A trading bot that performs types.arbitrage and market making on the XRP Ledger
- Arbitrage
- 1.1 Simple cross exchange types.arbitrage
- 1.2 Triangular types.arbitrage
- Market making
Arbitrage trading describes the practice of taking advantage of differences in prices of the same assets in two or more markets. In other words you are buying an asset in one market and at the same time you are selling the same asset at a higher price in a second market.
Often times arbitrageurs have prefunded multiple asstets on multiple exchanges to monitor as many possibilities for types.arbitrage opportunities as possible and to act as fast as possible. Arbitrageurs always have to make sure they've funded their assets they want to trade. If they don't have them funded they have to first buy the asset they want to spend which takes extra time and fees. Using the DeX and path finding of the XRP Ledger we can fund the wished asset, buy an asset and sell that asset with just a few transactions that all get validated in the same Ledger at the same time. So the types.arbitrage opportunity will be taken super fast and will cost, in the best case, a friction of a cent. Often times issuers have defined transfer fees that get charged whenever you are transfer a token, which increases the overall fees.
FT = FTxn + FTfr
- FT: Total fee
- FTxn: Transaction fee
- FTfr: Transfer fee
On the XRPL we don't have multiple CeX but one DeX with multiple issuers of tokens. You can trade all tokens against each other. There are no limitations that you couldn't trade USD:Bitstamp against USD:Gatehub just because the issuers are different.
This is the simplest type of types.arbitrage. We have AssetA, trade it against AssetB and trade AssetB for AssetC.
The flowchart below shows the potentially simplest example of a cross exchange types.arbitrage opportunity:
flowchart TB
Alice{Alice:\n10 XRP\n5 USD:Gatehub} --> XRPUSDB[XRP/USD:Bitstamp\n0.50 USD] --> Alice1{Alice:\n5 USD:Bitstamp\n5 USD:Gatehub} --> XRPUSDG[XRP/USD:Gatehub\n0.49 USD] --> Alice2{Alice:\n10.2 XRP\n5 USD:Bitstamp}
classDef wallet fill:#0003ba;
classDef buyOrderBook fill:#3e8a2f;
classDef sellOrderBook fill:#a60202;
class Alice,Alice1,Alice2 wallet;
class XRPUSDB buyOrderBook;
class XRPUSDG sellOrderBook;
At the time Alice spot's the types.arbitrage opportunity, she hold's 10 XRP and 5 USD from the issuer Gatehub (USD:Gatehub). She spotted an offer that enables her to trade 10 XRP at a price of 0.50 USD:Bitstamp to receive 5 USD:Bitstamp. She takes that trade because she also spotted an offer that enables hew to trade 5 USD:Gatehub at a price of 0.49 USD:Gatehub to receive 10.2 XRP. After she consumes both offers, Alice still has 5 USD (just the issuer changed), but now has 10.2 XRP.
In this case, Alice whould need to send two OfferCreate transactions to consume the offers.
But what if Alice spotted the exact same types.arbitrage opportunity but had no 5 USD:Gatehub funded?
According to this situation Alice's wallet would look like this:
flowchart TB
Alice{Alice:\n10 XRP}
classDef wallet fill:#0003ba;
class Alice wallet;
Alice then looks if there is a payment path available that is efficient enough, so that the types.arbitrage opportunity is still profitable. If it is the example would look like something like this:
flowchart TB
Alice3{Alice:\n10 XRP} --> Steps((Multiple path step\nto receive the wished\namount of USD:Gatehub)) --> Alice{Alice:\n10 XRP\n5 USD:Gatehub} --> XRPUSDB[XRP/USD:Bitstamp\n0.50 USD] --> Alice1{Alice:\n5 USD:Bitstamp\n5 USD:Gatehub} --> XRPUSDG[XRP/USD:Gatehub\n0.49 USD] --> Alice2{Alice:\n10.2 XRP\n5 USD:Bitstamp}
classDef wallet fill:#0003ba;
classDef buyOrderBook fill:#3e8a2f;
classDef sellOrderBook fill:#a60202;
class Alice,Alice1,Alice2,Alice3 wallet;
class XRPUSDB buyOrderBook;
class XRPUSDG sellOrderBook;
This type of types.arbitrage is similar to the simple type of cross exchange types.arbitrage. As the name already suggest's, this type trades 3 assets against each other. This type has the advantage that we are monitoring more possibilities to find a profitable types.arbitrage opportunity. Here is a simple example how a triangular opportunity could look like:
flowchart TB
Alice{Alice:\n10 XRP} --> xrpusd[XRP/USD:Gatehub\n0.50 USD] --> Alice1{Alice:\n5 USD:Gatehub} --> usdeur[USD:Gatehub/EUR:Bitstamp\n1.10 EUR] --> Alice2{Alice:\n5.50 EUR:Bitstamp} --> eurxrp[EUR:Gatehub/XRP\n1.85 XRP] --> Alice3{Alice:\n10.2 XRP}
classDef wallet fill:#0003ba;
classDef orderBook fill:#3e8a2f;
class Alice,Alice1,Alice2,Alice3 wallet;
class xrpusd,usdeur,usdeur,eurxrp orderBook;