Pricing & Arbitrage

A description of the optimized pricing and iPT pegging mechanism

Enforcing Pricing through Arbitrage

In the example below, Swivel has recently received a large sell order for PTs, which has pushed the Swivel PT price down to 0.93.

Because iPTs are trading at 0.95, an arbitrageur can purchase Swivel's PT, wrap them into iPTs, and immediately sell them on a secondary market for an easy profit.

Arbitrageur purchasing Swivel PTs -> Wrapping iPTs -> Selling iPT for profit

This arbitrage has multiple impacts on both the market structure of Illuminate, as well as the market structure of our integrated external PTs.

Optimized On-Chain Lending

First and foremost, this natural arbitrage ensures iPTs trade at or below par with the lowest priced external PT on the market.

In the context of lending this ensures the largest discount for iPT purchasers and therefore the best rate and lending experience.

Increased External PT Depth & Volume

With the addition of iPT markets, each external PT has access to increased depth through the additional liquidity provided by the iPT arbitrage process.

Further, in the process of arbitraging an external PT with iPTs, each external protocols garner increased volume alongside any price divergence.