Do people know how to arbitrage in the emerging DFI financial market? For the future financial world with unfriendly interface, complex ecosystem, various concepts of smart contract, dispersed liquidity and high volatility, there are too much new knowledge need us to be learn. But because of these high thresholds and unknowns, it has become a gold mine for advanced players.
Traditional finance has become a rigid centralized pyramid, resulting in 90% of financial business revenues flowing to very few people at the top. On the other hand, Decentralized Finance—DeFi, is “trustless”, open, and freely accessible, providing a new hope to disrupt the rules of the financial game. However, the DeFi market is still in its infancy, is extremely fragmented and inefficient. Native digital assets are highly volatile, and there are huge deviations in prices and interest rates among different platforms. This provides a fertile ground for arbitrageurs to earn profits. By rationally using technology and algorithms, arbitrageurs can carry out interest arbitrage between different platforms of the DeFi market, such as interest rate spread arbitrage and cross-trading arbitrage.
Interest rate spread arbitrage is a trading strategy wherein people borrow money at a low interest rate and then invest it in assets with higher return. In the field of decentralized finance, arbitrage opportunities exist when there are differences in the interest rates between platforms.
For example, Bob deposits ETH in Compound, borrows DAI at an interest rate of 1.44%, then sells DAI in Kyber to buy USDC, and then lends USDC on Nuo. Bob’s interest rate spread can be simply calculated as: lending rate of USDC on Nuo (12.33%) – borrowing rate of DAI in Compound (1.44%).
DEPCO is the abbreviation of Distributed Probability Consortium composed of technical geeks who yearn for financial freedom. Its core initiator participated in the cryptopunk movement. DEPCO is equipped with crypt experts, economic and financial genius as well as a group of physicists and mathematicians who analyze financial markets through mathematical models. We believe that the accuracy of mathematics is the basis of the analysis of the most complex human activities. We hope to seek financial and spiritual freedom in traditional finance and innovative finance through technical alliance and mutual assistance.
As the emerging financial markets of DeFi rise gradually, we have keenly discovered this virgin land full of huge arbitrage opportunities. Through the efforts of XXX Technology Alliance, we have developed automatic arbitrage system for interest rate spread across the DeFi platforms and liquidation robot arbitrage system. In the early DeFi market with immature infrastructures, our members will be able to earn huge profits through interest rate spread and liquidity arbitrage at this early stage of DeFi.