mev-beta/docs/ARBITRAGE_PROFIT_SYSTEM.md

Enhanced Arbitrage Profit Calculation System

Overview

The MEV bot now includes a sophisticated arbitrage profit calculation and opportunity ranking system that provides real-time analysis of swap events for potential arbitrage opportunities. This system replaces the previous placeholder calculations with comprehensive profit analysis.

Key Components

1. SimpleProfitCalculator (pkg/profitcalc/simple_profit_calc.go)

The core profit calculation engine that analyzes swap opportunities:

Features:

• Real-time Gas Price Updates: Automatically fetches current gas prices from the network
• MEV Competition Modeling: Adds 50% priority fee boost for competitive MEV transactions
• Comprehensive Profit Analysis: Calculates gross profit, gas costs, and net profit
• Risk Assessment: Evaluates confidence scores based on trade characteristics
• Thread-Safe Operations: Concurrent access to gas price data

Key Methods:

// Analyze a swap opportunity for arbitrage potential
func (spc *SimpleProfitCalculator) AnalyzeSwapOpportunity(
    ctx context.Context,
    tokenA, tokenB common.Address,
    amountIn, amountOut *big.Float,
    protocol string,
) *SimpleOpportunity

// Update gas price from network (automatic via background goroutine)
func (spc *SimpleProfitCalculator) UpdateGasPrice(gasPrice *big.Int)

Configuration:

• Minimum Profit Threshold: 0.01 ETH (configurable)
• Gas Limit: 200,000 gas for simple arbitrage
• Gas Price Updates: Every 30 seconds from network
• MEV Priority Fee: 50% boost above base gas price

2. OpportunityRanker (pkg/profitcalc/opportunity_ranker.go)

Advanced filtering and ranking system for arbitrage opportunities:

Features:

• Multi-Factor Scoring: Composite scores based on profit margin, confidence, trade size, etc.
• Opportunity Deduplication: Merges similar opportunities and tracks update counts
• Staleness Management: Automatically removes opportunities older than 5 minutes
• Competition Risk Assessment: Estimates MEV competition based on profitability
• Configurable Filtering: Minimum confidence and profit margin thresholds

Ranking Weights:

DefaultRankingWeights = RankingWeights{
    ProfitMargin:  0.3,  // 30% - profit margin is very important
    NetProfit:     0.25, // 25% - absolute profit matters
    Confidence:    0.2,  // 20% - confidence in the opportunity
    TradeSize:     0.1,  // 10% - larger trades are preferred
    Freshness:     0.1,  // 10% - fresher opportunities are better
    Competition:   0.05, // 5% - competition risk (negative)
    GasEfficiency: 0.1,  // 10% - gas efficiency
}

Key Methods:

// Add and rank a new opportunity
func (or *OpportunityRanker) AddOpportunity(opp *SimpleOpportunity) *RankedOpportunity

// Get top N opportunities by score
func (or *OpportunityRanker) GetTopOpportunities(limit int) []*RankedOpportunity

// Get only executable opportunities
func (or *OpportunityRanker) GetExecutableOpportunities(limit int) []*RankedOpportunity

3. Scanner Integration (pkg/scanner/concurrent.go)

The market scanner now includes integrated profit calculation:

Enhanced logSwapOpportunity Method:

• Analyzes each swap event for arbitrage potential
• Adds opportunities to the ranking system
• Logs comprehensive profit metrics
• Includes ranking scores and competition risk in additional data

New Scanner Methods:

// Access top ranked opportunities
func (s *MarketScanner) GetTopOpportunities(limit int) []*profitcalc.RankedOpportunity

// Get executable opportunities ready for trading
func (s *MarketScanner) GetExecutableOpportunities(limit int) []*profitcalc.RankedOpportunity

// Get ranking system statistics
func (s *MarketScanner) GetOpportunityStats() map[string]interface{}

Profit Calculation Algorithm

1. Basic Profit Estimation

// Estimate profit as 0.5% of trade amount (simplified model)
grossProfit := new(big.Float).Mul(amountOut, big.NewFloat(0.005))

2. Gas Cost Calculation

// Gas cost with MEV competition buffer
gasCost = (gasPrice * gasLimit) * 1.2  // 20% buffer

3. Net Profit Calculation

netProfit = grossProfit - gasCost

4. Profit Margin

profitMargin = netProfit / amountOut

5. Confidence Scoring

Based on multiple factors:

