Summary

From these examples we can see not much WETH can be extracted considering the amount of capital required. However, some people may be interested in making even the smallest amount of profit. If this is done effectively it adds up across multiple markets and tokens. Notably, the margin shrinks after gas costs are considered.

Major factors to an arbitrage opportunity are the following:

• The discrepancy in price between the two price sources

  • A larger gap between SP’ and SP will yield a larger profit

• The market depth of both sources

  • If the pools both hold large balances of tokens, they will be resistant to price impact.

  • Note that one pool may have a lower spot price, but large trades will make the effective or average price of the swap favor pools with larger depths. This would make a pool with a higher spot price, but more stable swap rate, a better option.

• The capital you have available

  • Larger amounts of capital will maximize your profits; however, the margins will be best on the first token traded and decrease as price impact is occurring.

  • This means with small amounts of capital you be can successful but need to prioritize large price discrepancies.

The goal of sharing this information is to equip our community of current and future users with the knowledge to leverage Balancer Protocol in their best interest. This ultimately will benefit Balancer as a whole, driving innovation, new ideas, and future efficiencies to build, based upon the building blocks of the underlying protocol. By understanding how trading formulas bridge the trading and liquidity providing members of Balancer is key to point us toward a sustainable future for both parties.