Magnus Hansson

Research | DeFi | ML | Data

[Magnus Hansson @0xMagnusHansson]

I wrote an economics paper: "Arbitrage in Crypto Markets: An Analysis of Primary Ethereum Blockchain Data".

Paper: https://t.co/t5YZYvsQpb

I show how arbitrageurs contribute to DEX price efficiency by trading away price anomalies within the blocks.
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[Magnus Hansson @0xMagnusHansson]

@DCinvestor many good recs, i’ll add lord of light by roger zelazny

[UCSB-ECON DeFi Seminar @UCSBDeFi]

It is right here! Come join our seminar with
@0xMagnusHansson
from Stockholm University @ 9:30 am today!

Zoom link: https://t.co/1nOebsOoc3

#ucsbdefi #gradforgrad

[Magnus Hansson @0xMagnusHansson]

@Uniswap It took 2 blocks until this MEV tx corrected the price and profiting $48,933:
https://t.co/CkEa42Hz3V

So many questions. Does anyone recognize this tx? What liquidity need demanded this crazy price impact? Why did it take 2 blocks to be corrected?

🧵3/

[Magnus Hansson @0xMagnusHansson]

🤔 Historic tx with wild impact in the USDC-WETH 5bps pair on @Uniswap V3. (2022-06-13)
🔗https://t.co/IbLwIzxoHq
🦄 Price impact: -30%

The tx went through a smart contract that interacted with Maker and 1inch. It seems they used Flashbots as the block position is 0.
🧵1/

[Magnus Hansson @0xMagnusHansson]

@Uniswap Check out @EigenPhi's visualization of the tx:
🔗https://t.co/Zqm2xCrOto

Turns out, someone swapped 65k WETH for DAI. The USDC-WETH swap was for nearly $16 million.

@ArkhamIntel hints it could be the Ethereum Foundation.

🧵2/

[Magnus Hansson @0xMagnusHansson]

@yezhov_anton @0xfuturistic To me it’s not clear and probably depends on the definitions. Usually economists think that there is some efficient (true) price of an asset that is latent and bringing information to the market such that this price permanently changes is “price discovery “.

[Magnus Hansson @0xMagnusHansson]

@0xfuturistic Ah I see! I don’t know tbh, but I can run some models and get back to you! Is there any currency pair that you’re particularly interested in?

[Magnus Hansson @0xMagnusHansson]

@0xfuturistic One interesting question is: how “good” would DEXes be to discover prices if CEXes weren’t around.

[Magnus Hansson @0xMagnusHansson]

@0xfuturistic I think there is consensus that CEXes drive price discovery atm and I know people are estimating models to get definite numbers. However, I haven’t seen any definite estimations on this yet.

[Magnus Hansson @0xMagnusHansson]

@trueblocks Thanks for the shout-out! Leveraging Trueblocks for deep on-chain analysis is indeed transformative for academic research. It's exciting to unlock such detailed insights directly from the source!

[Magnus Hansson @0xMagnusHansson]

This paper reveals MEV's dual role in DEXes: while critiqued for adverse selection, it's vital for correcting price errors.

Solutions like encrypted mempools or enhanced private relays could mitigate issues like sandwich attacks while preserving essential arbitrages.

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[Magnus Hansson @0xMagnusHansson]

Excited to share my new working paper: "Price Discovery in Constant Product Markets".

The full study: https://t.co/ySZ1T9oeFM

Over 50% of price discovery in USDC-WETH on @Uniswap stems from arbitrage trading (MEV).

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[Magnus Hansson @0xMagnusHansson]

@Uniswap I use @ErigonEth and @trueblocks to categorize manual, algorithmic, and arbitrage trading alongside liquidity provision.

In contrast to arbitrage trading, algorithmic trading accounts for 8% of price discovery, while manual trading and liquidity provision have no
impact.

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[Magnus Hansson @0xMagnusHansson]

@trueblocks @Corpetty From demand side, it seems to me that the number of txes should also play a role (potentially also their value)? Willingness to pay would be increasing in nTx.

[Magnus Hansson @0xMagnusHansson]

@domothy Gm!

[Magnus Hansson @0xMagnusHansson]

@fubuloubu @Uniswap That's a great suggestion, it could be the case that arb-free routing exists (@CoWSwap), and is used to some extent. But at times, some actors, e.g., want to dump fast, ignore slippage, and thus off-setting the no-arb price

[Magnus Hansson @0xMagnusHansson]

I wrote an economics paper: "Arbitrage in Crypto Markets: An Analysis of Primary Ethereum Blockchain Data".

Paper: https://t.co/t5YZYvsQpb

I show how arbitrageurs contribute to DEX price efficiency by trading away price anomalies within the blocks.
1/5

[Magnus Hansson @0xMagnusHansson]

@tpvt136 I'm glad that you found it interesting:) I'll send you a dm!

[Magnus Hansson @0xMagnusHansson]

@mitchhs12 I'm glad that you liked it!:)

[Magnus Hansson @0xMagnusHansson]

The "end-of-block prices" are most likely arbitrage-free, which is great as these are used in the @Uniswap oracle. However, a natural question arises: Can we mitigate arbitrage opportunities appearing in the first place? Maybe through better DEX routing?

[Magnus Hansson @0xMagnusHansson]

The market has become more efficient. In the later part of the sample, arbitrageurs can only profit from back-running pending transactions (arbitrage profits regressed on previous price changes):