This article will explore how crypto yield arbitrage works and discuss the risks and opportunities it presents.
Cryptocurrency arbitrage involves buying a cryptocurrency at a low price in one market and selling it at a high price in another market. This is a low-risk-returning strategy that is favored by many cryptocurrency investors.
Today, the emergence of cryptocurrency lending has given birth to a new cryptocurrency arbitrage model – cryptocurrency yield arbitrage. This strategy involves borrowing cryptocurrencies at low interest rates on one platform and lending them out at high interest rates on another platform.
This article will explore how cryptocurrency yield arbitrage works, and the risks and opportunities it brings.
What is Crypto Yield Arbitrage?
Cryptocurrency yield arbitrage works in the same way as traditional arbitrage strategies, whereby cryptocurrencies are borrowed at a lower interest rate on one platform and then lent at a higher interest rate on another platform. Since the interest rate gap between DeFi and CeFi platforms is currently large, this strategy can bring considerable benefits.
Cross-Platform Arbitrage (DeFi)
To take advantage of cryptocurrency yield arbitrage opportunities, one can often compare lending rates on DeFi and CeFi platforms. Aave and Compound are two popular DeFi lending platforms that allow users to borrow and lend crypto assets with large market caps such as BTC, ETH or USDT.
To carry out cross-platform yield arbitrage, you can first borrow cryptocurrency assets at a lower interest rate on the Bybit platform, and then lend them at a higher interest rate on the DeFi protocol platform. At the end of the loan term, you earn the net difference between the two interest rates with minimal investment risk.
In addition, you can also earn money by taking advantage of the difference between the borrowing rate and the staking yield. By staking tokens, token holders can earn income as a reward for contributing to the token network. The purpose of staking is to ensure the smooth functioning of the blockchain network and to verify transactions.
Given the importance of staking to blockchain networks, this strategy can yield considerable benefits. In some cases, the annualized rate of return on the pledge can exceed 20%, comparable to putting cash in a high-yield savings account.
The Bybit wealth management platform provides a variety of cryptocurrency investment products, including Bybit savings, structured products, and liquidity mining. Risk-averse investors can borrow assets through Bybit pledged and borrowed currency, and then purchase Bybit wealth management products.
Let’s take Bybit Savings as an example. Assuming that the current annualized rate of return of the USDT savings plan is 12%, you have borrowed 10,000 USDT through Bybit pledged currency, the daily interest rate is 0.016% (the annual interest rate is 0.016%*365 = 5.84%), and the borrowing period is 180 days. Then, at the end of the borrowing period, you will have a return of 303 USDT ( (10,000*12% – 10,000*5.84%) * 180/365 = 303 USDT). Under this strategy, the more you invest, the higher the returns. Most importantly, this strategy does not require forecasting market movements and is relatively low-risk.
Although cryptocurrency yield arbitrage is less risky than traditional trading, be sure to manage your investment risk properly and never invest more than you can afford to lose!
The crypto lending process is very simple, the key is to find a platform that is trustworthy and suitable for you.
Advantages of choosing Bybit to pledge and borrow currency for yield arbitrage
Why choose Bybit to pledge loan?
- Flexible and convenient:
- Borrow as you go, with flexible terms ranging from 7 days to 180 days.
- Repay anytime before the due date without penalty. After the repayment is completed, the system will charge interest based on the actual borrowing hours.
- High pledge rate:
- Compared with other platforms, Bybit pledged loan provides an ultra-high pledge rate, and can borrow funds equivalent to the cryptocurrency pledged assets at most.
- Ultra-low interest rates:
- Compared to other platforms, Bybit collateralized lending offers ultra-low interest rates, allowing you to borrow funds at hourly rates as low as 0.0002%. The system calculates interest on an hourly basis.
Why Crypto Yield Arbitrage?
Save time and effort: Unlike traditional arbitrage strategies, cryptocurrency yield arbitrage is a “set and forget” investment strategy that allows you to keep track of market trends and look for good trading opportunities. After investing, you don’t have to do anything, just sit back and enjoy the net gain from your position.
Earn tokens: Lend crypto assets on the DeFi platform to earn governance tokens that the platform rewards users. You can use governance tokens to vote, participate in determining the future development of the project, or sell them for income.
Risks of Crypto Yield Arbitrage
DeFi Protocol Security Risks: Vulnerable smart contracts have been targeted by hackers, resulting in the theft of millions of dollars from several DeFi platforms this year.
Fraud risk: With the rapid development of the DeFi industry, related frauds and scams are also emerging. Before making an investment, consider the reputation of the project and avoid falling into the trap of unusually tempting deals.
Price fluctuations of collateral assets: If the price of collateral assets falls, causing the pledge rate to exceed a given threshold, you need to top up the collateral assets, otherwise you will face the risk of liquidation.
Cryptocurrency yield arbitrage presents an opportunity for low-risk returns. The key to earning decent yields with a yield arbitrage strategy is to find a trustworthy lender with low interest rates so that you can earn high yields from your arbitrage positions.
Bybit’s pledged loan not only provides you with ultra-low interest rates, but also offers a limited-time interest-free benefit (up to 100 USDT) for the first loan.
The surprises don’t stop there, Bybit is also giving away mysterious NFT rewards during the limited-time event. Borrow coins during the event, the amount is not less than 100 USDT, you can participate in the 50,000 USDT prize pool! In addition, 100 lucky koi will be born in the event, and each will receive a mysterious NFT.