Intro to Automatic Arbitrage on Salty.IO

Summary

Daniel Kota discusses arbitrage opportunities in decentralized exchanges (DEXs) using pools of token pairs. When large orders cause price slippage in a DEX pool, external bots can profit from arbitrage. Kota proposes a solution where the DEX contract itself performs arbitrage when swaps occur, keeping profits inside the protocol to distribute to liquidity providers and stakers. He argues this is better than losing profits to external bots. Kota says his DEX project Salty uses this method with optimized code to minimize gas fees. He believes more DEXs will adopt internal arbitrage in the future.

Takeaways

• 😊 The purpose of liquidity pools in DEXs is to hold tokens and allow swapping between them
• 👨‍💻 When large swaps happen, it can cause price slippage in the pools
• 🤖 External arbitrage bots take advantage of the price differences by buying low and selling high
• 💡 The idea is for the DEX itself to do arbitrage when swaps happen to capture profits
• 🚀 Salty is optimized to do arbitrage alongside swaps cheaply (100k gas)
• 💰 Profits are kept inside the protocol and distributed to liquidity providers and stakers
• 🌟 Salty may be the first DEX designed to do arbitrage natively
• 🏆 The code has been thoroughly audited and vetted for quality
• 🎁 There is an airdrop for Salty holders at the end of February
• 💬 The founder Daniel is passionate about the project and welcomes questions

Q & A

What are decentralized exchange pools used for?

Decentralized exchange pools are used to hold two different cryptocurrency tokens, allowing users to swap one token for another through the pool.

What is slippage in the context of decentralized exchanges?

Slippage refers to the change in token price within a decentralized exchange pool when a large order is placed. As more of one token is bought or sold, the price moves.

How does slippage make decentralized exchanges vulnerable?

When prices change in DEX pools due to slippage, it creates arbitrage opportunities that bots can take advantage of by buying from one pool and selling to another.

How does the Salty DEX attempt to mitigate arbitrage bots?

The Salty DEX has optimized smart contract code that allows it to attempt arbitrage on each swap transaction before an external bot can take advantage. This keeps more profits inside the Salty protocol.

Why is the Salty DEX the first to implement this arbitrage mitigation?

Performing optimized arbitrage alongside swaps is technically complex. Salty has thoroughly vetted code and claims to be the first DEX protocol to successfully implement this.

How much gas does a swap transaction cost on Salty with arbitrage?

Incredibly, swap transactions with arbitrage searches cost about 100k gas on Salty, less than just a regular swap on most DEX platforms.

Who benefits from the Salty arbitrage approach?

By keeping arbitrage profits within the protocol, the profits can be distributed to liquidity providers and stakers rather than siphoned off by external bots.

When is the Salty airdrop happening?

There is an Salty token airdrop scheduled for the end of February 2024 for followers of the project.

Where can I ask questions about Salty?

You can ask questions about the Salty DEX project on Reddit in the r/ethtrader and r/cryptocurrency subreddits. The team is hosting AMAs there.

What audits has the Salty protocol gone through?

Salty has gone through audits by Trail of Bits, ABDK, and has an audit in process by Code4rena.