Stablecoin Arbitrage on Jupiter

Q40. Because Jupiter is a dex aggregator, there are naturally opportunities where one could take advantage of liquidity pairs across the ecosystem to create arbitrage. Since February 1st, what percentage of all swaps (with a size of at least $100) where a wallet starts the transaction with USDC or USDT and ends the transaction with either USDC or USDT have resulted in at least a 1% gain? - Are there any patterns behind the most common sources of arbitrage on Jupiter? List the top 10 wallets in terms of total arbitrage gains and provide insight over their strategy. Note: Only include swaps where the swapped from amount of USDC/USDT and the swapped to amount of USDC/USDT were both greater or equal to 100 in this analysis. Sample query: select (swap_to_amount/swap_from_amount) as arbitrage from solana.swaps where block_timestamp::date >= '2022-02-01' and swap_program = 'jupiter aggregator v2' and succeeded = 'True' and (swap_from_mint = 'EPjFWdd5AufqSSqeM2qN1xzybapC8G4wEGGkZwyTDt1v' or swap_from_mint = 'Es9vMFrzaCERmJfrF4H2FYD4KCoNkY11McCe8BenwNYB') and (swap_to_mint = 'EPjFWdd5AufqSSqeM2qN1xzybapC8G4wEGGkZwyTDt1v' or swap_to_mint = 'Es9vMFrzaCERmJfrF4H2FYD4KCoNkY11McCe8BenwNYB') and swap_from_amount >=100 and swap_to_amount >=100 Sample tx: https://solscan.io/tx/5zgXGEgBYqE8uNyBSmnwTGPVYpxA6ntot827u2MCgZkyUrMGEWCdTqiUNjP4wjT2dujrBSimNCLvYa21GjUE4rgZ More info: https://www.coindesk.com/markets/2020/08/12/first-mover-how-a-defi-trader-made-an-89-profit-in-minutes-slinging-stablecoins/

Introduction

What is arbitrage?

Market arbitrage refers to the buying and selling of assets on exchanges so that with the price differential between the same exchange (the selling price is higher than the buying price) or different exchanges, the trader can obtain better profits (buy cheaply on exchange A and then sell at a higher price on exchange B). This type of practice is very popular among many traders to obtain higher profits in their cryptocurrency portfolios. But it is a practice that carries risks, as well as being widely used by unscrupulous people to carry out illicit acts.

Despite this, arbitrage is a process that can offer good returns. Particularly if it is done at times of high market volatility. This is because the rapid increases in trading volume that occur in the cryptocurrency market can provide unique opportunities for traders to maximise their profits. The price difference between the various exchanges for the same cryptocurrency represents the profit that the trader makes on his trades.

This arbitrage process occurs very quickly. Strictly speaking in cryptocurrencies, it can be conceived as an easy profit that comes from gaps between exchanges that only last for a limited time. However, arbitrage requires skill, speed and luck, so it is not a recommended technique for most traders.

What is Jupiter?

Jupiter is an exchange infrastructure for Solana that aggregates liquidity to provide users and builders with the seamless apis they need to trade and build world-class dapps on Solana.

The platform offers and guarantees the best price for swaps while offering the best UX for users and developers the best UX for users. The idea is to enable them to easily access best-in-class swaps in their application, interface or programmes on the blockchain. In addition, it offers the widest range of tokens and the best path discovery between any pair of tokens.

How does it work?

The price of a token can change rapidly at any time. Therefore, the best-priced trade is not always on one DEX and may involve a combination of trades on many DEXs. For this reason, Jupiter uses intelligent routing that directly connects all DEX markets and AMM pools together regardless of provider and will find all direct and 2-hop routes between any two tokens in Solana. However, not always is good for the platform because of due to this rapid changes may cause losses to the platform due to the high volatility that users can take advantage of with the aforementioned arbitrage.

In this analysis, we will investigate how users are taking advantage of this and which stablecoins are using to do it.

Methodology

In this dashboard, we will take a look at the most common stablecoin swaps used to take advantage of the arbitrage situations in Jupiter DEX aggregator. Because of Jupiter works on Solana network and is based on swaps, we will consider Solana swaps tables for this work. The two main stablecoins are USDC and USDT. Then, the swaps studied will be:

USDC-USDC
USDC-USDT
USDT-USDC
USDT-USDT

To make a good analysis, we will only take into account those swaps with a size of at least $100. From that point, we will calculate which of these swaps have gained more than 1% from the arbitrage. As well, we will analyze which type of strategies the users who gain more uses. To do that, we will select the top 10 wallets that gained the most doing this type of arbitrage.

Results

More than 80% of the swaps are gains of at least 1% of the trade. Taking into account that the analyzed swaps are stablecoins, making this gain is a good proportion.

The most pair used to gain in arbitrage is USDC-USDC. The worst, USDC-USDT. In this case, the best pairs seems to be the same token swap pairs because of all of the swaps are returning at least 1% in gains.

Again, we can corroborate that USDC-USDC is the most prominent pair for arbitrage traders, used more than 50% of the times. The second one is for USDC-USDT, then, one can see how USDC is the best choice for investors to gain with arbitrage on Jupiter.

The above chart, shows the top 10 wallets that gain the most using arbitrage on Jupiter. The first wallet has gained more than 20k% in gains. The average volume swapped oscillates between wallets.

The table below shows the strategies used by eahc top 10 wallet.

As we can see, there are like 2 different strategies:

Those who use basically pair-pair swaps with the same token like USDC-USDC and USDT-USDT (most commonly used the USDC-USDC pair)
Those who use USDT-USDC and USDC-USDT pairs

However, it is clear that the best option is the first one, because of the strategy brings more percentage in gains.

Conclusions

Solana users are using Jupiter stabelcoins to make gains. It is important to note than more than 80% of the stablecoin swaps analyzed have generated a gain of at least 1% of the initial trade. The most common pair is the USDC-USDC. Basically, users usually take advantage of pairs from one token to the same token like USDC-USDC and USDT-USDT. In this analysis, we have also concluded that there are two type of strategies from which users are gaining in arbitrages. On the one hand, those who uses same pair token swaps as said before, and those who uses one stablecoin for other stablecoin like USDT for USDC and USDC for USDT. But, based on top 10 gainers, the best strategy seems to be the first one.