🙋🏿♂️ Example: Adam and the Arbitrage
An example for Arbitrage
Arbitrage Traders
tenXXX Tokens will start with three Liquidity Pools. More will be following later.
Because of the pegged price the real price of a tenXXX Token will be ~1:1 to the price of the underlying token. It is the same relation WBTC has with BTC.
If the price rises in one pool e.g. the BUSD/BTC pool, the ETH/BTC pool also has to follow. This happens with arbitrage. But the WBTC:BTC price stays at 1:1.
10:00 a.m.: BTC price - $ 40,000 and 15 ETH
10:30 a. m.: BTC dumps 40% in 30 minutes (we know that days right ;) ). BTC pice - $ 24,000 and 9 ETH
That means that the tenBTC price has to follow because you get ~1 tenBTC for 1 BTC at the automated market maker. It is the hour of Adam. Adam LOVES to arbitrage. He buys BTC with his BUSD, then tenBTC with his BTC and sells them at the tenBTC/BUSD DEX Pools. That means he bought in at $ 24,000 and sell at $ 40,000 to the pools with the old price. For an easier calculation: Let's say he does this with 1 BTC. He bought for $ 24,000 and sells on $ 40,000 => $ 16,000 profit minus 2x ~1.2% transaction fee => total win: $ 15,488 On this trade the tenBTC holder earned ~ $ 875.16 (thats meant by win-win(-win) situation).
The same thing has to happen to all pools on the DEXs (not only tenBTC:BUSD also tenBTC:ETH, tenBTC:LINK, tenBTC:...)
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