How to earn with crypto arbitrage in 2024? Tutorial guide. Coindepo — Best tools for traders

If you can find successful spreads, interest rate arbitrage in crypto can be an incredibly lucrative and most importantly passive source of income. In this article, I will tell you what interest rate arbitrage is and give you a few bundles that you can replicate if you wish. So, without further ado, let’s get down to business!

What is crypto interest rate arbitrage and how does it work?

Cryptocurrency interest rate arbitrage is a low-risk strategy that involves making money from the interest rate differentials of the same coin on different platforms. Unlike classic arbitrage, which takes place between exchanges or traders, requires a fast reaction time to buy and sell assets and also involves certain risks, interest rate arbitrage only uses the interest rate difference on staking platforms. This type of arbitrage is suitable for passive income generation and does not require speed in buying or selling assets. The spreads found here can work for months without any changes. Unlike asset price arbitrage, interest rate arbitrage has no volatility and does not depend on market fluctuations. This is why interest rate arbitrage can be considered one of the most stable ways to make money with cryptocurrency.

The stability of interest rate arbitrage lies in the fact that its income is known in advance and the risks are minimized by protecting assets on the CoinDepo platform, which will be discussed below.

Inter-platform interest rate arbitrage: what do you need to know?

In this article I will give you a few spreads related to arbitrage between Bybit and CoinDepo. But first, I’ll give you the basics: the bigger the platform in front of you, the less favourable the conditions for staking it will be. Therefore, the ideal option will be to arbitrage between a popular and a less popular platform. The second should offer good rates for staking, so that the spread (the difference between the rates of two platforms on the same asset) is as large as possible.

And in order to arbitrage interest rates successfully, it is important to understand how the chosen platforms on which your assets will be placed operate. For example, the interest rates on Bybit and CoinDepo can be very different. For example, Bybit may offer floating rates on deposits that change over time and depend on a variety of factors, while CoinDepo offers fixed rates that allow you to better plan for future returns. The choice between floating and fixed rates depends on your strategy. With Bybit, you can sometimes get a good return due to the floating rate, but only for a short period of time.

For long-term investment and passive income, a fixed rate is more suitable, as you are less likely to monitor the market and current deposit rates.

If you start comparing interest rates on the same coins, you can see a significant gap between the rates. For example, if you deposit in USDT on Bybit, you can only earn 2.48% per annum.

While on CoinDepo the same deposit can reach up to 24% per annum! This gap opens up excellent arbitrage opportunities and all you need to do is move your assets to a higher yielding platform.

It is also important in this section to break down the factors that affect the profit from interest rate arbitrage. The main ones are

• The interest rates themselves offered by the platforms.
• Fees for transferring assets between platforms.
• Crypto loan repayments if you are using leverage in your strategy
• Maturities. As a rule of thumb, the longer the assets are held on a platform, the higher the interest rate.
• Risks. It’s important to bear in mind the risks of smart contracts being hacked, which can zero out all your staked assets. Choose platforms that offer insurance for your funds.

Method 1: Stablecoin interest arbitrage between Bybit and CoinDepo

And now let’s move on to the ways to make money. And the first way will be to use the interest rates on USDT stablecoin. First you need to buy USDT on Bybit exchange for fiat money. Then you need to compare the interest rates offered by Bybit and CoinDepo. As I wrote earlier, if you invest more than $500, you will only get 2.48% per year on Bybit. While on CoinDepo you can get 18% per annum with daily compound interest payments. So if you invest $10,000 in a year on Bybit, you will only get $248 profit, while on Coindepo you can get $1800. The difference would be a whopping $1552 per year, and that’s without taking into account the effect of compound interest on CoinDepo!

However, the interest rate on CoinDepo can be increased if you choose to pay interest once a year instead of daily. Then you can earn 24% per annum on the invested stablecoins, the profit for the year will be $2400 and the difference with Bybit will already be $2152.

There are also other options. There are a total of 6 types of compound interest accounts available on CoinDepo, with interest rates ranging from 18% to 24% Annual Percentage Rate (APR) + compound interest. The interest earned can be paid daily, weekly, monthly, quarterly, semi-annually or annually depending on the option you choose.

Method 2: BTC interest arbitrage between Bybit and CoinDepo

The second method of arbitrage is bitcoin staking. You can also choose another asset to invest in for the long term. However, I will give an example using bitcoin as the most commonly used asset for investment.

First, buy BTC on Bybit. This is a long term purchase that should build on the current price level with the prospect that bitcoin will continue to rise. After carrying out a technical analysis and determining the purchase price, you buy bitcoin.

Next, you need to compare the interest rates for staking bitcoin on Bybit and CoinDepo.

If you stake more than 0.01 BTC ($620), Bybit can offer only 0.35% APR for staking.

While the return on CoinDepo will be between 12% and 18% APR + compound interest, depending on the plan chosen.

So, if you invest 1 bitcoin on Bybit, you will only make $217 in one year, whereas on Coindepo, at a rate of 18% per year, your income will already be $11,160. The difference between the two platforms is $10,943!

Method 3: Arbitrage credits on Bybit and stake on CoinDepo

In the last example, let’s look at interest arbitrage through borrowing. Let’s say you are a long term investor in Solana coin, but you can only get 1% per annum on Bybit, except for high risk investments.

And there is no Solana to stake on CoinDepo. To stake on CoinDepo and not give up your long-term investment in Solana, you can borrow USDT against your SOL token. The loan can be taken out on Bybit. With 200 SOL ($29,000) the best solution is to take a loan with a 50% LTV (Loan-to-Value), which minimizes the risk of having to liquidate the collateral if the asset price falls. With this loan you will receive 14,500 USDT and have an interest rate of 7.32% per annum.

Then you send the received USDT to CoinDepo at 24% per annum. At the end of the year you will receive 3,480 USDT out of the 14,500 USDT invested. Of this, 1,061 USDT will be used to pay the interest on the loan and your net return for the year will be 2,419 USDT or 16.6% per annum, which I think is a decent result.

However, it will be important to keep an eye on the collateral level of your Bybit loan and if the price of SOLs falls, you will need to increase the collateral by adding more SOLs. It’s important to understand how cryptocurrency loans work beforehand so that you don’t get any nasty surprises during the process.

Summary: Why is interest rate arbitrage the best way to generate passive income?

In times of cryptocurrency market instability, frequent scams of large projects, hacks of smart contracts and other threats to your capital, interest rate arbitrage remains the safest and most profitable option for passive income. Unlike other forms of arbitrage, interest rate arbitrage does not require a quick reaction and has minimal risk.

If I haven’t touched on the coins you are interested in, you can do the calculations yourself. You can find a Bybit chart with all the rates here.

And you can find the earnings calculator on the CoinDepo website or by logging into your CoinDepo account. You will need to click on ‘Calculate your earnings’ to open the calculator. Remember that deposits at CoinDepo are insured and provided with additional liquidity of guarantors (CoinDepo Overcollateralization Mechanism), so I can safely stake a substantial portion of my stablecoins there.

Let me know in the comments what interesting interest rate arbitrage strategies you’ve found, and that’s it for me. Good luck with your investments!