For people that do crypto arbitrage, what makes a good arbitrage candidate?

[u/Angels_Ten]

Hey guys,

We’re a startup launching a USD ↔ USDC P2P marketplace in a couple weeks. Several million in buy-side demand is committed, but we have very few sellers—so early USDC sellers will see some large arb spreads.

If you’ve done any crypto/stablecoin arbitrage, I’d love to get your advice:

• What helps you trust a new platform?
• What are the biggest risk red flags?
• What early data (spread info, liquidity metrics, etc.) do you need to see to consider a platform to be a good candidate for arbitrage?

We’re backed by a16z and HF0, but still early—we want to get this right for people who actually trade so we can get some liquidity flowing through the platform.

Thanks in advance for your help!

[u/Beneficial_Map6129]

I don't do crypto arbitrage

I don't do it because every exchange has fees that will kill a retail trader because they aren't putting through billions in volume

What is your fee schedule?

Would you be subjecting yourself to any regulatory bodies in the US or abroad?

KYC?

[u/Angels_Ten → u/Beneficial_Map6129]

Good question. There's no fees on our platform, our goal is to make this fully decentralized. The only fee you'd have to pay if you want to arb this is when you buy USDC with USD on Coinbase (or whichever centralized exchange you're using)

No KYC required since we're not a money transmitter, we just connect buyers and sellers, but we do AML checks

[u/maciek024 → u/Angels_Ten]

So how do u make money

[u/Angels_Ten → u/maciek024]

We don't make money from the marketplace - once the marketplace starts getting high volume we'll make money from enterprise support for dApps that are trying to onramp their users

[u/Beneficial_Map6129 → u/Angels_Ten]

Which country will you be based out of and be subject to local laws? Or do you really mean fully decentralized?

[u/Angels_Ten → u/Beneficial_Map6129]

We're based in the US!

[u/Beneficial_Map6129 → u/Angels_Ten]

That feels like it's one of the worst countries to be in, due to the level of scrutiny the US government will surely place on whoever is involved...

Go incorporate somewhere else

[u/the-script-99]

I start with 1k do a round trip and then slowly add more.

Plus you check social and if the company is actually incorporated and this staff.

[u/Angels_Ten → u/the-script-99]

Thanks, that makes a lot of sense!

Out of curiosity—if you were doing that first $1K test, what would you want to see on the platform (or from us) that would make you feel confident adding more?

Would love to get this right before we go live—really appreciate your perspective.

[u/the-script-99 → u/Angels_Ten]

Good UI. Not a new domain, articles, … in your case just show that a16z invested into this. But link to their website or other press. That is your social prof.

[u/CptnPaperHands]

Mostly thru word of mouth & target major markets. I've been rugged by startups in the space before so am fairly timid of new players.

What are the biggest risk red flags?

Lack of liquidity / volume, or - lack of understanding of market microstructure / how HF's operate from the people operating the venue. I've chatted with many exchanges / potential partners - and there is a very high correlation between not being legitimate and not understanding what HF's / MM's, etc are looking for. This doesn't invalidate new players - it's just a pattern I've noticed (know what your clients want/need)

What early data

L2 / L3 orderbook data thru a low latency connection. It's incredibly important to be able to get this info quick so we can hedge into another market

Another consideration is how much time investment it takes, and the expected profit (risk vs reward) for any given system. Counterparty risk is also huge. I'm willing to take larger risks if I'm given leverage (they're all on average expected positive value). I don't want to commit $X just so I can trade. I'll move money in & out as needed to cover margin requirements. This is fully automated - Liquidate me (or your clients) if risk gets too high on your end. Don't artificially stop us from arbing you. Profit margins of arb & mm are TINY. We just hedge elsewhere. In crypto it's super easy to move money around to manage risks here. Basically - leverage us good

dm me if you're interested in chatting.

[u/na85]

We’re backed by a16z

Huge red flag.

Marc Andreesen is a massive piece of shit, and a16z's business model is mostly centred around crypto scams and finding the next bagholder.

[u/askmike]

I'm involved in a lot of crypto arb. Moving USD around (esp within the US) is hard, need to get banks comfortable.

P2P marketplace raises many questions here, so people in the US are going to be wiring USD directly to the USDC sellers? I think the main issue here is compliance/banking related, not so much algotrading.