Gained $100 million at zero cost, stunned by the stablecoin arbitrage strategy
Original Title: "How One Stablecoins Arbitrage Strategy Quietly Making US$113 Million Profit in 4 Months without Capital"
Original Author: EigenPhi
Original Compile: 0x137, 0x22D, Rhythm BlockBeats
TL;DR
1. Over the past four months, arbitrage strategies targeting MIM-UST have earned more than $113 million.
2. This is essentially an advanced flash loan strategy that does not require capital investment, and can get up to 650 times the return only by paying the gas fee. There is no need to pay high "tips" to miners like sandwich arbitrage, and no coding ability of smart contracts is required.
3. This strategy always looks for opportunities in relatively "low-key" liquidity pools, so it is not easy to be discovered by the public, especially sandwich attackers.
4. Because this strategy uses flash loans, there is no position during the transaction, so there is no risk exposure. In addition, the strategy involves two Stablecoins, which reduces the uncertainty caused by Stablecoin crashes.
5. Tools like EigenPhi can help us gain insight into the ever-increasing liquidity of flash loans, which provide virtually unlimited free leverage for similar arbitrage strategies , requiring special attention.
"Work hard in silence and let success speak for itself."—— Anonymous
The MEV topic of NFTs, sandwich attacks, and Flashbots has been deafeningly loud over the past few months. To take advantage of these strategies, one must know how to weave complex indicators into the code of smart contracts, and constantly switch tokens and liquidity pools, which requires a lot of development, updating, and code debugging to adapt to emerging or constantly improving protocols. Not to mention the skyrocketing capital investment to successfully execute a sandwich strategy, especially if Stablecoins are involved.
However, since November 14, 2021, an arbitrage strategy that does not require the development of smart contracts and is only executed between the two stablecoins MIM and UST, But it reaped a profit of more than 113 million US dollars. As of March 23, 2022, this arbitrage strategy has been quietly executed 1,419 times in four months, with an average profit of $80,096, a cost of only $122.5 per transaction, and a maximum net profit of $6,001,912. In total, the return on the MIM-UST arbitrage strategy is 650 times.
This article is the first in-depth report on this arbitrage strategy.
To crypto investors who spend their days wandering the lending platforms, the whole thing looks like someone sneaked into a McDonald's and found Secret menu, secretly modified the deep fryer, and made Kobe beef for the cost of a small piece of French fries. While everyone else had to wait in line for some sausage, egg and cheese biscuits.
McDonald's Bacon Egg Burger
As the only arbitrage and MEV big data platform in the DeFi field, EigenPhi uses internal algorithms to discover those high-yield arbitrage strategies from countless seemingly ordinary transactions and disclose them to the public . Since discovering the arbitrage strategy against MIM-UST, our senior team has been monitoring it 24/7. According to our investigation, news about this "free banquet" was only circulated in a very small circle. But first, let's dissect the transaction using the strategy and show it here for the attention of the "people involved".
The strategy has four pillars:
· Produce well above average profits using only two Stablecoins.
· Utilizes two Stablecoins to minimize the risk of a single Stablecoin crashing.
· This strategy does not require programming skills, is extremely efficient and reduces operating costs (OPEX, Operational Expenditure).
· No position in the execution process means zero risk exposure, and at the same time make full use of the arbitrage opportunities brought about by the decoupling of the calculation stability.
Now, let's dive into the details and unravel these demons.
Magic, the operation is complete
First of all, the strategy is essentially to use flash loans , which means you can lend tokens, earn a profit, and repay the loan in the same transaction. If anything goes wrong during the transaction, the lender has nothing to lose because the entire block is rolled back.
Normally, you have to know how to program a flash loan, but this strategy doesn't require it at all. We use a deal revealed by eigenphi.io to explain how it works.
The profit on this transaction is more than $100,000 , At the same time, the gas and fees in the liquidity pool are less than $30.1. We define this type of arbitrage as "spatial arbitrage". Generally speaking, spatial arbitrage requires the operator to be well versed in the exchange rate difference between different liquidity pools for a specific Token. Generally, in Uniswap and Sushiswap, the operator uses the price difference to earn income. However, this is a completely different "monster".
Open the transaction details overview on Etherscan and we'll find out how the unnamed players joined forces to make the magic happen. Of course, there is a pun here (Rhythm Note, MIM is called Magic Internet Money).
The contract starts with 0x59e: MI M Cauldron V2 Lending Protocol, It is deployed by the Abracadabra.money team. The team wrote in the introductory document:
“It allows users to open loans, borrow MIM, use leverage, and repay. Abracadabra.money is a lending platform that uses interest-earning Token ( ibTKNs, interest-bearing tokens) as collateral to borrow the USD-pegged Stablecoin MIM, which can be used like any other traditional Stablecoin.”
The address starting with 0xd96 is Abracadabra.money’s Degenbox, which is also deployed by Abracadabra.money and allowed to be held internally assets to create various strategies. Degenbox is a vault for lending, especially UST here. The MIM CauldronV2 Lending Protocol mentioned above is built on top of this Degenbox.
Addresses starting with 0xff4 are USTSwapper deployed by Abracadabra.money.
The address starting with 0x55a is a stablecoin liquidity pool based on Curve Plain Pool, which is used for MIM-UST exchange on Curve. An external oracle will set the exchange rate for it.
