What Is Arbitrage?
Buy the same thing cheaply in one market, sell it dearly in another, keep the difference.
Definition
Arbitrage is buying the same thing cheaply in one place and selling it dearly in another. In DeFi the arbitrageurs are also the mechanism: prices stay consistent across venues because closing the gap is profitable.
How it works
Watch the same asset in two markets. When they disagree, buy the cheap side and sell the rich side together. For synthetics, the second market is often redemption itself.
In Continuum
L/S tokens trade against the protocol's own pools, one long and one short per market, both held at net asset value by the keeper. Price sits at NAV plus a small spread, so what you execute at stays close to the oracle by construction. A large trade can knock a pool off the mark for a moment, but it snaps back and big orders fill at the next oracle print. The classic arbitrage still applies anywhere else L/S tokens are listed: if an external venue drifts from NAV, minting or redeeming against the protocol captures the gap and drags that venue back.
Related terms
More trading terms
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