Did you know there’s a guaranteed AMPL arbitrage opportunity every 24 hours on Uniswap?
Here’s how it works.
Uniswap is a protocol for automated token exchange. It’s similar to a DEX, but it doesn’t use any order book.
Instead of trades being transactions between makers and takers, a single user simply exchanges tokens in Uniswap’s token reserve pools. Every ERC20 token market on Uniswap contains a pool of that token and also a pool of ETH, the default trading pair.
The quoted exchange rate is just a formula based on the relative sizes of these two pools.
As demand for a token increases and people buy out of that pool, it gets increasingly expensive to exchange out from it and increasingly cheap to exchange into it. So the exchange rate naturally adjusts based on relative demand of the two tokens, represented by the size of the two pools.
Ampleforth is a self-billed “Smart Commodity Money” initially deployed on Ethereum as an ERC20 token. Founded with a mission to create fair, politically independent money, the creators noticed that commodity-monies like gold and silver are naturally fair and independent.
But unfortunately, these commodity-monies can’t efficiently respond to changes in demand, making them a poor substitute for central-bank-money.
Ampleforth’s token AMPL is somewhat like Bitcoin, gold, or silver but with a unique elastic supply that constantly seeks price-supply equilibrium. When AMPL price changes, the system seeks a new equilibrium point by universally expanding to, or contracting from all holders.
The rebase operation that adjusts supply happens once every 24hrs.
Uniswap + AMPL
When the Ampleforth supply policy executes its rebase, all holders’ AMPL balances potentially increase or decrease together in a single transaction. This also includes contracts which hold AMPL balances.
So what happens on Uniswap? The AMPL reserve automatically adjusts, changing the relative size of the AMPL and ETH pools, causing a new exchange rate to be immediately available upon rebase.
So, every 24 hours there’s a potential arbitrage opportunity between Uniswap and Bitfinex/Ethfinex — the two currently supported centralized exchanges.
How would you make use of it?
Buy low at one place, sell high at the other, every 24hrs at 8PM UTC.
Of course, deposits and withdrawals take time on centralized exchanges. So if you have existing balances on-chain and on-exchange, you can do these two buy and sell ops at the same time. You’d just need to periodically rebalance your holdings, but you can do this at your leisure.
How else could you benefit?
If you’re not confident enough to try this arbitrage yourself, you can at least profit from the trade volume that naturally comes out of it.
Uniswap allows anyone to supply liquidity into the exchange pools. Active traders pay a small fee of 0.3% and this is added directly back into the pools so the combined reserve balance increases with every trade.
When you decide to pull your funds out, you get your initial tokens plus the aggregated fees.
On top of this, since the AMPL reserve scales up and down with rebases, you never lose your exposure to rebase adjustments. Pretty cool!
Neither Uniswap nor Ampleforth have any secondary token or extractive platform fees. ❤
Λ + 🦄 = 🌈
Where to go
https://www.ampleforth.org/live/ has links to both the Uniswap exchange and the Bitfinex/Ethfinex exchanges.
You can also see market activity at uniswap.info