• Positive net profit (+40% base confidence)
• Profit margin thresholds (>2%, >1%, >0.5%)
• Trade size (>$1000, >$100 equivalents)
• Capped at 100% confidence

Opportunity Ranking System

Composite Score Calculation

Each opportunity receives a score (0-1) based on weighted factors:

1. Profit Margin Score: Normalized by 10% margin = 1.0
2. Net Profit Score: Normalized by 0.1 ETH = 1.0
3. Confidence Score: Direct 0-1 mapping
4. Trade Size Score: Normalized by $10k = 1.0
5. Freshness Score: Decays from 1.0 over 5 minutes
6. Competition Risk: Negative impact based on profitability
7. Gas Efficiency: Profit per gas ratio

Filtering Criteria

Opportunities must meet minimum thresholds:

• Confidence: ≥ 30%
• Profit Margin: ≥ 0.1%
• Net Profit: Must be positive

Integration with MEV Bot

Scanner Enhancement

The market scanner now:

1. Creates profit calculator with network client for gas price updates
2. Creates opportunity ranker for filtering and prioritization
3. Analyzes every swap event for arbitrage potential
4. Logs detailed profit metrics including ranking scores

Logging Enhancement

Each opportunity log now includes:

{
  "arbitrageId": "arb_1758117537_0x82aF49",
  "isExecutable": true,
  "rejectReason": "",
  "confidence": 0.75,
  "profitMargin": 0.0125,
  "netProfitETH": "0.025000",
  "gasCostETH": "0.000240",
  "estimatedProfitETH": "0.025240",
  "opportunityScore": 0.8234,
  "opportunityRank": 1,
  "competitionRisk": 0.65,
  "updateCount": 1
}

Performance Characteristics

Gas Price Updates

• Frequency: Every 30 seconds
• MEV Boost: 50% priority fee above base price
• Thread Safety: Concurrent access with RWMutex
• Fallback: 1 gwei default if network fetch fails

Opportunity Management

• Capacity: Tracks up to 50 top opportunities
• TTL: 5-minute lifetime for opportunities
• Deduplication: Merges similar token pairs within 10% amount variance
• Cleanup: Automatic removal of stale opportunities

Memory Usage

• Minimal memory footprint with automatic cleanup
• Efficient sorting and ranking algorithms
• No persistent storage (in-memory only)

Usage Examples

Basic Profit Analysis

calc := profitcalc.NewSimpleProfitCalculator(logger)
opp := calc.AnalyzeSwapOpportunity(ctx, tokenA, tokenB, amountIn, amountOut, "UniswapV3")
if opp.IsExecutable {
    log.Printf("Profitable opportunity: %s ETH profit", calc.FormatEther(opp.NetProfit))
}

Opportunity Ranking

ranker := profitcalc.NewOpportunityRanker(logger)
rankedOpp := ranker.AddOpportunity(opp)
topOpps := ranker.GetTopOpportunities(5)
for _, top := range topOpps {
    log.Printf("Rank %d: Score %.4f", top.Rank, top.Score)
}

Scanner Integration

scanner := scanner.NewMarketScanner(cfg, logger, executor, db)
executable := scanner.GetExecutableOpportunities(3)
stats := scanner.GetOpportunityStats()

Future Enhancements

Planned Improvements

1. Multi-DEX Price Comparison: Real-time price feeds from multiple DEXs
2. Slippage Protection: Advanced slippage modeling for large trades
3. Flash Loan Integration: Calculate opportunities requiring flash loans
4. Historical Performance: Track execution success rates and actual profits
5. Machine Learning: ML-based profit prediction models

Configuration Tuning

• Adjustable ranking weights based on market conditions
• Dynamic gas price multipliers for MEV competition
• Configurable opportunity TTL and capacity limits
• Protocol-specific profit calculation models

Monitoring and Debugging

Key Metrics to Monitor

• Average opportunity scores
• Executable opportunity count
• Gas price update frequency
• Opportunity staleness rates
• Profit calculation accuracy

Debug Logging

Enable debug logging to see:

• Individual opportunity analysis results
• Gas price updates from network
• Opportunity ranking and scoring details
• Filtering decisions and rejection reasons

Conclusion

The enhanced arbitrage profit calculation system provides a solid foundation for MEV opportunity detection and evaluation. The modular design allows for easy extension and customization while maintaining high performance and accuracy in real-time trading scenarios.