AI-Bots for Arbitrage

This blog is a follow-up to my presentation about using AI-bots to generate a risk-free 30% APR.

So I think that the concept of arbitrage must be pretty clear by now. In the case of bots, they usually operate in decentralized exchanges ( i.e., SushiSwap or UniSwap ) and centralized ones ( i.e., Coinbase, Kraken, and Binance ). You can integrate with them by an API; you can check the documentation of Kraken, for example:
https://docs.kraken.com/rest/
You can call the API to get the current price of a particular cryptocurrency in any specific timestamp and open or close a position. In other words, the API will allow us to monitor the prices of digital assets automatically and automatically purchase and sell according to our algorithm.
Several things have to be taken into consideration. For the sake of demonstration, we will consider a group called “costs” that encompasses all the possible costs that can come from a transaction. We can usually get over the transaction fees by having a position of the desired coins in all exchanges ( instead of moving the money from market X to market Y, we have large amounts of money in both, and we can take the actions there )
The algorithm will take action ( buy from market X and sell in market Y ) every time a price discrepancy is bigger than the costs. The API will allow our program to constantly ( every 10 seconds approximately ) check for price discrepancies and create orders on each involved market.
Artificial Intelligence can optimize the whole process by clearly defining to an agent the possible actions that can be taken and the rewards expected from them, considering the costs and potential drawbacks. The agent will be able to learn and improve overall efficiency across time. This is not an easy task, and it is tough to code.

Sincerely, we tried to make it and never got to that point.


Firstly, you need a team to code the infrastructure. It is not easy to integrate with all the APIs. They all have specificities; you’ve integrated with one, but it might not be easier to integrate with another one.
Secondly, transaction costs can mess the whole operation up, so you need to have some money in all the exchanges for all the assets you want to operate.
Thirdly, the whole infrastructure requires a lot of time and effort. It was worth trying; we could eventually integrate with Kraken API, and we learned a lot. But it is not our purpose in life; we better spend our time on something that improves people’s lives somehow.

I personally tried several arbitrage bots, and the best performing one was Pionex; they have a mobile app, so it is easy to monitor and operate. I had an average above 30% APR with them, some days higher, some days lower but pretty consistent during a whole month. I did arbitrage on ETH, XRP, ADA, GALA, and SOL. Apart from that, they have other bots, like the grid bot focused on trading that can reduce the risk of sudden fluctuations in price. This is not financial advice, but I highly recommend looking at SAND ( sandbox ), a blockchain-based metaverse with tremendous growth potential.

Please do not hesitate to ask any doubts you have, and I hope this has been useful for all of you. Invest at your own risk always but don’t let inflation kill your future ( my roommate studies macroeconomics and is always saying that inflation is the worst thing in the economy )

8 comments

  1. Nice followup to a solid presentation

  2. Albert, insightful as always. I’m wondering what asset classes you find are most valuable and if they are regulated classes or not? Are we talking domestic or international? As a soon to be lawyer, good disclaimer at the end haha

  3. Carlos Montero · ·

    Great brog Albert! 30% APR is a great return. I will agree with your roommate that inflation is not a great thing specially for young people trying to start building up their wealth. Great job with the blog!

  4. parkerrepko · ·

    Great follow-up! Saw @hudsoncitycentre ask a question about regulation and I hope you can add some insights to that. With the speed of transactions a factor in arbitrage, are there ways to improve the speed outside of a better AI program? Processing power, latency, etc.

  5. yanamorar · ·

    Great blog! This is a very interesting topic and what seems like a great way to beat inflation; however, I have a question: do you still have to pay taxes on every purchase/sale you make with arbitrage? The 30% APR is an excellent return, hoverer if you put a tax on it, it can quickly get nullified. How do you manage that?

  6. lexgetdigital · ·

    Great post! I echo Karl’s, Parker’s and Yana’s questions. And I’ll add more: what, specifically, are the costs to arbitrage? Does your average above 30% APR account for these costs? Why isn’t everyone doing this already? Who controls these bots? Is it possible that, like RidingHood, they can stop selling, etc. to the detriment of their users?

  7. rjperrault3BCCGSOM · ·

    Great blog Albert. I second Lexie’s question above: why aren’t more people doing this. Just thinking about how many bots are out there capturing other things whether it be concert tickets or PS5s, that the market for this type of bot I would think large given the potential return it has. What kind of regulatory action might bots like these create?

  8. totombc2021 · ·

    Very interesting, I think because this is so new, there is the most room for profit as the system is inefficient. Eventually the margins will shrink and it will no longer be profitable or worthwhile except only to the biggest players or those in the cheapest economies. But I’d love to be proven wrong!

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