defi-protocols

defi-protocols

Production DeFi routing across lending, AMMs, and arbitrage. Covers how capital moves on-chain: flashloan mechanics, AMM math, liquidity fragmentation, and the physics of price discovery across DEXes and chains.

Flashloan Mechanics

Flashloans let you borrow uncollateralised capital for a single transaction, provided you repay with fee in the same block. Aave V3 is the dominant provider — 0.05% fee, supports all major assets.

function executeOperation(
    address asset,
    uint256 amount,
    uint256 premium,
    address initiator,
    bytes calldata params
) external returns (bool) {
    // 1. Flashloan asset is now in this contract
    // 2. Execute arbitrage path: e.g. USDC → WETH (Uniswap) → cbETH (Aerodrome) → USDC (Curve)
    // 3. Repay amount + premium before this function returns
    IERC20(asset).approve(address(POOL), amount + premium);
    return true;
}

Balancer V2 offers 0-fee flashloans for pool assets — cheaper but asset-limited. Uniswap V3 has flash swaps (borrow tokenA, repay tokenB in same tx).

Triangular Arbitrage

Three-leg price loops across DEXes exploit stale pricing on correlated assets. Classic examples: USDC/USDT/DAI, WETH/cbETH/ETH, WBTC/tBTC.

# Detect a USDC → WETH → cbETH → USDC arbitrage
r1 = quote_uniswap_v3(USDC, WETH, 10_000_000_000)        # USDC → WETH
r2 = quote_aerodrome(WETH, cbETH, r1)                     # WETH → cbETH
r3 = quote_curve(cbETH, USDC, r2)                         # cbETH → USDC
profit_bps = (r3 - 10_000_000_000) * 10_000 // 10_000_000_000

Profit requires: gross_bps - (2 * swap_fee_bps + flashloan_fee_bps + gas_in_bps) > threshold. Most triangles are <5bps — sub-basis-point precision on quotes matters.

AMM Math — Uniswap V3 Concentrated Liquidity

V3 pools expose liquidity in price ranges (ticks), not uniformly. Price is sqrtPriceX96^2 / 2^192. Out-of-range liquidity earns nothing; in-range liquidity earns fees but suffers impermanent loss.

# Quote from a V3 pool (simplified, in-range only)
from eth_abi import decode
def quote_v3(pool, amount_in, zero_for_one):
    # Delegate to quoter contract — it simulates the swap
    result = quoter.quoteExactInputSingle(
        token_in, token_out, fee_tier, amount_in, 0
    )
    return result.amountOut