Auto-Balancer: Liquidity Management Tools for Founders.

Introduction

In our fast paced industry, liquidity isn’t merely jargon — it’s the cornerstone of your token project’s viability. If you’re a project founder juggling tokens across multiple platforms, maintaining balanced liquidity can be a Sisyphean task. Enter Auto-Balancer, the new feature we are developing for our liquidity dashboard. This tool empowers you to harness arbitrage opportunities across exchanges, thereby protecting and improving your liquidity. Let’s explore how it works.

What is Auto-Balancer?

Imagine you’re a project founder with tokens listed on multiple exchanges. You’re naturally concerned about liquidity and price stability, right? Enter Auto-Balancer. This feature continuously scans multiple exchanges for price differences in your token pair. When it detects a low buy opportunity on one exchange and a corresponding high sell on another, it springs into action. The algorithm executes both trades almost instantaneously, capturing that elusive ‘arbitrage opportunity.’ The best part? Your liquidity is immediately protected, and your treasury is spared from what we like to call ‘permanent loss,’ the unwelcome counterpart to the ‘impermanent loss’ you might be familiar with from liquidity provisioning in decentralised finance.

Auto-Balancer Principle

The Auto-Balancer aims to capitalise on arbitrage opportunities across different exchanges without having to move assets immediately. For our discussion, let’s assume you have 10,000 USDT and 10,000 DOGE in your accounts on both Kraken and Binance, and you are responsible for the sustainability for Doge across all centralised exchanges.

How it Works

The principle is simple: instead of transferring assets to exploit price differences, execute near-simultaneous trades on both exchanges, using the existing balances. After the arbitrage has been carried out, balance the asset holdings to their initial state as a separate step.

A Case Study: DOGE/USDT on Kraken and Binance

For the purpose of this example, let’s simplify things by assuming a 0% maker & taker fee structure, as well as zero withdrawal fees. Let’s also assume that there is 1,000 DOGE of liquidity for both the bid and ask orders on the orderbook at the example prices. While these are not the actual market conditions you’ll encounter, our Auto-Balancer algorithm is engineered to account for all these real-world variables to still turn a profit.

Market Prices

Kraken’s ASK price for DOGE: 1,000 DOGE @ 1.0 USDT

Binance’s BID price for DOGE: 1,000 DOGE @1.1 USDT

Step 1: Arbitrage Execution

1. On Kraken: Utilise 1,000 USDT from the existing balance to buy DOGE at 1.0 USDT, which gives you 1,000 DOGE.

2. On Binance: Almost at the same time, sell 1,000 DOGE from your existing balance at a BID price of 1.1 USDT. This yields 1,100 USDT.

By doing so, you’ve earned a risk-free profit by leveraging the existing balances on both exchanges.

Step 2: Inventory Balancing

After executing the arbitrage, your asset allocation would look like this:

• On Kraken: 10,000 USDT — 1,000 USDT = 9,000 USDT and 11,000 DOGE
• On Binance: 10,000 USDT + 1,100 USDT = 11,100 USDT and 9,000 DOGE

Inventory Balancing Actions:

1. Transfer the USDT difference: To bring both USDT holdings to the same value (10,050 USDT) transfer half the difference between the two accounts. This would be 1,050 USDT transferred from Binance to Kraken.
2. Transfer the DOGE difference: To bring both DOGE holdings to 10,000 transfer half the difference between the two accounts. This would be 1,000 DOGE transferred from Kraken to Binance.

After these transfers, both Kraken and Binance will hold 10,050 USDT and 10,000 DOGE each. You’ve balanced your inventory while retaining your arbitrage profit of 100 USDT, which is now evenly distributed across both exchanges.

And there you have it! Your inventory is balanced

The Profit Math

The arbitrage has netted you a profit of 100 USDT, without waiting for assets to transfer between exchanges, thereby reducing the risk of price fluctuations affecting the arbitrage opportunity. Here is the simple maths behind it:

Why Should Project Founders Care?

You might wonder, “I’m a project founder; why should I bother about arbitrage?” Simple. Imagine a third party beats you to these arbitrage opportunities. That’s not just a missed chance for profit; it’s your liquidity being drained and your treasury taking a hit. We’re talking permanent, not impermanent, loss here. A founder’s inattention to these arbitrage gaps can result in astonishing losses over time.

How Auto-Balancer Changes the Game

The devil is in the details: fees, speed, and the size of the trade can all impact the viability of an arbitrage opportunity. Our proprietary Auto-Balancer algorithm considers these factors, among others, before pulling the trigger.

The Bottom Line

If you haven’t yet audited how much cash flow your project may have lost due to unoptimized arbitrage opportunities, it’s high time you did. And while you’re at it, ask your current service provider if they offer anything like Auto-Balancer. If they don’t, it might be time for an upgrade. After all, why let good liquidity go to waste?

As always, we look forward to welcoming you to a new era of transparency.

For more information visit:

Website: www.sklventures.io

https://www.sklventures.io/contact

Sincerely,

The SKL Trading Team

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Disclaimer

This article is for informational and educational purposes only and should not be construed as financial or investment advice. The strategies discussed, including any examples using actual securities, exchanges, or price data, are strictly for illustrative and educational purposes and should not be interpreted as endorsements or recommendations.

You should consult with an appropriate professional for specific advice tailored to your individual circumstances and jurisdiction. The use of our proprietary Auto-Balancer system, as well as any associated strategies and technologies, carries risks and is not guaranteed to yield a profit. Past performance is not indicative of future results.

By reading this article, you agree that SKL Trading and any of its affiliates or contributors will not be held liable for any losses or damages incurred as a result of acting upon the content herein.