Alex Obadia leads Research and Platform efforts at Cambrial Capital, a fund of crypto funds based in London and Berlin. He also organizes the London DeFi Summit and the monthly Zero Knowledge London meetups. Previously, he was a Mathematics student at Warwick University and a co-founder of a multinational company in the music industry. He also had a brief stint at early-stage venture capital firm OpenOcean and very brief stints at Google and Morgan Stanley.
Decentralized Finance (DeFi) is a term created around a year ago to describe the movement of projects dedicated to building a new transparent, permissionless and programmable financial infrastructure. A year later, the movement has grown in size, followers and diversity to be considered a promising short-term catalyst for the next wave of blockchain-based technology adoption. Although DeFi has grown, its markets remain inefficient and fragmented compared to their centralized counterparts.
Market fragmentation and inefficiencies are music to the ears of traders seeking alpha. This piece is a product of Cambrial’s research on the investability of these opportunities and the novel considerations they involve. As a fund of crypto funds, we’re interested in these opportunities as a potential source of durable, absolute, uncorrelated to traditional markets, attractive risk-adjusted returns. We believe those returns are subject to different risks than ‘traditional’ crypto trading returns and therefore can improve risk diversification within a portfolio of crypto trading strategies.
This post will examine arbitrage opportunities in DeFi splitting them into yield arbitrage and cross-exchange arbitrage. The aim is to provide 1) an understanding of some of the strategies being run on this new infrastructure including the risks they involve, 2) beginning of thoughts on the durability of these strategies and the (re)definition of arbitrage in DeFi.