal' users are running bots on the system,” said Sam Williams, founder of the distributed storage network. “Most of them [traditional finance] Businesses are also made by bots – so this is a positive sign, not a negative one,” Williams added.

Market makers and arbitrage bots

Bot activities can indicate a sophisticated market. But when bots are released in chain order on a book platform like Phoenix, their failed transactions can increase transaction volume and paint a misleading picture of the network's trading activity.

Complicating matters, arbitrage bots may not be the only non-human traders on Phoenix and other Solana-based DEXs. Eugene Chen, co-founder of Phoenix core contributor Ellipsis Labs, told DL News that market makers are behind the titanic volumes.

X19, the pseudonymous developer of Syndica's infrastructure company, told Cointelegraph that “it's very easy to run profitable market making bots” on the central limit order ledger DEX, but he speculates that they may have more motivation.

“Phoenix may have a signal later, so they might be trading up and selling in hopes of getting an airdrop,” says x19.

Market makers play an important role in financial markets as liquidity providers. As with arbitrage trading, this function is often outsourced to automation in both traditional and crypto markets.

Cointelegraph has solved the trading activity of LUKAzPV8dDbVykTVT14pCGKzFfNcgZgRbAXB8AGdKx3 (which we call LUKA), which is running a trading bot. LUKA generates about 150 orders per minute on Phoenix.

The program log of LUKA transactions shows nine different series of orders including trading actions: canceling orders, placing limit orders and placing multiple post-exclusive orders.

Automated action sequences and structured order placements indicate that pre-defined strategies are executed by bots that look more like market makers than arbitrage bots. For example, placing limits and post-exclusive orders refer to purposes of providing liquidity.

Arbitrage bots, on the other hand, want to make a profit without having to deal with price differences between markets.

Are bots healthy, malicious or pointless?

In traditional finance, arbitrage trading is legal in most jurisdictions, including the United States. Such strategies contribute to improving the health and efficiency of markets by effectively correcting misaligned assets.

“Behind the scenes, bots are driven by the need for profit, taking every opportunity for arbitrage or market manipulation. While their dance helps stabilize market prices, there is a fine line between healthy arbitrage and disruptive market play,” said Demchuk of AMLBbot.

“A bare-bones debate about the nature of fair play in the digital age.”

Some market participants believe that Solana's trading volume is false and fraudulent, while others argue that the transfers from market makers are legitimate, albeit “meaningless”.

Solana is a returning girl

The emergence of the widespread bot movement comes at a time of resurgence for Solana. In December 2022, following the loss of FTX, SOL traded below $10 for the first time since its double-digit breakout in February 2021.

“Solana is probably one of the most dramatic price actions (among large-cap coins) we've seen in the last 24 months,” said Justin D'Anetan, head of business development for Asia Pacific at crypto market maker Keyrock. He felt that support would not survive.”

At the time of writing, the token was trading at $103, more than 10x the lows it hit when SOL FTX crashed. Solana's native coin SOL is still the world's fifth largest cryptocurrency by market capitalization, roughly $50 billion.

Solana faced criticism for its inability to stay online, including an outage caused by bots that invaded the network in May 2022. Earlier this month, Solana suffered its 11th outage in the past two years.

“Unlike the many outages that plagued the blockchain in 2021-2022, the most recent halt was due to a bug in Solana's version of the verification software, which was quickly fixed. Apart from that, even during high-volume transactions, the blockchain has been running smoothly for months,” d'Anetan said.

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John Yun

Yohan Yun is a multimedia journalist who has been reporting on blockchain since 2017. He has contributed as an editor to crypto media outlet Forkast and covered Asian technology stories as an assistant reporter for Bloomberg BNA and Forbes. He spends his free time cooking and experimenting with new recipes.