The following are examples of arbitrage trades that Pythagoras has executed in our 8-year history. The rapid growth and complexities of cryptocurrencies have created excellent opportunities for arbitrage trading. Although specific trades may get “arbbed out”, new arbitrage opportunities continue to emerge.

  • Cross-exchange arbitrage
    • Simultaneously bought bitcoin on Kraken and sold on Huobi
  • Cross-country arbitrage
    • Simultaneously bought bitcoin in the USA and sold in Japan
  • Basis trading
    • Simultaneously bought bitcoin in the spot market and sold in the futures market, where there is a premium price in futures that expire in either one week, one month, or one quarter.
  • Cash and carry trade
    • Same as basis trading.
  • Funding-rate trading
    • When the markets were bullish, retail investors bought crypto on margin via a perpetual contract and paid an interest or funding rate. We took the other side, provided liquidity, and thus received the funding rate.
  • Funding rate arbitrage
    • Simultaneously bought a perpetual with a low funding rate and sold a perpetual contract with a higher funding rate
  • Liquidity arbitrage
    • Simultaneously bought crypto on an exchange with high liquidity and sold on an exchange with less liquidity. Assumes a lead-lag relationship. This is essentially a cross-exchange arbitrage.
  • Time zone arbitrage
    • Simultaneously bought in one time zone and sold in another time zone. Assumes a lead-lag relationship. This is essentially a cross-exchange arbitrage.
  • Weekend arbitrage
    • Put capital in place before weekends to wait for bigger arbitrage opportunities while fiat banks are closed on weekends.
  • Chinese New Year arbitrage
    • Bought BTC in China and sold BTC in USD markets during the Chinese New Year holidays when Chinese traders are off work.
  • Arbitrage between CEX and DEX
    • Simultaneously bought on a centralized exchange and sold on a decentralized exchange, or vice versa.
  • Market making in Defi
    • Providing liquidity, posting bids and offers, making markets, and creating volume in order to earn reward tokens. Example: DYDX.
  • POS staking
    • Staking or depositing crypto on Proof-of-stake blockchains to provide crypto with the right to validate transactions on a POS network.
  • Providing liquidity to Decentralized Exchange (DEX)
    • Depositing crypto on a decentralized exchange to facilitate automated market making (AMM) and pairs swapping.
  • Yield farming
    • Yield mining, liquidity mining, providing liquidity on DEX, lending platforms, and other defi protocols to earn fees and rewards.
  • Volatility arbitrage (event-specific)
    • Bought options with unpriced or underpriced event risk.
    • Bought cheap puts on Luna on May 7, hedged them over the following days, and then closed them for maximum value.
  • Volatility arbitrage (general, centralized exchanges)
    • Bought cheap volatility which is sold into the market as a result of systematic, price-insensitive flow — such as auctions — which can clear at almost any price.
  • Volatility arbitrage (general, decentralized exchanges)
    • Systematic screening for cheap synthetic optionality in the decentralized finance ecosystem.
  • Shorting UST at $0.99 and bought back UST at $0.30.
    • Risk return was asymmetrical, similar to our arbitrage trade. Almost risk-free.
  • Hard-Fork harvesting.
    • Bought BTC spot and selling BTC futures to harvest Bitcoin Cash, Bitcoin ABC, Bitcoin Gold, and Bitcoin Diamond for free as a dividend. This is because the BTC spot split into two tokens and BTC futures settled only into one of the tokens, so that we kept the forked asset for free.
  • ETH hard fork to ETH 1 (POW) and ETH 2 (POS)
    • Bought ETH spot and sold ETH futures at flat or contango, as ETH futures went to a discount to reflect the value of the ETH 1 free dividend.
  • Airdrops
    • Earned ZKSync airdrop by making transactions on ZKSync
  • Regulatory arbitrage
    • When China banned Bitcoin exchanges in 2017, the price of Bitcoin in China RMB dropped 25%. We bought Bitcoin in China and sold Bitcoin in USD.
  • ETH merge trading in the forward curve
    • Bought ETH spot, sold ETH future at flat or contango, in anticipation of ETH futures going to discount which was caused by the ETH staking yield.
  • Relatively High-Frequency Trading
    • Bought smaller tokens or their derivatives on less liquid exchanges and sold the same tokens or their derivatives on more liquid exchanges on a high-frequency basis.
  • Market making in NFTs and gaming assets
    • Market making with GMT, a fast-growing, highly liquid gaming token of StepN on DEX when it has large trading volume and volatility
  • Statistical arbitrage
    • Bought BTC in USD and sell BTC in Korea at a 50% premium in KRW, and closed position at a 30% premium.

The above list is just a fraction of all the arbitrage trades which have been executed in real time with funds’ assets over the eight-year history of Pythagoras arbitrage trading.

Last Updated: Sep 15, 2022