> Early last year I was getting 2% per month on USDC/DAI and about 1% per month on USDC/EURS. Even today one can get a lot more than you'd get on a savings account.
I don't understand why you compared USDC's return to a savings account's if you didn't mean that USDC is a better investment than a savings account.
> - Compared with money in a bank? No.
Yes you did, above.
> - Did I say it was without risks? No.
> - Would I tell people to take money from their savings and do this? No, of course not.
Then it makes no sense to compare USDC to a savings account. The risks are much higher.
> - Could some whale come, put a bunch of liquidity in a pool and keep it only while the profitability is higher than the savings account? Shouldn't that count as a "arbitrage opportunity"? No, because there are costs to on-and-off ramp, there are risks associated with crypto and if you want to do that kind of arb, you'd be better off my looking into crypto money markets - which also have its own risk/reward profile.
But all arbitrage is risky, that's not against the definition and neither are on/off-ramp fees. Even if you're "better off" doing something else by your criteria, the opportunity is still there.
Edit: not to be too pedantic but:
> - Is that the same as "arbitrage"? Not exactly. Liquidity providers make money even if all they are doing is to buy and sell tokens that keep a peg to the USD. The issue here is that flooding the pool with more cash is diluting the profitability.
You're getting dollars somewhere and selling them where you will get more money for it. The opportunity goes lower as more people use it. Still sounds like an arbitrage to me, or something that's functionally the same.
> I don't understand why you compared USDC's return a savings account
First, not just "USDC". I was describing the process of being a liquidity provider, which involves a token pair.
Second, the fact that I compared with a savings account does not mean that I am saying that the risks are the same. I used savings account because I wanted to illustrate that this is something that can be done holding only "stabletokens", i.e, without speculating on the value of the token itself. I could've used money markets or fx funds, the idea would be the same.
> Not to be pedantic (...) The opportunity goes lower as more people use it. Still sounds like arbitrage to me.
Imagine you have an ice cream stand and you start making good money because you find a nice spot by the beach. Some days you are selling close to 100% of your stock, some days you even need to go get more at the supplier. Some of your competitors find out and move their trucks next to you. Nobody changed their prices, and the ice cream being sold by all of you are all of equivalent quality. Now, the street as a whole is still a "good" spot, the customers are still spending the same amount of money as before, but you are not making as much money because now you are splitting the customer base with the other guys.
Is that "arbitrage"? I certainly wouldn't call it that. There was at first some information asymmetry, but calling every asymmetry an "arbitrage opportunity" seems like a stretch to me.
The arbitrage is the ability to buy ice cream where it's cheap (the store) and sell it where it's expensive (the beach). The margin compress as more folks arrive to sell because your fixed costs (labor, the van, cogs) remain fixed while your sales volume drops.
Definition is: "the simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset."
So in this case you're buying a commodity (ice cream) at the store and selling it at the beach. You are taking advantage of differing prices for the same asset in different markets.
If buying at X and selling at X + ε is "arbitrage", every retailer is merely "arb-ing".
Even looking at the definition you gave I don't think it pass the smell test, the scenario does not require the buying and selling to be simultaneous... not in the ice cream analogy, and much less in the real uniswap mechanism.
> Early last year I was getting 2% per month on USDC/DAI and about 1% per month on USDC/EURS. Even today one can get a lot more than you'd get on a savings account.
I don't understand why you compared USDC's return to a savings account's if you didn't mean that USDC is a better investment than a savings account.
> - Compared with money in a bank? No.
Yes you did, above.
> - Did I say it was without risks? No.
> - Would I tell people to take money from their savings and do this? No, of course not.
Then it makes no sense to compare USDC to a savings account. The risks are much higher.
> - Could some whale come, put a bunch of liquidity in a pool and keep it only while the profitability is higher than the savings account? Shouldn't that count as a "arbitrage opportunity"? No, because there are costs to on-and-off ramp, there are risks associated with crypto and if you want to do that kind of arb, you'd be better off my looking into crypto money markets - which also have its own risk/reward profile.
But all arbitrage is risky, that's not against the definition and neither are on/off-ramp fees. Even if you're "better off" doing something else by your criteria, the opportunity is still there.
Edit: not to be too pedantic but:
> - Is that the same as "arbitrage"? Not exactly. Liquidity providers make money even if all they are doing is to buy and sell tokens that keep a peg to the USD. The issue here is that flooding the pool with more cash is diluting the profitability.
You're getting dollars somewhere and selling them where you will get more money for it. The opportunity goes lower as more people use it. Still sounds like an arbitrage to me, or something that's functionally the same.