Question:

Q.112 One of the core actors in the THORChain ecosystem are the “Traders” (). These traders swap at a high frequency to make a profit and are a key cog to helping balance prices on THORChain

We are taking a deep dive on these traders. To do so, you have 2 options:

1. Identify the Ethereum arb bots and show their activity over time. How many are there? What is their average swap frequency and volume? Which tokens are they swapping? Are they interacting with synths or non-synths? How much profit are they making?

2. Identify a single Ethereum arb bot and show similar metrics. What is their THORChain address and what is their ETH address? Are there any other addresses that they are associated with (e.g. do they control several different addresses and transfer between them)? What is their average swap frequency and volume? Which tokens are they swapping? Are they interacting with synths or non-synths? How much profit are they making?

Here, this dashboard will try to answer the first option.

Arbitrage definition:

Arbitrage is defined as the execution of 2 subsequent swaps in which:

• The first swap's swap from ETH pool and the second swap's swap to ETH pool.

• The swap from the pool of the first swap is identical to the switch to the pool of the second swap.

• The swap to and swap from amounts of the first and second swaps are identical.

• These swap from and swap to transactions must be completed within 10 min. People who want to engage in arbitrage trading often wish to complete their transactions quickly so that the price of the asset in market B stays unchanged.

• The swap from and swap to transactions must originate from separate pool addresses. This is our primary criterion, since individuals who have purchased and resold from the same pool cannot be deemed arbitragers. They are just ordinary traders or trading algorithms who are waiting for the price to climb before selling tokens, or who are selling tokens to limit their losses when the price falls.

  Ethereum arbitrage bots on THORChain definition:

  According to our analysis, arbitrage bots are defined as swappers who execute more than 50 arbitrage swaps.

What Is Arbitrage?

Arbitrage is the activity of purchasing and selling assets across two or more marketplaces in order to profit from price differences. A trader may, for instance, purchase an asset on one market and then sell it on another market at a greater price. Arbitrage arises as a result of market inefficiency. This implies that a specific asset may have different trading values in separate marketplaces, despite the fact that both markets are trading the same product (or very similar ones).

Arbitrage is sometimes seen as a basic mechanism in the context of financial markets because it prevents various markets from developing major price discrepancies between similar or identical products. Consequently, the practice of arbitrage depends on minor price differences and tends to result in price convergence. This convergence's rate may be used as an indicator of the market's overall efficiency. In a completely efficient market, there would be no arbitrage possibilities since the price of each trade item would be same across all exchanges. When executed properly, arbitrage may be seen as a risk-free method of capitalizing on momentary price differences. Nonetheless, it is important to remember that trading bots operate on all types of markets, and that many of them were specifically built to exploit arbitrage possibilities. Depending on the plan and execution, arbitrage trading may therefore include considerable risk.

To benefit from arbitrage chances in cryptocurrency markets, it is preferable not to rely on blockchain transactions. For example, if a trader want to engage in arbitrage with Bitcoin across two exchanges, it would be advantageous for that trader to have accounts on both platforms. In addition, both accounts should have sufficient cash to enable instant buying and selling without waiting for deposit and withdrawal confirmations (which may take thirty minutes or more depending on the network traffic). Although there are at least eleven distinct kinds of arbitrage methods, traders often refer to the one we just discussed as pure arbitrage, which is the most conventional version. Since this technique depends on the identification of market inefficiencies and price discrepancies as opposed to speculation, it is often seen as a low-risk method. As its name indicates, merger arbitrage (or risk arbitrage) is a highly speculative tactic that depends on a trader's assumption of a future event influencing the price of an asset. This may involve acquisitions, mergers, and bankruptcy filings.

Methodology:

• Our goal is to identify Ethereum arbitrage bots and their quantity.
• Then, we analyze their average swap volume and frequency.
• In addition, we attempt to determine the tokens they are swapping.
• We observe their interaction with pools of synths and non-synths.
• Finally, we determine their profit and loss.