The address starting with 0xb98 is the trader who started this transaction.
The figure below shows the entire process of Token exchange.
1. The trader borrows from Degenbox Out 243,098.235492 UST And called USTSwapper.
2. The trader sends an instruction to convert 243,098.235492 UST to 244,132.700775 MIM using the current exchange rate in the MIM-UST-f Curve pool of USTSwapper.
3. The trader sends an instruction to send 244,132.700775 MIM back to Degenbox to repay the borrowed assets.
4. The trader sends an instruction to exchange 244,132.700775 MIM into UST at Degenbox and pay the loan incurred in step 1. Degenbox exchanged out 344,119.620672 UST according to the exchange rate of the platform at this time. The trader used 243,098.235492 UST of it to repay the loan in the first step, and quickly withdrew the remaining 101,021.385180 UST as profit, and the transaction was closed.
On EigenPhi, we simplify this confusing process and only show meaningful transaction information in the Token flow diagram below. You can tell that there are two liquidity pools in play. The top line is Degenbox, showing that the trader sent 244,132.700775 MIM and received 344,119.620672 UST. The second line is the MIM-UST-f Curve pool, showing that the trader received 244,132.700775 MIM and sent 243,098.235492 UST. The last line shows that the trader received 101,021.385180 UST as a net profit.
So, what kind of The magic spell to make all this happen on a mainstream DeFi lending platform without being noticed?
We had to go down to the code level to see how traders exploit these platforms with the help of the internal code.
Turn the code inside out to get the wealth code
Reminder for hardcore developers: If you want to know the detailed technical details, please read on. Otherwise we recommend that you skip this section below. Just know that traders have a deep understanding of the Cauldron V2 protocol and can use a variety of internal methods to issue a flash loan as easily as spelling Lego without writing and deploying a smart contract.
1. Traders use the cook() method of the Cauldron V2 protocol to program a set of executable instructions as parameters of the method into a single transaction In the transaction, this is a precondition for initiating a flash loan. The cook() method can be executed off-chain.
2. The trader calls the ACTION_UPDATE_EXCHANGE_RATE method, which can call the internal method accrue() of the contract to lend assets.
3. The trader calls the internal method_removeCollateral() of Cauldron V2 to exchange UST.
4. The trader calls USTSwapper to exchange UST into MIM.
5. Traders use the internal _repay() method of Cauldron V2 to send MIM back to Degenbox for arbitrage positions.
6. Call the _removeCollateral() method again, and the trader releases the collateral.
7. The trader calls the withdraw() method to withdraw the UST position. The code spell is over.
In further research, EigenPhi discovered that Degenbox's code was a fork of SushiSwap's vault, BentoBox. BentoBox is the basis for Kashi, a lending and margin trading platform.
In summary, to use this strategy you must:
1. Proficient in the cook() method of the Cauldron V2 protocol, eliminating tedious coding, debugging, and deployment.
2. Real-time understanding of exchange rate spreads to determine the best time.
Of course, even if the price of Ethereum is reduced by only a few dollars, it will also reduce some gas fees-minimizing costs and maximizing benefits.
So, it's time to check how many people have joined this private party and used this strategy.
Banquet guest list
From November 14, 2021 to March 23, 2022, 1086 addresses executed the strategy 1419 times, as shown in the figure below. The blue bar is the number of transactions for the day.
In order to make it easier to see the trend, we will The amount of is converted to logarithmic form.
The number and profit of arbitrage transactions in January 27 28 and January 28, which is when Frog Nation CFO 0xSifu was revealed. Frog Nation is a loose group with related projects including Popsicle Finance, Wonderland, and Abracadabra. The news of 0xSifu being exposed has dealt a heavy blow to MIM, raising doubts about decoupling from the US dollar. The MIM low was $0.9735 on Jan. 27 and $0.9776 on the 28th. The volatility of MIM brings amazing arbitrage space.
To date, there have been 1419 arbitrage trades using this strategy, generating a total of $113.7 million in profits. And 555 transactions in those two days alone generated a profit of $50 million, which paints a picture of a perfect MEV storm when token exchange rates fluctuate.
The following table shows the 10 most profitable arbitrage transactions since the emergence of the MIM-UST strategy. Here we share with you the addresses of traders and trades, including all 1419 arbitrage trades in the table. Feel free to research, we'd love to see what new things you discover.
Conclusion: Stablecoins Take You Over the Rainbow
People think of Stablecoins as anchors in the blockchain. Stability means lower volatility, which means lower returns. However, the 650x return from the MIM-UST strategy of arbitrage between stablecoins reverses the prevailing perception due to its intrinsic nature: flash loans. Over the past two years, flash loans have become the money multiplier of DeFi, introducing unlimited and near-free leverage with liquidity. EigenPhi found through data that 100% of the arbitrage on DEX is either flash loans or flash swaps. Such situations therefore require special attention.
EigenPhi generates shrewd knowledge and wisdom based on DeFi big data, and publishes insights on flash loan arbitrage in order to build a healthier DeFi ecosystem.
Flash loans have taken Stablecoins into the Wild West for now. With the right understanding of new protocols, tools like EigenPhi, and an unrestricted mindset and imagination, arbitrage with Stablecoins is not out of reach, and it can take you across the rainbow to somewhere above the rainbow. Very high place.
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