DEX Arbitrage Series — Part 1: Avantis <> Hyperliquid
TL;DR
- Avantis’ loss protection and positive slippage gives skew-balancing traders a huge opportunity never been seen before in DeFi.
- This trade, hedged on another powerful venue, gives traders an arbitraged trade (similar to a call option)
- On Avantis — traders recieve USDC rebates + Avantis XP. On Hyperliquid, traders recieve Hyperliquid points. This is in addition to the actual arbitrage profit.
Step 1: Avantis’ Loss Protection Rebate
Loss protection is a unique, 0–1 incentive, designed to enable directional traders and skew balancing arbitrageurs to recieve up to 20% off on their losses. This incentive is actively used by both directional traders and delta neutral traders, alike.
As a small example, lets pick $BONK, a memecoin that is currently long-skewed on Avantis.
Traders can now look at how much loss protection rebates they can get by trading on the non-skewed side. In this case, 7.1K is the maximum position size for a loss-protected short trade !
After you place the order, note down the net position size of the trade (net of fees). This is the position size you’ll want to open on Hyperliquid on the opposing side! You can see that the BONK trade has now been opened with position size of 7162 USDC (@ 7x leverage).
Step 2: Hyperliquid
On Hyperliquid, you can either place a market order or limit order. This order should take place very shortly after the Avantis leg has been executed (to ensure that your trade is delta neutral). As you can see — a trader executed a limit order on Hyperliquid for BONK at ~$7192 position size (the position size does fluctuate after opening the trade).
Step 3: PnL Analysis
Assuming you are perfectly hedged across both venues, your net PnL will primarily depend on two factors:
- The % price move in the underlying: The more the price move in the underlying asset against the direction of the Avantis trade, the higher the loss rebate. Eg, if BONK moves up by 10%, then the loss protection (10% of losses) is about 1% of the collateral value, which is more than enough to cover all associated fees on both legs of the trade. As a reminder, this would be 1% of the collaterla on Avantis (1,023 USDC), so 10.23 USDC.
- The duration of the trade: A long duration trade can lead to borrow fees on Avantis, and potential funding fees on Hyperliquid to stack up and eat into your arbitrage net profits. Hence — loss protection arbitrage is ideal when traders believe an asset will experience short term volatility!
As you can see from the images above, the trader closed their Avantis trade down $79.71, but their Hyperliquid trade closed with a profit of $83.01! That’s a net PnL of $3.30 on a short duration trade ! This is the power of loss protection when combined with a hedge on another venue (CEX or DEX). Furthermore, traders can do the following to reduce fees even more:
- Open a trade on very skewed asset to avail maximum positive slippage and reduce your fees
- Use referral codes from your frens on Avantis and Hyperliquid
- Open limit orders on Hyperliquid to avoid taker fees
Reminder: Regardless of your net PnL, you will always get Avantis XP and Hyperliquid Points!
So — what’s the catch?
- Loss protection is like a call option: your Avantis trade may not end up in a loss, which means the rebate won’t be available.
- Your trade on @HyperliquidX might accrue funding fees. Similarly, your trade on Avantis will also accrue borrow fees.
The good news is, you’re still always delta hedged !
Conclusion
Avantis loss protection has already paid out $200K+ in loss rebates. Make the most of this powerful feature, while retaining full self-custody and diving into the world of retail friendly, cross-asset trading strategies. Watch out for next series covering loss protection arbitrage.
About Avantis
Avantis is a an onchain leveraged trading and market-making platform. Trade crypto, FX and commodities with up to 100x leverage, or power trades on the platform as a liquidity provider. Avantis gives advanced risk management tools to traders and liquidity providers for the use and provision of trading leverage. Avantis is built on Coinbase’s Base blockchain, and is backed by industry leading investors such as Pantera, Founders Fund, Galaxy Digital and Coinbase Ventures.
