After a two-month long arbitrage period $WLFI has ended, due to the large time span and volatile prices (the WLFI price rose from the initial 0.1 USD to a maximum of 0.4 USD), combined with unexpected events such as MX account risk control, this arbitrage journey was quite tortuous and provided many lessons, so I feel it is necessary to review. This arbitrage was mainly divided into two stages, with the first stage taking up 80% of the time and effort, but the impact of the second stage on profit and loss exceeded 80%.
First Stage:
About two months ago, both Whales and MX launched WLFI's pre-market OTC trading early. Generally speaking, when pre-market trading goes live, it indicates that the project is nearing TGE, so I began to engage in arbitrage. There were large holders on Whales selling in bulk at a price of 0.1, while the buying price on MX reached between 0.12-0.13, creating a price differential of 20%. I started arbitraging. This was my first double OTC platform arbitrage, and at that time, I made a mistake by taking a 1:1 currency-based arbitrage. Since both platforms required 1:1 margin, if the opening price doubled or more, the seller's default would only allow me to receive the counterpart's margin. For example, with a buy order at 0.1 and a sell order at 0.13, if the price exceeds 0.26, my sell order can only receive 0.1 in margin compensation, while I would lose 0.13 in margin, resulting in a net loss of 0.03. If I had used a 1:1 gold-based arbitrage, the risk position would have been 0.
Therefore, this is the first lesson: in pre-market arbitrage trading, use gold-based units for arbitrage rather than currency-based. I used AI to assist in estimating that if the buy order is in OTC mode and the sell order is in pre-market contract form, adopting gold-based arbitrage can raise the break-even price, with no risk exposure during declines, although profits may be slightly less than in currency-based arbitrage. If the buy order is a pre-market contract and the sell order is in OTC mode, then currency-based arbitrage can be adopted.
If I maintain an arbitrage order of 0.1 Buy vs 0.13 Sell, when the opening price is 0.3, there will definitely be a loss. The good news is that Whales introduced a new model, the DP order (later renamed RS), which allows you to sell your buy orders to others, with the maximum price being about twice the buy price (this model is unfair to new buyers, as the previous buyer has already locked in profit; if the seller defaults, the new buyer cannot receive double the margin of their invested principal as compensation, specific details can be understood at Whales). After the price rises above 0.2, I gradually liquidated my buy orders to recover funds, and at the price of 0.2, I repurchased a batch of orders, effectively increasing the compensation of my pre-market order purchased at 0.1 to 4 times; however, since the quantity purchased at 0.2 did not fully cover the quantity sold, there is still some risk exposure. Nevertheless, as the price gradually rose to 0.4, I subjectively judged that the price was too high and sold part of my hedging orders at an average price of 0.3 and 0.4. In fact, when there was another buying opportunity at 0.2, I could analyze the optimal purchase quantity using AI tools to reduce the risk exposure of the entire arbitrage order to 0, but due to too many subjective judgments about the price, I always believed that WLFI's price should not exceed 0.2, so the arbitrage process was mixed with subjective price judgments.
During this process, there was also an episode where my MX account suddenly faced risk control and I could not withdraw funds. Since KYC was not in my name, after I appealed, they said it would take a month to review my account. Although it was eventually unblocked, this incident affected my arbitrage plan. This is my second lesson: do not invest too much capital in secondary platforms and establish a tiered funding system for arbitrage projects.
Thus, through my various operations, my arbitrage orders became the following situation: a buy order at 0.1 was sold at 0.2, realizing a profit of xx; a buy order at 0.23 vs (sell orders at 0.185, 0.3, and 0.4), based on this, I created my profit and loss curve using ChatGPT. However, the curve here does not include realized profits; it can be seen that when the price exceeds 0.46, my losses gradually widen, while below 0.46, the maximum pain point is at 0.27.
Second Stage:
Binance opened pre-market contracts about a week before the launch. The opening price on Binance was very high, almost above 0.4, which made me feel a bit panicked. If the price exceeds 0.46, my risk exposure is quite large, but in fact, if I sell my net position at the opening price (after deducting the default part of 0.13 Buy), the profit would be maximized. Due to concerns about margin, I did not do this. Later, when the price began to decline, the pre-market contract price fell to nearly 0.2. At that time, I hadn't created my profit and loss curve and had only engaged in some grid trading during the decline. If I had fully compensated for the insufficient position around 0.2, I could have maximized profits. A reasonable strategy should be to buy back in batches rather than engaging in grid trading or increasing the number of grid orders. Of course, this relates to price fluctuations and the final price; in any case, starting to buy when the price breaks below 0.27 and selling when it rises above 0.27 was the correct operation. The third lesson: reasonably control the amount invested in a single position; buying more does not necessarily mean earning more, as margin issues may distort one's actions, leading to reluctance to operate and ultimately earning less.
In the end, the result of this arbitrage is still acceptable, and if the second stage is handled properly, profits can increase by 50%. The various unexpected situations and repeated scenarios also provided me with many experiences and lessons.
This article may not read smoothly, mainly because my operations were quite chaotic, and some parts represent my subjective perspective. The main purpose is to summarize for myself, to avoid making mistakes in similar situations in the future.
