The overall monthly trend shows that there are more traders participating in OSMO --→ DOT trade than DOT ---→ OSMO.

Aug ‘22 reports the highest number of OSMO-DOT traders, where there are more traders swapping OSMO --> DOT at 408 unique address, and 191 unique address for DOT -→ OSMO.

The number of Unique traders seems consistent for 3 months after august. It is still to early to anticipate Decembers traders count.

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The average Swap transaction are the highest in Nov 2022, exceeding that of Aug, which is the month that reports the most traders.

This suggests, despite there are lower unique traders in Nov, there are more swap transaction made on average, per address.

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With these understanding in mind, we can find “outlier” address . That is, address that makes more than average swap count per month. This should lead to arbitrageurs address as arbitrageurs relies on capturing price volatility in order to profit and they do this by doing “discounted” trades. Although this method may not catch sniper arbitrageurs; address that makes few transaction, but huge return, this method may capture those ==address that attempted to participate in arbitrage trade==.

Below shows the Heatmap of transaction count by address, per month, of those address with higher than average transaction count.

Monthly DOT to OSMO

Monthly Dot to OSMO reports several significant transaction volume by some address, especially on Aug and Nov. For example, osmo18..jx80gu and some other address osmo1u…qfl are among the top address that brings huge swap txn activity in Nov.

Below bar chart shows the Monthly swap count and their average swap count(monthly) by the outlier address.

OSMO to DOT

OSMO to DOT swap traders are much more active in terms of txn count than DOT to OSMO. The most busy spans between august and Nov, with Nov being the busiest among specific address, with more than 80 swap txn count ceiling.

The bar chart below visualizes the monthly swap count and average swap count of each address.

Combining DOT to OSMO swap count with OSMO to DOT swap count we get the below chart….

• The negative value merely indicates swap direction
• Since these address are outliers of both DOT to OSMO swap and OSMO to DOT swaps, these address may be the suspects of arbitrageurs that we are looking for

How many Arb-ers among us?

Since we already listed down the suspected address that might be arbitrageurs, we can tag these address and count their population from the total address that made OSMO- DOT swap txns.

Overall, it is found out only about 4% unique address are suspected arbitrageurs , compared to normal DOT-OSMO traders.

Introduction

What is DOT ?

DOT is the native token of Polkadot network and is used for staking and governance; it can be bought or sold on exchanges. Polkadot is a protocol that connects blockchains . Polkadot uses parachains and a relay chain to facilitate a much more scalable blockchain ecosystem. The protocol's bridges allow different blockchain networks to interact with each other.

What is OSMO?

OSMO is the native token of the Osmosis network. Primarily, OSMO is used for staking to secure the Osmosis chain.

What is Arbitrage trade?

the trade of simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset.

What is arbitrage trade in crypto ?

Arb trade in crypto usually means buying tokens at lower price and sell them again at higher price at different platform or in the future. For example, Uniswap offers 1 ETH for 2000 USDT and Sushiswap offers 1 ETH for 2050 USDT. Arb -ers would buy huge volume on Uniswap and sell it Sushiswap to get the additional 50 USDT. (There are factors to consider such as gas price, slippage etc, but this is the general idea of arbitrage in crypto trades).

Another example of arbitrage is buying depegged stablecoins in aticipation of it returning regaining its peg. If usd is priced as 0.95 USD, as opposed to USDC, arb-ers would dump USDC for USDT , and earn additional 5% gain when it repegs.

Methodology

1) Find the trend of swap count(monthly) on each direction :

i) DOT -→ OSMO

ii) OSMO -→ DOT

2) Calculate average swap count per address in each month

3) Find address that has higher than average swap count

Because arb-ers would need to make multiple swap trade to catch price volatility

4) List all the suspected address that are outliers/arbitrageuers

5) Plot arb-ers population vs normal users(non-outliers) swap activity across month

Conclusion

The DOT-OSMO trades from July to Dec(today) seems to be organic as the swap count from arb-ers is significantly lower than normal users. This method presumes arb-ers as high freqncy swap traders, therefore assuming address with high swap counts as arb-ers. The downside of this method is, sniper arbitrageurs ; address that make minimal swap with high return might flew under radar.

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In total Monthly Swap Count, Normal users still makes up the larger portion than arbitrageuers. This make sense since there are larger number of normal users.

The chart on the left shows the population of normal users vs arb-ers.

The marker size is the population size.

The Y-axis is total txn count .

The chart shows that the total swap count of normal users are so huge each month that it beats the total swap count of Arb-ers

This is probably because it is propped by huge population.

We can say that impact of Arb-ers is insignificant to overall swap count of DOT-OSMO

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Only 27% of total DOT-OSMO trades are made from arbitrageurs; which is quite huge chunk of the pie, but not too big to be say that total DOT-OSMO trades are inorganic.