Crypto MEV Arbitrage: Find your niche 🤖
Competing with the big players isn’t ideal, perhaps finding your own niche is your ticket to a profitable bot 📈. This article outlines areas in which you can find yours.
The fact is that many try to arbitrage on popular chains such as Ethereum and Polygon. This effect is amplified by the many articles online that advertise tutorials to create bots for these particular chains. What you’re really doing, by arbitraging on these chains, is going up against the big players. These people (or teams) have been in the MEV game a long time and had the chance to polish their bots for that particular chain. Meanwhile, you and many others are left to fight for scraps.
To counter this dynamic, you can compete with far fewer bots in a more niche market. The luck we have as MEV searchers these days is that we have a lot of options to choose from, which brings me to my first point:
Pick your chain wisely 🔗
EVM compatible chains are everywhere these days. By picking a chain with less competition, but still enough market volume, you have a significantly higher chance at landing profitable trades. Coingecko Terminal advertises more than 150 chains today, which gives you a lot of options to pick from.
Changing my target chain has made the most impact for me personally. This has made the difference between no profit and profit for me. I am getting successful trades (output-gas fees > input) consistently these days.
You might also want to check the gas fees on your candidates. Depending on your strategy, this will be a big factor in your decision-making. If you trade with low amounts on a high frequency, you might lean to low gas fees. Whereas, if you trade large amounts periodically, you might not mind the higher gas fees.
One thing to note is that you do not need to restrict yourself to a single chain either, you can have multiple bots running at the same time. It’s good to experiment and see which chains work best for you.
Broaden your horizon 🌅
Perhaps the best way to make profit, is to take on some more risk. Single-chain arbitrage is known for its atomic transactions: If your trade fails, the transaction reverts, and you receive your trading input back. The only real risk in single-chain arbitrage is gas fees.
But what if you tried multichain arbitrage? Yes, you lose the ability to make atomic transactions, and you might end up with trades that make a small loss here and there. However, the big advantage on multichain arbitrage is that you are in a field with way less competition and fragmented liquidity. You will be able to take advantage of more opportunities because of this.
At the end of the day, a failed transaction for every 5 successful transactions, is a very good deal.!
Hybrid arbitrage is another such strategy that is worth considering. Hybrid arbitrage, is the act of arbitraging between DEXES and CEXES. The price differences, and thus arbitrage opportunities, are larger than they are on a single chain. The price on a DEX often lags behind the price on a CEX, and vice versa. The added benefit is that you can pick the best candidate CEX for your trade, as they often have price differences between themselves:
Imagine that you have a DEX that offers OP at a low price. You would buy OP on the DEX and sell it on Kucoin at the same time. As long as you keep trading funds on both places, you can make simultaneous trades. This will remove a lot of latency between your trades (no need to transfer funds from and to the CEX or DEX).
Combine the strategies ✅
At the end of the day, arbitrage also depends a lot on market conditions. Your best bet might be to combine the strategies. Single-chain arbitrage might make me more profit today, but cross-chain might make me more tomorrow. Arbitrage depends on a lot of unpredictable factors that are out of your control. By covering multiple areas, you increase your chances at landing profitable trades 📈!
Thank you for reading this far! I hope you enjoyed the post and gained some new strategies to consider. For those interested, I am working on an open-source crypto bot that will release soon. Head over to mycryptogem.com for more information and read the origin story here: https://medium.com/@tim.truyens56/my-crypto-gem-your-companion-that-automatically-buys-new-crypto-gems-235da075e196.
