Trading Bot Uses $200M Flash Loan To Conduct Deals, Ends Up With Paltry $3 Profit

An automated trading bot recently performed a complex series of transactions on the Ethereum ETH/USD blockchain.

According to The Block, the transactions involved a flash loan of $200 million and yielded a minuscule net profit of $3.24.

Flash loans are essentially loans without collateral, but under the condition that the borrowed sum is repaid within the same transaction block.

If this doesn't occur, the transaction is voided and the blockchain remains unaffected.

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The trading bot in question made use of a flash loan by borrowing $200 million in DAI DAI/USD, a stablecoin pegged to the US Dollar, from MakerDAO by utilizing the ‘DssFlash’ contract.

This contract allows for borrowing any amount of DAI without incurring any fees, subject to a maximum limit of $500 million.

"Zero-fee borrowing on any amount of DAI,” with a debt ceiling of up to $500 million is enabled through this contract, Arkham Intelligence stated.

Zachary Lerangis, who leads operations at Arkham, explained that these bots are programmed to execute any transaction as long as it's profitable, irrespective of how marginal the gains may be.

Arbitrage is a trading strategy where profits are made by exploiting price discrepancies of the same asset across different markets.

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In this instance, the bot used the massive flash loan to deposit funds on Aave AAVE/USD, a decentralized finance lending platform.

It then borrowed a relatively smaller amount of $2,300 in Wrapped Ether WETH/USD against these deposits. WETH, an ERC-20 token equal in value to Ethereum and usable in smart contracts, was used to acquire Threshold Network (T) tokens on the Curve exchange.

The bot completed the arbitrage cycle by selling the Threshold Network tokens on another exchange, Balancer, for a gross profit of 0.019 ETH, roughly equivalent to $33.

However, after accounting for transaction fees and a $1 payment to an Ethereum block builder, the net profit dwindled to only $3.24.

The bot had access to an enormous $200 million through the flash loan, but it is speculated that it may have been constrained by factors such as limited liquidity or the actual extent of price differences, leading to borrowing just $2,300 in WETH from Aave.

This is possibly why the final profit was inconsequential compared to the size of the flash loan.

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