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Sep 24
Binance Research Explores Ethereum DeFi Arbitrage, Carry Trade Strategies With Case Studies

A new report from Binance Research outlines case studies of trading strategies, namely arbitrage and carry trade, within the Ethereum-based decentralized finance (DeFi) space and between DeFi and centralized finance (CeFi) platforms.

Binance Research, the market research and analysis arm of Binance, has published its second report on the decentralized finance (DeFi) space, this time covering carry trade and arbitrage strategies with Ethereum-based DeFi. The Binance Research team presented case studies of these strategies actually being carried out on DeFi platforms.

“Eventually, as the DeFi space matures, new opportunities are expected to become more scarce,” according to the new report “DeFi Series #2 - Arbitrage and Carry Trade Strategies.”

The new report looked into interest rate arbitrage in the Ethereum-based DeFi space through the analysis of several case studies. Users have taken advantage of interest rate differences across DeFi platforms and between DeFi and centralized finance (CeFi) platforms, as well as carry trade strategies that may be pursued, i.e., it is possible to borrow with a low-interest asset to invest in an asset yielding higher returns. 

Nevertheless, Binance Research pointed out that all existing DeFi platforms rely on over-collateralization requirements from the borrower’s perspective, which limits true arbitrage opportunities. 

The report identified several potential market inefficiencies within DeFi and with CeFi platforms, and the factors that cause this, including::

  • Nascency of the DeFi space: illustrated by low liquidity, visible on the size borrowable amounts and daily volumes transacted (relatively to CeFi).

  • Platform-specific risks: interest rate volatility, potential smart-contract issues, loan matching uncertainty, redemption risks, etc.

  • Different platform & protocol characteristics: all protocols and platforms, whether they are decentralized or centralized, have different expected characteristics, collateralization requirements, and terms of the agreement. 

“Interest rates across platforms should also converge, as long as assets and platforms share similar risk characteristics. New platforms and protocols like interest rate swaps may contribute to a broader range of trading opportunities,” according to Binance Research.

DeFi has been growing significantly since mid-2018, with Ethereum being one of the most prominent blockchains for platforms and developers, Binance Research noted.

Read the full report here

About Binance Research 

Binance Research provides professional, data-driven insights and analysis for investors in the crypto space to increase the level of transparency and improve the quality of information within the current crypto ecosystem. The team consists of professionals with a background and experience in blockchain engineering, investment banking, strategy consulting, academic research and data science. For more information, visit: