What is Crypto Arbitrage?

Crypto arbitrage is an unorthodox type of money-making that has you exploit a difference in buying and selling prices of cryptocurrencies by trading on multiple crypto exchanges, trading platforms, and crypto lending providers. It’s an advanced strategy with many possible strategies for various preferences and goals.

People usually approach arbitrage thusly: a digital asset is bought at a low price on one exchange and then sold at a higher price on the other. This is made possible by various factors, including the discrepancy of available data, local fees, etc. Note, however, that speed is critical while arbitrage trading. Moreover, you will need a lot of initial investment, as well as a lot of instruments to help you track timing, and fees and to plan your strategy.

You can also try crypto interest rate arbitrage, which is a slightly different strategy. This approach is the most lucrative of the bunch and is not as demanding. You don’t have to be an expert or make speedy transactions around the clock. It’s great for creating passive income, as well.

So, let’s explore all of that further.

Crypto Interest Rate Arbitrage between the Binance Crypto Exchange and the CoinDepo Platform

For our examples, let’s take the USDT and BTC interest rate crypto arbitrage option between similar protected Earn Products offered by the world’s leading crypto exchange Binance and the CoinDepo platform, a leading financial service provider for digital assets. Earn Products are considered risk-free products that guarantee the user a regular passive income from their digital assets.

Option 1

You purchase USDT stablecoin with fiat currency on Binance to use Binance's “Simple Earn” product to generate risk-free passive income. Currently, the flexible interest rate for USDT deposits at Binance is 2.6% APR*. In other words, by depositing 100,000 USDT within a year, you will earn 2,600 USDT.

At the same time, using crypto interest rate arbitrage, you can transfer your USDT into the Current Compound Interest Account at CoinDepo, where the fixed interest rate for USDT is currently 18% APR + compound interest. In this case, by depositing 100,000 USDT for a year, you will earn 119,716.42 USDT.

Thus, your profit, thanks to the use of crypto interest rate arbitrage, due to the difference in interest rates on these platforms will be 17,116.424499 USDT.

To maximize your profits, you can choose the CoinDepo Compound Interest Account type with a higher fixed interest rate. CoinDepo offers six USDT Compound Interest Account types with fixed interest rates ranging from 18% APR + compound interest  to 24% APR + compound interest. Interest earned is paid in USDT daily, weekly, monthly, quarterly, semi-annually, or annually, depending on the type of CoinDepo Compound Interest Account you choose.

In the event that you keep (reinvest) the regularly paid compound interest on your CoinDepo account, your effective rate of return (Annual Percentage Yield (APY)) will be even higher due to the effect of compound interest.

Option 2

You purchase Bitcoins (BTC) with fiat currency on Binance as a long-term investment based on the uptrend of the Bitcoin price in the future.

You then borrow USDT stablecoins using Binance's "Crypto Loan" service, for example, 50% of the value of your Bitcoins held on Binance, which acts as collateral for the loan (50% LTV). This level of LTV allows you to avoid the risks of cryptocurrency volatility. At the moment, the flexible annualized interest rate for borrowing USDT on Binance is 3.02%*. If your Bitcoin value on Binance is currently $200,000, you can borrow 100,000 USDT. In this case, you will pay 3,020 USDT in interest for the use of the loan during the year.

You transfer your USDT to CoinDepo and choose an Annual Compound Interest Account where the fixed interest rate for USDT is currently 24% APR. In this case, by depositing 100,000 USDT for a year, you will earn 24,000 USDT.

Thus, your profit, thanks to the use of crypto interest rate arbitrage due to the difference in interest rates on the Binance loan and on the CoinDepo deposit, will be 20,980 USDT.

If the price of Bitcoin rises during the year, you can additionally borrow USDT on Binance an unlimited number of times, maintaining a 50% level of LTV and depositing it on CoinDepo, thereby increasing your USDT profit. Depositing stablecoins, unlike Bitcoins, allows you to plan for a stable risk-free passive income in fiat money, independent of the volatility inherent in cryptocurrencies.

Option 3

You purchase Bitcoins (BTC) with fiat currency on Binance as a long-term investment based on the uptrend of the Bitcoin price in the future.

If you don’t need to plan ahead for a fixed amount of your regular passive income from digital assets in fiat money (as is the case with stablecoins), you can use Binance's “Simple Earn” product to generate risk-free passive income in BTC. Currently, the flexible interest rate for BTC deposits at Binance is only 0.18% APR*. In other words, by depositing 10 BTC for a year, you will earn 0.018 BTC.

At the same time, using crypto interest rate arbitrage, you can transfer your BTC into Current Compound Interest Account at CoinDepo, where the fixed interest rate for BTC is currently 12% APR + compound interest. In this case, by depositing 10 BTC for a year, you will earn 1.27474615 BTC.

Thus, your profit, thanks to the use of crypto interest rate arbitrage (the difference in interest rates on these platforms) will be 1.25674615 BTC.

To maximize your profits, you can choose the CoinDepo Compound Interest Account type with a higher fixed interest rate. CoinDepo offers six BTC Compound Interest Account types with fixed interest rates ranging from 12% APR + compound interest to 18% APR + compound interest. Interest earned is paid in BTC daily, weekly, monthly, quarterly, semi-annually, or annually, depending on the type of CoinDepo Compound Interest Account you choose.

In the event that you keep (reinvest) the regularly paid compound interest on your CoinDepo account, your effective rate of return (Annual Percentage Yield (APY)) will be even higher due to the effect of compound interest.

* - Please note that Binance's flexible interest rates are subject to periodic changes.

Conclusion

Arbitrage trading has historically been a challenging, complex strategy that requires a lot of know-how, reflexes, and knowing your way around crypto exchanges. CoinDepo offers a different glimpse into this approach, making it a simpler and still profitable method for traders of all backgrounds. So, if crypto arbitrage is something you’d like to try but feel inadequately qualified for, we suggest starting with crypto interest rate arbitrage, and CoinDepo is a good place to start.