Dec 21, 2020
Decentralised Market Making
$SCIFI is a 100% collateralised index token that features the possibility to both mint and redeem the token against its underlying assets. This enables anyone to leverage arbitrage and become a de facto market maker. Here are the details.
$SCIFI will underly different price dynamics. On the one hand, the token will be tradable on secondary markets, where the price of the token is subject to the demand and supply on the markets where it is traded. At the same time, the actual value of the token is defined by the Net Asset Value (NAV) of its underlying tokens. This may not always correlate 100% however, as market inefficiencies can lead to a difference in the two values.
Two possibilities for arbitrage
If there are differences in the two price measures, i.e. the NAV of the underlying assets and the market price of the token, then there will be an arbitrage opportunity.
→ If the $SCIFI price is higher than the NAV of the underlying assets, one can mint $SCIFI and sell the token at a profit.
→ If the $SCIFI price is lower than the NAV of the underlying assets, $SCIFI can be redeemed for the assets and these sold individually at a profit.
Check the $SCIFI documentation for a guide on how to redeem $SCIFI for its underlying constituents.
// Note, that transaction costs occur that must be factored into the calculation and may increase the required volume to be minted or redeemed in order to turn a profit.
// Also note, that price volatility between minting/redemption and liquidation of $SCIFI / the underlying assets may change the expected return.
