Arbitrage on Ethereum, leveraging dYdX Flash Loans and KyberSwap's Aggregator API

Arbitrage strategy

• use KyberSwap Router to find the best route to take when swapping assets
  • find best route and swap token A for token B
  • find best route and swap token B for token A
  • if the token A final balance is greater than the token A initial balance, then the arbitrage is profitable
• for a big leverage, make use of flash loans, to move large amounts of assets from one exchange to another
• all operations on the blockchain are performed inside a single transaction
• in the event that arbitrage is not profitable, the only losses incurred are gas fees.

Trading pair: WETH <-> USDC

Liquidity aggregator: KyberSwap

Flash loan provider: DyDx

Development

Batch | Monitor blockchain for arbitrage opportunities

• Node.js program that listens to new blocks by using a websocket connection

  • use web3.eth.subscribe

• initialize a web3.js instance over websocket connection

• hide the sensible data in a .env file

• when a new block is mined, the job uses KyberSwap Aggregator API to evaluate the arbitrage opportunity

  • use KyberSwap Aggregator API to get the best route to swap X WETH for Y USDC
  • use KyberSwap Aggregator API to get the best route to swap Y USDC for Z WETH
  • if Z - X - gasFees > 0, then the arbitrage is profitable

• if the arbitrage is profitable, the job sends a transaction to the Arbitrage Smart Contract

• The program can also be used to withdraw profits accumulated by the Arbitrage Smart Contract

Solidity Smart Contract | Take action on arbitrage opportunities

• use DyDx to create a flash loan for X WETH
• call AggregationRouter with encoded swap data to swap X WETH for Y USDC
• call AggregationRouter with encoded swap data to swap Y USDC for Z WETH
• if Z > X, then the arbitrage is profitable and the transaction should succeed, else the transaction will revert