An Ethereum whale has been reportedly making significant profits through an arbitrage strategy involving Ethereum (ETH) and Lido's staked Ethereum (stETH). A detailed look into the strategy reveals how it operates and the potential gains it generates.

Arbitrage with ETH and stETH primarily involves a system where one ETH can be swapped for 1.0038 stETH on DEX. Additionally, on the staking platform Lido, 1 stETH can be redeemed for one ETH at a 1:1 ratio. This makes a profit of 0.0038 ETH (equivalent to $0.6) per 1 ETH subject to this arbitrage strategy.

However, the costs associated with gas fees imply that this strategy may not be suitable for investors with smaller funds. The strategy seems to reap significant benefits exclusively for large-scale investors colloquially referred to as "whales."

In an example involving the aforementioned whale, a transaction snapshot showed that it exchanged 1,370 ETH for 1,370.3351 stETH on 1inch, and subsequently redeemed 1,370.3351 ETH with an equivalent number of stETH on Lido. Despite spending 0.0061 ETH on gas fees, the whale managed to earn 0.329 ETH, translating to a profit of $540.

Although $540 may seem relatively insignificant for a whale, when this strategy is applied regularly, specifically every day using 1,370 ETH for arbitrage, the returns add up to 118 ETH, which has a market value of $194,000 after one year. This offers an impressive annual percentage yield of 8.6%.