TLDR:
- Synapse get a budget from Arbitrum as part of the STIP program
- They incentivise bridge activity to ‘reimburse gas fees’
- Mechanism is played by a few addresses that are conducting the majority of the volume
- Synapse volume came back to irrelevancy (/10) within the campaign (when gas conditions were not good) and after the campaign
Program mechanism
(https://synapse.mirror.xyz/NpzSkXDUlistuxNQaMwP6HQ9k2gVJsI-G1Y7-gaLxfQ):
- Direct rebates (no need to claim) on transactions:
- Rebates amount were between 4bps and 12bps depending on the module used (Liquidity Bridge, CCTP) and the destination chain (any chain to Arbitrum, Arbitrum to Ethereum)
in order to entirely make up for protocol fees and 25% of gas fees
- Addresses can take up to 2K ARB in rebates.
Those incentives created positive arbitrage opportunities on specific timeframes when gas fees were lower than normal and enabled traders to be profitable even after paying gas fees.
The most appealing timeframe was after the Dencun upgrade, up to the end of the program (18 to 29th March), as gas fees were lowered down by a factor >10.
But it also happened the first week of February, first week of march and on the March 9 and March 11.
How can we be sure of that:
- the number of transactors and transactions remains the same in the peak volume period, meaning that average volume increased tremendously: that’s when a small number of traders could benefit from the arbitrage opportunity
- identification of addresses cluster: with the same number of transactions and the same traded volume (~30 addresses with ~$7m in volume and 18 transactions) (~30 addresses with ~$6m in volume and 16 transactions)
- An illustrative example:
This address (0xf32355a52d36cbf4b7ad28ca19fbc2720b305fbe) did $6.8m in volume in 9 minutes and 18 transactions using Synapse Liquidity Bridge with GMX token while doing back and forth transactions between arbitrum and avalanche (9 times each)
It earns ~1980 ARB tokens while paying less than a dollar in gas fees.
It's a pure example of how to game this incentive program.
- Takeaway: