Recently, I always see various discussions about arbitrage, from the funding rate of risk-free annualized XXX%, to the DeFi mining arbitrage combination, to the basic moving bricks... It seems that there is gold everywhere and you can pick it up by bending down?
Let’s take a deeper look today. Is arbitrage a good business and how to make money from it?
First, based on the KOLs summary, here is a list of common arbitrage strategy types
Spatial arbitrage: cross-exchange (arbitrage)
Time/Structure Arbitrage: Funding Rate (Futures/Spot), Futures/Spot Basis
Interest rate arbitrage: stablecoin/lending/LP mining (DeFi/CeFi)
Cross-asset arbitrage: triangular arbitrage
DeFi ecosystem arbitrage: cross-chain, aggregators, flash loans, etc.
Special scenario arbitrage: prediction market
Model-driven: Statistical Arbitrage (Quantitative)
Second, the summary of KOL arbitrage tweets
1. Node Scientist (Ø, G) @moncici_is_girl
Coin Arbitrage: How to Find a Free Lunch in the Cryptocurrency Market? [Theory]
It provides a relatively comprehensive theoretical framework for cryptocurrency arbitrage, covering a variety of mainstream strategies.
1. Cross-exchange arbitrage: Take advantage of the price differences of the same currency on different exchanges (CEX or DEX) to buy low and sell high.
2. Triangular arbitrage: In a single exchange, take advantage of the exchange rate pricing imbalance between three trading pairs (such as BTC/USDT, ETH/BTC, ETH/USDT) to make profits through continuous transactions (A→B→C→A).
3. Spot-futures arbitrage: arbitrage using the basis between the spot market price and the futures contract price, usually buying spot and selling futures, expecting the prices to converge at expiration.
4. Funding rate arbitrage (perpetual contract): holding opposite spot and perpetual contract positions (such as buying spot + shorting perpetual contract), the main purpose is to earn the funding rate of the perpetual contract (when the rate is positive).
5. Flash loan arbitrage (DeFi): Use the unsecured flash loan provided by the DeFi protocol to complete a series of arbitrage operations (such as buying and selling between different DEXs) within a single transaction block and repay the loan.
6. Statistical arbitrage: Based on statistical models and historical data, identify temporary deviations from price patterns or correlations and trade in the hope that prices will revert to the mean.
2. taresky @taresky
Risk-free annualized return of 360%? Crypto arbitrage that even novices can understand
Mainly aimed at beginners, it compares exchange lending and funding rate arbitrage.
1. Exchange lending (financial management): the most basic and most suitable arbitrage method for novices. Users deposit coins into the exchange, and the platform lends them to others and manages the risks. The characteristics and interest rate mechanisms of the three models of Bitfinex (order book), OKX (dark pool bidding), and Binance (dark pool matching) are compared in detail.
2. Funding rate arbitrage: A mechanism to earn positive funding rates by buying spot and shorting equal perpetual contracts to hedge price risks. The APY estimation formula is given: APY = (funding utilization) x (funding rate) x 3 (number of daily settlements) x 365.
3. Jemima Conlon
Cryptocurrency Arbitrage: The Complete Guide
This paper comprehensively reviews and defines cryptocurrency arbitrage transactions, ranging from the most basic cross-market spread arbitrage to advanced flash loan arbitrage. It first explains the basic principles of arbitrage, and then focuses on several typical arbitrage opportunities in the crypto field:
1. Cross-exchange arbitrage, including price differences between centralized exchanges (due to different pricing mechanisms of different exchanges, the same asset may have slightly different prices), and price differences between decentralized exchanges (due to AMM pricing and liquidity reasons, prices of different DEXs may temporarily differ).
2. Triangular arbitrage, that is, arbitrage by exchanging three tokens in sequence, explains how to use the exchange rate differences between BTC/ETH, ETH/XTZ, and XTZ/BTC to complete arbitrage.
3. Flash loan arbitrage: Flash loans use smart contracts to allow unsecured instant borrowing, allowing arbitrageurs to scale up their operations and complete complex arbitrage processes in one on-chain transaction.
The advantages of decentralized arbitrage over centralized arbitrage were also highlighted: lower costs and no need for trust custody, as users always control their private keys when arbitrage between DEXs.
4. Arbitrage Lao Liu @taolige 666
The latest DeFi arbitrage strategy丨How to achieve a stable annualized return of more than 10%?
When the market is sluggish and investors prefer safe-haven assets, DeFi players will be more inclined to use stablecoins and Delta-neutral products for financial management. Several stable arbitrage ideas suitable for ordinary users: using LSD combined with hedging to earn risk-free spreads, hedging volatility through decentralized perpetual contract platforms to earn handling fees, etc., and corresponding projects/pools are recommended.
