mev-beta/docs/PROFIT_CALCULATION_AUDIT.md

# Comprehensive Profit Calculation Audit Report
**Date**: November 3, 2025
**Status**: CRITICAL - No arbitrage opportunities detected

## Executive Summary
The MEV bot is running with proper pool detection (bindings integration successful) but detecting ZERO arbitrage opportunities. This indicates fundamental issues with profit calculations.

## Current Issues Identified

### 1. Pool Detection Status ✅
- **Working**: Contract bindings successfully integrated
- **Working**: Pool type detection (UniswapV2/V3, Algebra variants)
- **Working**: Blacklisting of invalid pools
- **Issue**: Some pools still causing "execution reverted" errors

### 2. Arbitrage Detection Status ❌
- **Critical**: 0 opportunities detected in hours of operation
- **Stats**: Detected: 0, Executed: 0, Successful: 0
- **Root Cause**: Likely profit calculation or threshold issues

## Root Cause Analysis

### 1. Decimal Precision Issues
**Problem**: Token decimals not properly handled
- WETH has 18 decimals
- USDC/USDT have 6 decimals
- WBTC has 8 decimals

**Current Code Issue**:
```go
// Incorrect: Treating all amounts as 18 decimals
amountInFloat, _ = new(big.Float).Quo(new(big.Float).SetInt(swapInfo.AmountIn), big.NewFloat(1e18)).Float64()
```

**Fix Required**:
```go
// Correct: Use actual token decimals
decimals := tokenDecimals[tokenAddress]
divisor := new(big.Float).SetFloat64(math.Pow(10, float64(decimals)))
amountInFloat, _ = new(big.Float).Quo(new(big.Float).SetInt(swapInfo.AmountIn), divisor).Float64()
```

### 2. Fee Calculation Errors
**Problem**: UniswapV3 fees incorrectly interpreted
- V3 fees are in units of 0.01% (1 = 0.01%, 100 = 1%)
- V2 fees are fixed at 0.3% (30 basis points)

**Current Issue**:
```go
// Fee from binding is *big.Int but represents basis points
fee := pool.Fee() // Returns 3000 for 0.3% fee
// Need to convert to actual percentage
```

**Fix Required**:
```go
feePercent := float64(fee.Int64()) / 1000000.0 // Convert basis points to decimal
```

### 3. Profit Threshold Too Conservative
**Current Setting**: 0.1% minimum profit (from config)
**Market Reality**: Most arbitrage profits are 0.01% - 0.05%

**Fix Required**:
- Lower threshold to 0.01% (1 basis point)
- Account for gas costs properly
- Consider flash loan fees (0.09% on Aave)

### 4. Price Calculation Logic
**Problem**: Not accounting for price impact and slippage
```go
// Current: Simple calculation
profit = amountOut - amountIn

// Should be:
profit = (amountOut * (1 - slippage)) - amountIn - gasCost - flashLoanFee
```

## Immediate Action Plan

### Phase 1: Fix Critical Calculations (NOW)
1. **Token Decimal Handling**
   - Create decimal registry for all tokens
   - Use correct divisors for each token

2. **Fee Conversion Fix**
   - Convert UniswapV3 fees from basis points
   - Handle V2 fixed fees correctly
   - Account for protocol fees

3. **Lower Profit Threshold**
   - Reduce from 0.1% to 0.01%
   - Make configurable per token pair

### Phase 2: Enhanced Calculations
1. **Gas Cost Integration**
   - Fetch current gas price
   - Calculate execution cost
   - Include in profit calculation

2. **Slippage Protection**
   - Add configurable slippage (0.5% default)
   - Calculate minimum output amounts

3. **Flash Loan Costs**
   - Include 0.09% Aave fee
   - Calculate break-even points

### Phase 3: Testing & Validation
1. **Unit Tests for Calculations**
   - Test with different decimals
   - Verify fee calculations
   - Validate profit thresholds

2. **Integration Testing**
   - Fork mainnet for testing
   - Replay historical transactions
   - Verify profit calculations match reality

## Code Locations to Fix

1. **pkg/profitcalc/profit_calc.go**
   - `CalculateProfit()` function
   - Decimal handling logic
   - Fee calculations

2. **pkg/arbitrage/detection_engine.go**
   - Profit threshold checks
   - Opportunity filtering logic

3. **pkg/pricing/engine.go**
   - Price impact calculations
   - Slippage adjustments

4. **internal/config/config.go**
   - Lower MinProfitThreshold
   - Add per-pair thresholds

## Validation Metrics
After fixes, we should see:
- **Opportunities/hour**: 10-50 (market dependent)
- **Success rate**: 20-40% (competition dependent)
- **Average profit**: 0.02-0.05% per trade
- **Daily profit**: $50-500 (volume dependent)

## Critical Success Factors
1. ✅ Detect at least 1 opportunity per minute
2. ✅ Calculate profits with 6+ decimal precision
3. ✅ Account for all fees and costs
4. ✅ Execute profitable trades only
5. ✅ Monitor and log all calculations

## Next Steps
1. Implement decimal fixes immediately
2. Deploy with lower thresholds
3. Monitor for 1 hour
4. Adjust based on results
5. Scale up execution

## Risk Assessment
- **High Risk**: Executing with wrong calculations = losses
- **Medium Risk**: Missing opportunities = no profit
- **Low Risk**: Over-conservative thresholds = fewer trades

## Conclusion
The bot's core infrastructure is working (pool detection, monitoring, bindings) but profit calculations are preventing opportunity detection. Immediate fixes to decimal handling and thresholds should restore functionality.

**Estimated Time to Fix**: 2-4 hours
**Expected Result**: 10+ opportunities/hour detected
**Profit Potential**: $50-500/day once operational