Arbitrage Opportunities with Synthetic Assets
Profit from price discrepancies between DEX and oracle prices
Learn how arbitrageurs help maintain synthetic asset pegs while capturing risk-free profits from price deviations.
Step-by-Step Guide
Understand the Peg Mechanism
Continuum synthetics are valued at oracle price during redemption. DEX prices can deviate from oracle prices due to supply/demand imbalances.
The arbitrage opportunity exists in the gap between DEX and oracle prices.
Monitor Price Deviations
Track DEX prices for L/S tokens against oracle prices. When DEX price < oracle price, there is a buying opportunity. When DEX price > oracle price, there is a selling opportunity.
Build or use monitoring tools to catch deviations quickly - they can close fast.
Execute the Arbitrage (Buy Low)
When DEX price is below oracle: Buy cheap L+S tokens on DEX → Redeem at Continuum for full stablecoin value → Profit the difference.
Account for DEX fees, slippage, and gas costs in your profitability calculation.
Execute the Arbitrage (Sell High)
When DEX price is above oracle: Mint L/S at Continuum → Sell expensive token on DEX → Keep the other token or redeem → Profit the premium.
This works best when only one side (L or S) is trading at a premium.
Automate for Efficiency
Build bots to monitor prices and execute arbitrage atomically. Combine with flash loans for capital-efficient execution.
Competition is fierce - latency and gas optimization matter.
Risks to Consider
- Execution risk - prices can move during transaction
- Gas costs can exceed profit on small arbitrages
- Competition from other arbitrageurs
- Smart contract risk during complex transactions
Practice With These Assets
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