Arbitrage System

Arbitrage is the practice of profiting from price differences of the same asset across different markets.

How Malt uses arbitrage to its advantage

Malt's arbitrage system allows anyone to submit profitable arbitrage opportunities to the protocol. This system helps maintain Malt's peg across different markets and generates additional revenue for the protocol as it profits from these opportunities.

The arbitrage system is a set of contracts that has certain privileges within the protocol.

  • It has access to the collateral as long as collateral does not decrease at the end of the tx.

  • Can mint malt during a tx, as long as the Malt supply remains unchanged at the end of the tx.

  • It does not pay fees on any swaps it triggers on MaltSwap.

The opportunities submitted do not necessarily need to be pricing arbitrage. They can be any single tx MEV the adheres to the invariant rules of the arbitrage system. In practice at the stage of development we are at right now all such opportunities will be pricing arbitrage against other dexes.

The fact the protocol does not pay fees on MaltSwap provides an edge to the protocol over any other on-chain arbitrage bot who would have to pay that fee. This means there are a class of arbitrage opportunities that are not profitable yet for anyone else, but are profitable for the protocol. Providing the protocol with exclusive access to these opportunities.

The long term goal is to collaborate with other protocols and have them provide us with exclusive access to certain upkeep and other maintenance tasks that they currently allow anyone to call. These protocols still get the upkeep/maintenance they desire but are now also providing value to an effort to create a decentralized stablecoin.

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