Lookonchain recently unearthed a potential gold mine for crypto giants, or ‘whales.’ Their report highlighted an intriguing arbitrage opportunity between Ethereum (ETH) and staked Ethereum (stETH). Given the potential for significant returns, one might wonder how much these crypto titans earn.
1/ This whale has been doing arbitrage with ETH/stETH.
— Lookonchain (@lookonchain) October 9, 2023
Let’s take a look at his strategy and see how much money he makes. pic.twitter.com/HtsgdiNb8i
The strategy’s foundation rests on a simple principle: a slight discrepancy between the value of ETH and stETH. As per Lookonchain’s findings, 1 ETH can be swapped for approximately 1.0038 stETH on decentralized exchanges (DEX). This stETH can be redeemed for ETH at a 1:1 ratio on the Lido platform.
However, only some traders can plunge into these waters. The report cautions that the prevailing gas fees make this method unviable for those with modest holdings. But for whales, with their vast reservoirs of crypto, it’s an entirely different story.
A case study from the report showcased a whale swapping 1,370 ETH for 1,370.3351 stETH on 1inch. This mammoth transaction was redeemed on Lido and, after accounting for gas fees, netted a profit of 0.329 ETH, equivalent to $540.
While $540 might appear as mere pocket change for a whale, the compounded impact over time is nothing short of impressive. Engaging in this strategy daily with the same volume, a whale stands to amass roughly 118 ETH, translating to a whopping $194,000 annually. This gives an annual percentage yield (APY) of 8.6%.
Furthermore, the report elucidates a noteworthy event from May 2022, where the peg between ETH and stETH wavered, with the stETH value depreciating to 0.94. During such anomalies, the arbitrage window widens significantly. Using the same 1,370 ETH during this de-pegging would have enabled a mammoth single arbitrage profit of 87 ETH.
6/
— Lookonchain (@lookonchain) October 9, 2023
If ETH/stETH depegged, he would make more.
In May 2022, ETH/stETH depegged to 0.94, and 1370 $ETH can be used to arbitrage 87 $ETH at a time. pic.twitter.com/1vfphvFh4W
The crypto world is no stranger to volatility, and with it comes myriad opportunities. The Lookonchain report beckons crypto magnates to the lucrative shores of ETH/stETH arbitrage, hinting at untapped potential. As the crypto landscape continues to evolve, only time will tell if more such opportunities surface, offering whales the chance to dive deeper into profits.