Analysis I:

This section will analyze and quantify Ethereum arbitrage bots. Here, the two results below display the list of swappers classified as arbitrage bots.

The bar chart displays a list of Ethereum arbitrage bots depending on the number of arbitrage swaps. The arbitrage bot with the highest number of arbitrage swaps is thor1t2pfscuq3ctgtf5h3x7p6zrjd7e0jcvuszyvt5, which executes over 7,500 arbitrage swaps.

Analysis II:

This part will demonstrate the number of Ethereum arbitrage bots and their average swap volume and frequency.

Analysis III:

This section will determine the tokens arbitrage bots are swapping.

The pie chart depicts the ten most common arbitrage pairings based on the total number of arbitrage swaps. At 20.5 percent, the ETH/USDC-ETH/ETH pair is the most arbitrage-swapped. The ETH/ETH-ETH/USDC pair has the second-highest proportion of arbitrage swaps, at 20.4 percent, followed by the BNB/ETH-ETH/ETH pair, with 16.8 percent. Among the top 10 most common arbitrage pairings, ETH/USDC-ETH/WBTC has the fewest amount of arbitrage swaps at 1.53 percent. Consequently, the bulk of arbitrage swaps is found on the ETH/USDC-ETH/ETH pair.

The pie chart illustrates the 10 most popular arbitrage pairings based on the number of arbitrage bots. The BNB/ETH-ETH/ETH pair has the highest proportion of arbitrage bots, 16.9 percent. The ETH/ETH-BNB/ETH pair has the second-highest percentage of arbitrage bots at 15.3%, followed by the ETH/USDC-ETH/ETH pair at 11.9%. Among the top 10 most popular arbitrage pairings, ETH/ETH-BNB.ETH has the lowest percentage of arbitrage swaps, at 5.08 percent. As a result, the BNB/ETH-ETH/ETH pair contains the majority of arbitrage bots.

According to the pie graphic, 98.8 percent of arbitrage bots have interacted with synth pools to sell their assets. When examining the bar chart, we noticed that arbitrage bots have interacted with the synth pool ETH/ETH the most, whereas they have only interacted with the non-synth pool BNB.ETH.

As seen in the pie chart, 98.5 percent of arbitrage bots interacted with synth pools to purchase their assets. When we analyzed the bar chart, we observed that arbitrage bots engaged with the synth pool ETH/ETH the most, while only the BNB.ETH non-synth pool was interacted with.

Analysis IV:

We will determine arbitrage bots’ interaction with pools of synths and non-synths.

Analysis V:

Here, we will calculate how much profit arbitrage bots generate.

The two aforementioned charts demonstrate that the majority of them seem to make a profit. It is typical for arbitrage to make a little profit (a few $RUNE). Interestingly, we discovered that the bot address with the greatest number of arbitrage swaps, thor1t2pfscuq3ctgtf5h3x7p6zrjd7e0jcvuszyvt5, has suffered a significant loss, suggesting that taking on a large number of arbitrage will put us at risk.

Conclusion:

• In the THORChain ecosystem, we discovered 14 Ethereum arbitrage bots.
• Their average number of swaps per bot is 889.
• We discovered that the arbitrage bot that performs the most arbitrage swaps is thor1t2pfscuq3ctgtf5h3x7p6zrjd7e0jcvuszyvt5, which does over 7,500 arbitrage swaps.
• The ETH/USDC-ETH/ETH pair comprises the majority of arbitrage swaps, whereas the BNB/ETH-ETH/ETH pair has the majority of arbitrage bots.
• We noticed that arbitrage bots have interacted with synth pools the most for both arbitrage swaps from and to synth pools.
• We discovered that the majority of Ethereum arbitrage bots are more likely to generate a profit, but the bot address with the most arbitrage swaps, thor1t2pfscuq3ctgtf5h3x7zrjd7e0jcvuszyvt5, has experienced a big loss, indicating that taking on a high number of arbitrage will put us at risk.