So-called stablecoins like tether and USDC are $1 tokens, but their prices can fluctuate on exchanges based on demand. One complex DeFi transaction appears to have netted a trader an 89% profit in a matter of minutes.
What's Hot: India is bullish on bitcoin, the traders betting ether could pass $1,000 in 2020, and how to succeed at investing.
MARKET MOVES
In digital-asset markets, stablecoins like tether and USDC are supposed to represent $1 of value. But their prices often fluctuate on the pubescent trading platforms of decentralized finance, or DeFi.
So cryptocurrency traders are now apparently devising strategies to profit from slinging stablecoins in these fast-growing but often janky and thinly traded markets.
In one Aug. 10 transaction on the Ethereum blockchain, a trader appears to have used a series of transactions in tether and USDC on the decentralized cryptocurrency exchanges Uniswap, Curve and dYdX to net a tidy $40,000 profit off a $45,000 initial investment. That works out to an 89% gain in what was likely a matter of minutes.
The whole transaction can be seen on the website Etherscan, used to access data recorded on the Ethereum blockchain. Here’s that looks like:
Screen grab of transactions used in Aug. 10 stablecoin arbitrage trade. (Etherscan)
What happened was this:
1) Trader started with roughly $45,000 in USDC tokens and borrowed another $405,000 on dYdX, for a total of $450,000 in USDC. 2) Exploiting temporary differences between the stablecoins’ face value of $1 and quoted prices, the trader was able to use Uniswap to exchange the $450,000 of USDC for $492,000 of USDT. 3) Trader swapped $492,000 of USDT for $492,000 of USDC on Curve. 4) Trader paid off the $405,000 loan from dYdX and had $87,000 USDC remaining. 5) The transactions cost about $2,000 in fees. 6) Trader netted $40,000 profit on $45,000 of initial capital.
And here’s a diagram, courtesy of CoinDesk’s managing editor for markets, Lawrence Lewitinn: Schematic of Aug. 10 stablecoin arbitrage trade using DeFi. (Etherscan, CoinDesk)
The transaction drew eyeballs on Tuesday from flabbergasted (and perhaps admiring) Twitter users.
But this week’s operation appears legal, merely a 2020 version of a classic arbitrage strategy used across Wall Street and cryptocurrency markets every day.
Not bad for a few minutes of work. But just imagine how long it took for someone to figure this out.
– Daniel Cawrey, Senior Markets Reporter
SPONSORED BY BITSTAMP
Enjoy zero fee trading on all XLM, PAX and GBP pairs through September 1st! Now is the best time to join over four million traders and financial institutions that trust Bitstamp’s powerful platform, intuitive mobile app and industry-leading APIs.
Bitstamp gives you all the trading tools to effectively execute your strategy:
Unmatched order execution, powered by Nasdaq: Cutting-edge Nasdaq matching engine delivers optimal trading speed and efficiency in all market conditions.
Tradeview interface: Our powerful trading interface offers advanced order types, live charting and an array of analytical tools. Available on web and mobile.
Robust API connectivity: Our FIX, HTTP and WebSocket APIs are consistently rated as the fastest and most stable in crypto.
Advanced custody solutions: Institutional-grade custody from BitGo with 98% of customer assets in cold storage and protected by BitGo’s insurance coverage.
Trend: Bitcoin's bullish long-term trend looks to be on a summer holiday this week, with prices languishing beneath the psychological price level of $12,000.
Yesterday's 7.3% rejection from around $12,000 to a low of $11,137 hints at further downside risk on larger time frames backed by decreasing levels of weekly trade volume.
Bitcoin's weekly chart reveals the possibility of a sell-off for September – historically a bearish month for the world's largest cryptocurrency by market cap.
For example, based on data from the last three years, bitcoin has experienced losses between 20 and 36% in September after a peak in August.
The recent rejection at overbought levels near 70.00 on the relative strength index (RSI), a tool used by traders to judge market exuberance, could lead to a deeper pullback.
Immediate support stands at the former resistance level near $10,500 with long-term support hanging at $8,650 along the 50-period moving average on the weekly chart.
A short-term push by opportunistic buyers could drive prices to retest $12,000 once more. However, failing to cement a new yearly high could result in a longer-term pullback as bitcoin heads into its historically poor month.
Disclaimer: The information presented in this message is intended as a news item that provides a brief summary of various events and developments that affect, or that might in the future affect, the value of one or more of the cryptocurrencies described above. The information contained in this message, and any information liked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. The information presented herein is accurate only as of its date, and it was not prepared by a research analyst or other investment professional. You should seek additional information regarding the merits and risks of investing in any cryptocurrency before deciding to purchase or sell any such instruments.
How a DeFi Trader Made an 89% Profit in Minutes Slinging Stablecoins