A crypto arbitrage trading bot makes $3 in profit over a $294 million loan. Image source: Spongebob Squarepants

A Crypto Trading Bot Borrowed $294 Million In Loans, Only To Make Just $3 In Profit

2 min read

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An arbitrage trading bot that trades crypto managed to secure a US$200 million (AU$294 million) flash loan on the blockchain, but in the end only made a tragic US$3 (AU$4.40) in profit. 

How did this even happen? There are quite a few key terms to unpack here, so let’s do it one-by-one.

First, what is an arbitrage trading bot?

In the crypto world, an arbitrage trading bot is a tool that tracks price differences of tokens across crypto exchanges, and then executes trades to take advantage of said differences. Given that the cryptocurrency market is extremely volatile, arbitrage trading bots are popular and used by many crypto traders to keep up with ever-changing market conditions.

According to blockchain tracker Arkham Intelligence, the bot in question borrowed US$200 million (AU$294 million) worth of DAI tokens from MakerDAO, a well-known decentralised autonomous organisation.

Next, what is a flash loan?

The loan was no ordinary loan either. It is known in the crypto space as a “flash loan,” which explains why the bot was able to borrow such a ridiculous amount without restriction.

In the world of decentralised finance (DeFi) where operations are pretty much governed by smart contracts, a flash loan is one that allows someone to borrow crypto assets without collateral or borrowing limits. In the arbitrage bot’s case, Arkham Intelligence says that the bot’s flash loan was only constrained by a US$500 million (AU$735 million) debt ceiling, enforced by MakerDAO.

So, the bot was allowed pretty much “zero-fee borrowing on any amount of DAI.”

After the bot borrowed US$200 million (AU$294 million) in DAI, it deposited the funds on AAVE, a DeFi platform. The bot went on to perform a series of transactions that it was basically programmed to do: snoop out price discrepancies, borrow a crypto token against another crypto token, and hope for the best.

Directed by Robert B. Weide

The arbitrage bot executed a few more transactions related to its initial DAI loan, and first ended up with a profit of US$33 (AU$48.90). However, Arkham Intelligence pointed out that transaction fees for the entire process cost US$28.76 (AU$42.30). US$1 (AU$1.47) was also sent to a developer who facilitated the transaction on the blockchain.

This makes the bot’s profit a grand total of US$3.24 (AU$4.77). Arbitrage trading bots are programmed to take profit, no matter how slim, so– *Screen goes dark*

*Credits roll*

*Directed by Robert B. Weide starts playing*

Arkham Intelligence documented the bot’s entire fruitless hustle on its platform here. The company also added that the bot has actually “done this a bunch of times before – all the time with US$200 million.” So, it ain’t much, but at least it’s honest work.