Recent news has emerged that a crypto bot used a flash loan worth $200 million to conduct a series of transactions on Ethereum in order to make a profit of about $3.
Below are all the details.
Summary
A crypto bot uses a large sum of money for a flash loan: here’s what happened
As anticipated above, an arbitrage crypto bot executed a series of complex transactions on Ethereum involving a $200 million instant loan, with the goal of making a profit of only $3.24.
As a reminder, instant loans allow for uncollateralized loans as long as the borrowed assets are returned within the same block of transactions.
In this case, the arbitrage bot took advantage of instant lending, obtaining a $200 million stablecoin DAI loan from MakerDAO via the “DssFlash” contract, as reported by Arkham Intelligence in a Twitter thread.Â
Zachary Lerangis, Arkham’s head of operations, illustrated that the automated bots would be tasked with performing any trade that leads to a profit, even though the net return might be small.
Why was the bot’s net return so small?
When price differences occur for the same asset in different markets, it creates an arbitrage opportunity. Thus, traders, or in this case a crypto bot, can exploit these differences to make a profit.
After obtaining a flash loan, the bot used the funds to deposit them on Aave, a decentralized lending platform.Â
It then borrowed a relatively small sum of $2,300 in Wrapped Ether (WETH) using the deposits as collateral, as stated by Arkham.
WETH, an ERC-20 token that can be used in smart contracts and is equivalent to Ethereum in terms of value, was then used to purchase Threshold Network (T) tokens on the Curve exchange.
Once the arbitrage cycle was completed, the bot sold the Threshold Network tokens on the Balancer exchange, generating a gain of 0.019 ETH, or about $33.
However, transaction costs and a $1 fee for an Ethereum “block builder” greatly reduced the net gain to only $3.24.
Even though the bot had access to a substantial $200 million in DAI, it may not have taken full advantage of the funds due to limitations such as cash availability or the size of the price difference.
If the bot borrowed only a modest sum of $2,300 in WETH from Aave, this could explain the reduced profit compared to the amount of the flash loan.
The Ethereum bot that made more than $40 million in just three months
In addition to the above crypto bot, we can also see that in just three months, an Ethereum bot run by a well-known crypto user known as Jaredfromsubway.eth generated an incredible $40 million profit by exploiting a strategy called “sandwiching” on decentralized exchanges (DEX).
This MEV (maximal extractable value) bot, which was specifically created to implement the “sandwiching” technique, focuses mainly on front-running other traders on DEXs, where popular memecoins such as Pepe Coin (PEPE) are traded.
MEV, which stands for maximal extractable value, represents the maximum amount of value that validators can obtain from a block on the Ethereum blockchain by reordering, inserting or deleting transactions within blocks.
Therefore, according to the report by EigenPhi, a site that analyzes the decentralized finance (DeFi) market, Jaredfromsubway’s bot generated an incredible $40 million profit in just three months, thanks to a combination of front-running and carefully choosing which tokens to keep
After taking into account blockchain fees, which amount to about $6 million, the total profit turns out to be $34 million, the report states:
“The bot doesn’t just perform sandwich attacks, it also holds some altcoins in back-run transactions, when their prices are rising. By keeping PEPE, for example, the bot is able to generate even greater profits.”