The core idea is to minimize the risk of price fluctuations (Delta neutrality) while capturing the benefits provided by on-chain protocols, such as staking rewards or transaction fees. This way, even in a market downturn, a double-digit annualized return can be achieved stably.
5. SamLam @samsir 1997
Arbitrage and Bricklaying, Popular Science for Newbies
The essence of arbitrage is to use information asymmetry to move bricks, and the content may be more helpful to people with basic positions + financial capabilities. It includes the following arbitrage methods:
1. Interest Rate Arbitrage: Taking traditional foreign exchange as an example, borrow low-interest currencies (such as the Japanese yen), convert and invest in assets of high-interest currencies (such as the US dollar) to earn the interest rate difference.
2. USDT and Fiat Currency Arbitrage (Stablecoin Arbitrage): Specifically refers to the use of the price difference between USDT and fiat currency (US dollars in the example) on different exchanges (such as Bitfinex vs Kraken) to buy low and sell high.
3. Positive Swap Arbitrage: In the foreign exchange market, holding a currency pair position that can earn positive overnight interest (swap), and usually hedging exchange rate risks through reverse spot or other tools.
4. Cross-Market Arbitrage: arbitrage by taking advantage of the price differences of the same asset (for example, the foreign exchange pair USD/BRL) in different geographical markets (such as the Brazilian market vs. the US market).
5. Triangular Arbitrage: Exploiting cross-rate pricing deviations between three currencies (such as USD, EUR, GBP) within (usually the same) market to achieve value-added through continuous conversion.
6. Statistical Arbitrage: Based on historical data analysis, the price relationship (such as price ratio) between two or more related assets (such as USD/JPY and USD/EUR) is discovered. When the relationship deviates from the mean, reverse transactions are carried out, and the position is closed for profit when it returns to the mean.
6. Aliez Ren @aliez_ren
Aliez Ren developed Taoli Tools | Arbitrage Tools, the core purpose of which is to provide a centralized information navigation and toolbox for users who are interested in or practicing arbitrage. It is clearly classified according to the type of arbitrage, mainly covering cross-exchange arbitrage, perpetual contract funding arbitrage, hedging, etc., and also includes basic knowledge and tutorials. Details: https://renzholy.notion.site/Taoli-Tools-18c64b000c25808e862b d 0 c 61 b 193 eb 1
Biteye does not endorse or recommend arbitrage tools, they are for reference only.
7. Brak @0x brak
Share real players views on current arbitrage returns and strategies
Arbitrage strategies and mechanisms (including controversial ones) are discussed
1. Funding fee arbitrage: Hedge across exchanges and earn fee rate differences.
2. Futures-spot arbitrage: profit by taking advantage of the convergence of the price difference between futures and spot on the delivery date (for example, BN-0328-BTC futures and spot BTC).
3. Price difference arbitrage: covers strategies that exploit direct price differences, such as DEX/CEX price difference, triangular arbitrage, and flash loans.
4. PT arbitrage (Pendle): By trading Pendle’s principal token (PT), the airdrop expectation is exchanged for fixed income. It is necessary to study the underlying assets and hedge the non-US dollar PT risks.
5. JLP/HLP Arbitrage (Pendle): Hold Pendle liquidity certificates to hedge the risk of underlying assets and earn handling fees, airdrop rewards, etc. (point out that most people do not hedge).
6. YT Flow (Pendle): Buy when you judge that the price of Pendle income token (YT) has enough safety margin to gamble on future income (for example, early $ENA and $USDC mining).
7. Option Flow: Take advantage of pricing distortions in the options market caused by sentiment and other factors to arbitrage through strategies such as spreads and straddles.
8. MEV/Scientist Flow: Extract value on the chain through transaction sorting (such as sandwich attacks) and other methods.
8. Pix @PixOnChain
How I Made $ 100 k Arbitraging Between Prediction Markets (Full Guide)
The core strategy of sharing is prediction market arbitrage, that is, to profit from the ineffectiveness of different platforms giving different pricing (odds) for the same event results, rather than gambling.
The key to the methodology is:
1. First, look for the same event on multiple prediction markets, paying special attention to markets with more results.
2. Find the lowest purchasable price for all possible outcomes of the event on each platform and add them up; if the total cost is less than $1 (or 100%), there is an arbitrage opportunity. Execution must be extremely fast because price differences are fleeting (delayed gaming). It is recommended to use automated tools to buy the lowest price share of all outcomes on the corresponding platform to lock in profits.
We tend to choose opportunities with a high expected annualized rate of return (APY) (such as >60%), and do not necessarily hold them to maturity. If the market selling price of all shares held is higher than the cost, we will consider exiting early to improve capital efficiency.
