We are nearing the end of this series around the DeFiChain DEX!
In the previous articles you have already learned about how DeFiChain is a 100% decentralized exchange, how Liquidity Mining and a DEX in general work as well as what the risks of using a real DEX like DeFiChain are.
In this article we will look at arbitrage possibilities on DeFiChain: an opportunity to earn 10% per day and more!
Arbitrage is common practice - even outside a DEX like DeFiChain
The concept of arbitrage is undoubtedly not something that is only practiced in trading and finance.
Arbitrage can be found everywhere.
If an Amazon trader buys his goods on Alibaba at a much lower price and imports them to Australia to sell them there again at a higher price, that is arbitrage.
But even if there is a different Bitcoin price on Bittrex and Binance (two centralized exchanges), and you use this for your own profit, it is called arbitrage. That kind of arbitrage is what what we will focus on today.
Example: DeFiChain DEX & Bittrex (CEX)
Let's assume on Bittrex 50,000 DFI are offered at the price of 1 BTC.
As long as on the DeFiChain DEX the liquidity pool also consists of 50,000 DFI and 1 BTC, or 500,000 DFI - 10 BTC, etc., there are no arbitrage opportunities here.
But what happens if the liquidity pool on the DeFiChain DEX now looks like this: 2 BTC - 90,000 DFI
How this can happen? Simply by using the DEX (swaps) and shifting the ratio in the liquidity pool. This happens every single day, with every normal use of the DEX.
This now creates an interesting opportunity for arbitrators (who, as we have already learned in the last articles of the series, thus rebelance the pool).
One could now buy 1 Bitcoin on the DeFiChain DEX for 45,000 DFI.
Only to then buy 50.000 DFI with this 1 BTC on Bittrex again.
As a result you make 5,000 DFI (10%) profit!
Of course, this is a purely fictitious example and in fact it will be very rare (but possible, especially in the beginning of the DeFiChain DEX) to find individual trades with such a high arbitrage.
Much more often, however, there are arbitrage opportunities where the return is around 0.1% per trade… with 50 trades per day, you will end up with a return of 5% per day. Very lucrative!
Arbitrage opportunities on DeFiChain & the risks involved
Very important: There are extremely many scams in the crypto market around the topic arbitrage. Do not invest in any traders, bots, etc. - most of the time these are pure Ponzi schemes!
The easiest way to find arbitrage opportunities is to manually detect two different prices on, say, the DeFiChain DEX and Bittrex.
Professionally some people do this with bots, but as I said… Beware, because an offer to "invest" in them is in most cases a scam.
That, and the possibility that in the short time during your two trades the markets might shift so fast that you might record a loss, are actually the only risks in arbitrage.
So you see: Arbitrage has a high upside with relatively little downside. A lucrative business!
Where to go from here
To prepare for the upcoming DeFiChain Liquidity Mining and benefit from the extremely high returns, especially in the beginning, you should download the DeFiChain Wallet (also the DEX App).
And if you want to be the first to know when we go live (a lot earlier than you may expect!), you should definitely follow DeFiChain on Twitter and join the official telegram group where you can also ask and get all your questions answered.