Cross-chain Arbitrage for tokens bridged via Wormhole
A case study and tutorial on bridging memecoins and making money out of it
First of all what is Wormhole? The formal definitions is “a cross-chain interoperability protocol connecting high value blockchains”, in layman terms it is a bridge for transferring tokens from one blockchain to another.
What is arbitrage? It is simply the practice of buying one asset on a venue and sell it on another venue at higher price realizing a small risk-less profit.
In this research article you will learn how to purchase a memecoin on a DeFi exchange on Solana, bridge the token to BSC and sell it on Pancake swap. I will also try to explain what are the main risks associated.
Step 1: head to Dexlab on the BULL/USDC pair (https://trade.dexlab.space/#/market/7oFXusrpvDzbY6gMM81RjS6YEALETXTwWdUKXXBVojgu) and purchase some tokens. I lift the offer at 0.00006 USDC for a whopping size of 10.9352 USDC
Funds will remain on the DEX until you settle the balance, so click on “Settle” and you will see the token on your wallet (Phantom/Sollet/etc).
Step 2: Head to Wormhole https://wormholebridge.com/#/transfer , connect you wallet and pick the assets bought above as the image below.
Select the “target” blockchain as Binance Smart Chain and connect your wallet, I am using Metamask here.
It is important to understand this step as it can creates headaches.When bridging asset X from chain A to chain B you should consider whether the asset X already exists on the target chain or not. The output of Wormhole is Wrapped(asset X) which requires one more swap to X native to chain B.
Step 3: now the bridge transaction is completed and I have Wrapped(tokens) on my Metamask. I need to exchange them to native BSC tokens before I am able to sell them on Pancake Swap.
BSC contract of Wormhole Wrapped BULL is 0x63b56683fcc24b7bd43005f9759bf3884eb14630
BSC contract on BSC Native BULL is 0x28169a3fa005913270bcbf5c184dbd10976e2be5
So head to https://pancakeswap.finance/swap?inputCurrency=0x63b56683fcc24b7bd43005f9759bf3884eb14630&outputCurrency=0x28169a3fa005913270bcbf5c184dbd10976e2be5 and exchange the Wormhole BULL for Native BSC BULL
We now have Native BSC BULL tokens and we are ready to swap them for BUSD so head to https://pancakeswap.finance/swap?inputCurrency=0x28169a3fa005913270bcbf5c184dbd10976e2be5&outputCurrency=0xe9e7cea3dedca5984780bafc599bd69add087d56 and exchange Native BSC BULL for BUSD.
Step 4: Profit?? We earned 14.67 BUSD, that is 46% and we are now ready to send our application to the most prestigious trading companies. Jokes aside, did I really earn 4.67$? Does the strategy scale with more capital?
4.67$ is the gross profit and we need to subtract all the various fees incurred in the transaction, they are in order:
1) One-time fee for creating a SPL token account (0.002 SOL)
2) trading fee on DexLab (which is basically Serum trading fee) (ca0.2%)
3) Transaction fees when sending and receiving via Wormhole (tx both on Solana and BSC) (0.00005 SOL + 0.0002BNB)
4) Transaction fees when trading on Pancake Swap plus (2*0.0002BNB)
5) Pancake swap liquidity fee 2x (once for wrappedBULL/BULL and BULL/BUSD) (ca0.25%)
It naturally follows that — taking into account all the fees — the final profit is nowhere close to the 4.67$ above. I leave to the reader the task of determining the net profit, if any.
Can it be done with more capital? It depends on the various Orderbooks and AMM out there. In a multi-chain future one can expect that many arbitrage opportunities will arise, with initially high margins that will compress later once more players try to capture them, making the market more robust and efficient and enabling seamless transfers of capital around. Right now we are still building and volume are growing.
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