First Mover: How a DeFi Trader Made an 89% Profit in Minutes Slinging Stablecoins

Aug 12, 2020 at 12:19 UTCUpdated Aug 12, 2020 at 14:52 UTC.Schematic of Aug. 10 stablecoin arbitrage trade using DeFi.In digital-asset markets, stablecoins like tether and USDC are supposed to represent $1 of value.

Their prices often fluctuate on the pubescent trading platforms of decentralized finance, or DeFi.So cryptocurrency traders are now apparently devising strategies to profit from slinging stablecoins in these fast-growing but often janky and thinly traded markets.

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In one Aug. 10 transaction on the Ethereum blockchain, a trader appears to have used a series of transactions in tether and USDC on the decentralized cryptocurrency exchanges Uniswap, Curve and dYdX to net a tidy $40,000 profit off a $45,000 initial investment.

What happened was this:.1) Trader started with roughly $45,000 in USDC tokens and borrowed another $405,000 on dYdX, for a total of $450,000 in USDC. 2) Exploiting temporary differences between the stablecoins' face value of $1 and quoted prices, the trader was able to use Uniswap to exchange the $450,000 of USDC for $492,000 of USDT. 3) Trader swapped $492,000 of USDT for $492,000 of USDC on Curve.

4) Trader paid off the $405,000 loan from dYdX and had $87,000 USDC remaining.

6) Trader netted $40,000 profit on $45,000 of initial capital.

Tuesday's 7.3% rejection from around $12,000 to a low of $11,137 hints at further downside risk on larger time frames backed by decreasing levels of weekly trade volume.

The recent rejection at overbought levels near 70.00 on the relative strength index, a tool used by traders to judge market exuberance, could lead to a deeper pullback.