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> If more people went on to become liquidity providers, the profitability of the liquidity pool would go down unless there was corresponding increase in the swa

> If more people went on to become liquidity providers, the profitability of the liquidity pool would go down unless there was corresponding increase in the swap activity. There is no arbitrage there. That's the definition of arbitrage.

rglullis 4y ago
Ok, let me rephrase... there is no "sustained" arbitrage opportunity there. My point is that anyone that went on to offer 5% on the hopes of making more than that for any prolonged time would be making the exact same mistakes as BlockFi/Celsius/all others did.
- arcticbull 4y ago
  There's no such thing as a sustained arbitrage opportunity. The whole point of arbitrage opportunities is that they are self-limiting. For example, let's say there's a delta in terms of Bitcoin pricing in Korea vs the US - due to banking requirements. Let's call this the "Kimchi premium." Arbitrageurs find a way to buy at the US price, sell at the Korean price, and keep the difference. Their buying in a low-cost market and selling into a high-cost market ("capturing the premium") brings down the price discrepancy. You can only keep doing this as long as the structural inefficiency exists and also the number of participants remains low. The more participants, the more volume, the lower the premium. This btw is how SBF made all his money.
  - rglullis 4y ago
    I understand what arbitrage is. I was arbitraging Bitcoin between Brazilian and American exchanges in 2012 already. My point in saying that there is no "arbitrage" is that you won't make any money if you offer 5% to people and expect to make more than that. Could you perhaps do with a little less pedantry and understand the overall message, or are you going to continue with needless pontification? It's late where I am and I would like to go to sleep.
    - addicted 4y ago
      You’re using words that you don’t understand the meaning of. Anyways, the person you’re responding to isn’t being pedantic. They’re describing a complete mechanism for how a bank could arbitrage the money. If they could get 11% returns from AMMs with the same risk profile as a savings account, then they could essentially make free money by setting up savings accounts for other people, where they could offer them 5% returns, and then reinvest that money their clients deposited into the AMMs and receive 11% back. Of which they would only need to pass on 5% to the clients who deposited the money into the savings account, keeping 6% of the returns without having to commit a single dollar of their own. So why hasn’t any bank done this yet?
      - rglullis 4y ago
        And you are trying to argue claims that I never made, such as: > get 11% returns from AMMs with the same risk profile as a savings account Where did I say that risk of being an LP is the same as putting the money on a savings account? I didn't. You are making all this exposition and trying to lecture me based on an assumption that I never made and that I know to be false. IOW, this is at best a strawman and at worst it's disingenuous. In either case it's fucking annoying. Read again. All I said was that even today being an LP in a stabletoken is beating a savings account. - Did I say it was without risks? No. - Would I say that this is relatively low risk, compared with other "investments" in crypto? Yes. - Compared with money in a bank? No. - Do I think it is worth it? As part of your strategies, yes. - Would I tell people to take money from their savings and do this? No, of course not. - Why not? Because not only it has risks, but also because if more people did it the (and if the transaction volume at the exchanges stayed the same) the ROI would go down. - 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. - 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. What else do you need to be spelled out so that you can stop with the stupid strawmen?
- addicted 4y ago
  All arbitrage leads to the elimination of the arbitrage. That’s the whole point of arbitrage. It’s never sustained, because if it was, it would be the financial equivalent of a perpetual motion machine, simply generating value out of nothing.

rglullis 4y ago

Ok, let me rephrase... there is no "sustained" arbitrage opportunity there. My point is that anyone that went on to offer 5% on the hopes of making more than that for any prolonged time would be making the exact same mistakes as BlockFi/Celsius/all others did.

arcticbull 4y ago
There's no such thing as a sustained arbitrage opportunity. The whole point of arbitrage opportunities is that they are self-limiting. For example, let's say there's a delta in terms of Bitcoin pricing in Korea vs the US - due to banking requirements. Let's call this the "Kimchi premium." Arbitrageurs find a way to buy at the US price, sell at the Korean price, and keep the difference. Their buying in a low-cost market and selling into a high-cost market ("capturing the premium") brings down the price discrepancy. You can only keep doing this as long as the structural inefficiency exists and also the number of participants remains low. The more participants, the more volume, the lower the premium. This btw is how SBF made all his money.
- rglullis 4y ago
  I understand what arbitrage is. I was arbitraging Bitcoin between Brazilian and American exchanges in 2012 already. My point in saying that there is no "arbitrage" is that you won't make any money if you offer 5% to people and expect to make more than that. Could you perhaps do with a little less pedantry and understand the overall message, or are you going to continue with needless pontification? It's late where I am and I would like to go to sleep.
  - addicted 4y ago
    You’re using words that you don’t understand the meaning of. Anyways, the person you’re responding to isn’t being pedantic. They’re describing a complete mechanism for how a bank could arbitrage the money. If they could get 11% returns from AMMs with the same risk profile as a savings account, then they could essentially make free money by setting up savings accounts for other people, where they could offer them 5% returns, and then reinvest that money their clients deposited into the AMMs and receive 11% back. Of which they would only need to pass on 5% to the clients who deposited the money into the savings account, keeping 6% of the returns without having to commit a single dollar of their own. So why hasn’t any bank done this yet?
    - rglullis 4y ago
      And you are trying to argue claims that I never made, such as: > get 11% returns from AMMs with the same risk profile as a savings account Where did I say that risk of being an LP is the same as putting the money on a savings account? I didn't. You are making all this exposition and trying to lecture me based on an assumption that I never made and that I know to be false. IOW, this is at best a strawman and at worst it's disingenuous. In either case it's fucking annoying. Read again. All I said was that even today being an LP in a stabletoken is beating a savings account. - Did I say it was without risks? No. - Would I say that this is relatively low risk, compared with other "investments" in crypto? Yes. - Compared with money in a bank? No. - Do I think it is worth it? As part of your strategies, yes. - Would I tell people to take money from their savings and do this? No, of course not. - Why not? Because not only it has risks, but also because if more people did it the (and if the transaction volume at the exchanges stayed the same) the ROI would go down. - 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. - 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. What else do you need to be spelled out so that you can stop with the stupid strawmen?
addicted 4y ago
All arbitrage leads to the elimination of the arbitrage. That’s the whole point of arbitrage. It’s never sustained, because if it was, it would be the financial equivalent of a perpetual motion machine, simply generating value out of nothing.