5 min read · Sep 3, 2023
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The answer is yes and no. If you can build your own, or pay an experienced developer, then you can make money with flash loan arbitrage bots.
WTF is a Flash Loan Arbitrage Bot?
A flash loan arbitrage bot is simply code that is written to perform specific actions automatically on the blockchain for you. Here is a basic rundown of what a flash loan arbitrage bot is and does:
The bot will scan centralized exchanges only, decentralized exchanges only, or both. It will look for a crypto or pair of crypto on multiple exchanges. Let’s say it finds BTC/USD for example.
On Kucoin it $25,876. It also finds that on Binance, it’s $25,312. That’s a difference in price on the same assets on different exchanges of $564 per coin. So, you will tell the bot how much of a flash loan you would like to take out for a position. A flash loan is a loan anyone can take instantly on the blockchain for almost any amount to perform a variety of transaction, such as an arbitrage like this.
Let’s say you bot is built to take flash loans with Aave. You tell the bot you want to take a flash loan of $1,000,000. the bot interacts with the Aave flash loan protocol, it borrows the $1,000,000 for you, it buys $1,000,000 worth of BTC on Binance, and then immediately sells it on Kucoin. So based on the prices above of BTC, if we buy $1,000,000 worth of BTC at $25,312 on Binance, that means you would get 39.50 BTC. If the price difference between the two exchanges is $564, you multiple $564X39.50 coins, and that will give you a gross profit of $22,278. Now, once the buy and sell orders are complete, your gross profit as I said would be $22,278. The bot will deduct the fees that Aave charges you for a flash loan, and then send the remaining profit immediately to your wallet. So let’s just say the fees are $500. That means you made $21,778, and this entire process is automated, and all happens within 1–2 minutes MAX.
Am I responsible to repay the loan to Aave?
Yes you are, but the bot does all that automatically within the smart contract.
What if the price of the assets changes and it’s no longer a profitable arbitrage?
If the prices change too quickly before the bot can complete the arbitrage, and it will no longer be profitable, then the bot will unwind the entire transaction, and the funds borrowed will be repaid for the flash loan to Aave. There is no risk using a flash loan. Either you will have a successful arbitrage happen, or the money goes right back to wherever you borrowed it from, Aave in my example.
Are Flash Loans and Flash Loan Arbitrage Bots Legal and Legit?
Yes, 100% legal and Legit.
Do Flash Loan Arbitrage Bots Make Money?
As discussed above, yes they do. Sometimes an arbitrage will not go through because the prices changed too quickly. But in general, they are very profitable.
Where or How Do I Get A Flash Loan Arbitrage Bot?
You have a few options:
- Build it yourself if you know what you’re doing and are very good at coding, bots, etc.
- You can learn how to build one yourself by getting some kind of coding training, or maybe even specific training on building a flash loan arbitrage bot from scratch.
- Pay a Dev(developer) to build you one. This is the best solution unless you’re a coding pro and can build it yourself.
How Do I Find a Legitimate Freelancer to Build It For Me?
Your best bet is to go to a legitimate professional site for freelancers and look for one there. Do NOT go to Fiverr and expect to find some cheap coder in Pakistan to build you a bot for $100. If the developer isn’t charging at the bare minimum $2,000 or more, that’s a big red flag, and avoid them at all costs. Fiverr is full of scammers so stay away from there for this type of work.
Upwork is probably your best bet. There are a couple things to keep in mind when looking for a freelancer to build you a flash loan arbitrage bot:
- Make sure they give set amount of time it will take them, make sure they give you a set price(either flat rate or hourly) for the entire job. If they come back to you and say you need to pay for some additional tools or software. The price is the price. That should be all you need to pay for. The only other thing besides the price of building the bot you would need to pay for, will be the gas to deploy the smart contract(s) that run the bot. You will need a decent amount of gas to initially deploy the smart contract(s), then you will need a small amount of gas for each arbitrage you attempt. If the arbitrage fails, you lose the gas money, but that is a minimal cost to worry about. Once you pay the gas for an arbitrage, that money is gone whether the arbitrage goes through or not.
- Make sure that when you are explaining what you want the developer to build you, that you let them know you want them to build it so that it can’t be “front run.” Being front run is when your arbitrage transaction is submitted to the blockchain, and while it waits for the next block with your transaction in it to be mined by miners, a miner sees your arbitrage play and makes the same transaction using a higher amount of gas than you, and they complete a successful arbitrage and yours doesn’t go through. Basically they steal your arbitrage from you. If the developer builds it so it can’t be front run, then your arbitrage opportunities won’t get stolen before they can make you a profit.
TIPS:
- You can always use a platform like Furucombo or Flashloans.com to attempt to perform flash loan arbitrages without having a bot built.
- Furucombo SUCKS!!! I have not once ever been able to find a profitable arbitrage opportunity using Furucombo.
- I can’t speak for Flashloans.com. I tried to use them a while back, but their platform and services weren’t well developed yet. It looks like they are making a lot of progress, and maybe you can perform some successful arbitrages on their platform now. To the best of my knowledge, they are legitimate.
- If you ever see anything on YouTube where the video says make 10BNB in 5 minutes, or anything REMOTELY like that, it is 100% a SCAM. Stay away from these scammers. You will deposit crypto into a smart contract expecting a huge return within minutes, and the code is created in a way so that once you deposit say .25 BNB into the smart contract the scammer tells you to deposit it into, it’s gone forever, and goes right into the scammer’s wallet. Anything like this whether it’s for BNB, AVAX, ETH, etc. it is ALL a scam, so stay away from those.
