sNECT Arbitrage Opportunities

The following outlines how market makers and sophisticated actors can profit from arbitrage of $sNECT (shares of the Liquid stability pool).

Scenario 1: sNECT Protocol Price < DEX Price

• Steps:

  • Purchase NECT from a DEX and deposit it into the LSP to mint sNECT shares.

  • Sell the sNECT shares on a DEX for a higher price.

  • Example:

    • If NECT costs $0.95 on a DEX and an arbitrageur mints sNECT shares with it, then sells those sNECT shares for $1.00, they effectively secure a $0.05 profit per NECT through this arbitrage opportunity.

Scenario 2: DEX Price < sNECT Protocol Price

• Steps:

  • Purchase sNECT on a DEX at a discount.

  • Redeem sNECT shares for underlying collateral (pro-rata or preferred tokens).

  • Sell the redeemed collateral on a DEX for profit.

  • Example:

    • If an arbitrageur purchases sNECT for $0.90 and redeems it for collateral worth $1.00, selling the collateral allows them to secure a $0.10 profit per sNECT share.

Example of a Redemption:

• Scenario: NECT is trading at $0.95, and Alice redeems 10,000 NECT for collateral.

  • The targeted Den contains 10 ETH, each worth $1,000.

  • Redeeming 10,000 NECT gives Alice 10 ETH.

  • Selling the ETH at market value ($10,000) results in a $500 profit, incentivizing redemptions and supporting the NECT peg.