Outline
- After the integration plan for Finschia Chain and Klay Chain is approved, the price ratio between the coins of the two chains must match.
- This is the proposal for arbitraging that takes advantage from the gap between coins of two chains.
- Borrow KLAY from the Klaytn Foundation, arbitrage, make the price of the pair balanced, and repay to the foundation with interest.
- Increase trading volume and provide liquidity for DEXs which are planning to support KLAY - FNSA pairs
- Could be a contribution to the volume/TVL targets set for D2I during the boosting period
- In the future, the revenue from arbitrage could be partially burnt or distributed to the community.
Background
- The Klaytn-Finschia chain integration plan is expected to be passed. (* 2.16 now - it is passed.)
- However, even after approval, technical support and time are needed to integrate the two chains.
- Therefore, KLAY and FNSA will be traded on each chain for a while even after the approval.
- Since the exchange rate between KLAY and FNSA is known (with some additional compensation for FNSA stakers), the fair value between KLAY and FNSA can be compared & calculated.
- If the price ratio of the two tokens breaks down, a unilateral demand for one token arises.
- Match the price ratio of the two tokens through token lending arbitrage, and at the same time provide liquidity to dexes (Neopin, DragonSwap, etc.) that initially support the KLAY-FNSA pair.
Trading volume and interest rates
- Monthly trading volume: approximately 30-60 times the principal amount
- Interest rate: Higher than DeFi, which provides the highest interest rate in the ecosystem, approximately 1% per month
- In the case of interest, it is measured not in dollar value but in number (e.g. lending 10,000 KLAY and repaying 10,100 KLAY - no value hedge)
- If a DeFi offering higher interest rates appears within the newly created ecosystem, the interest rate could be adjusted upward.
- In the case of trading volume, it can also be contracted to account for n% of the trading volume of a specific DEX. (Could communicate with Neopin, DragonSwap - contribute to the metric boost)
Lending Details
- Initial lending amount: approximately $100K (subject to changes)
- Cycle: 4-6 months
- Decide whether to extend, increase, decrease, maintain, etc. every month
- The basic outline is to start with $100K and increase gradually.
- In this case, the expected monthly transaction volume is approximately $3M - $6M
- Transaction reports can be provided on a daily, weekly, and monthly basis
Expected Benefits
- KLAY-FNSA token price ratio stabilization
- Create added value by utilizing idle KLAY
- More transactions occur in KLAY and FNSA ecosystem
- If the lending volume increases in the future, it is possible to contribute to token price stability by burning more of the profit share or generated revenue.
- Provide liquidity to DEXs offering KLAY-FNSA pairs in the initial project D2I
- Foundation / Dex / Lender, etc. can add desired targets or KPIs to the contract with BWL.
(Future) DeFi Integration
- In the future, the arbitrage algorithm and automated bot can also be used for DeFi in the Klayton ecosystem.
- Example) LST Arbitraging & Looping is provided to maximize user benefits in the restaking protocol.
- Generally, when bots and DeFi are used simultaneously like this, it is referred to as ‘hybrid DeFi’ these days.
- Case: Perpetual protocol adds arbitrage vault innately. Cowswap targets to be first MEV-catching DEX.
- Users can directly deposit tokens in the arbitrage Bot, increase the exchanges of DEXs, and utilize idle tokens - to be circulated in the ecosystem.
- Blockwave Labs can first build a lending protocol and then move forward with the development of a restaking protocol in stages.
Timeline
-
Update arbitrage proposal and fill out application form by 2/14
-
Upload to Klaytn Governance forum by 2/17
-
Receive feedbacks and implement those & get the votes by 2/21
-
Sign the contracts & the initial KLAY amount transferred around 2/28
-
Contract extension & detailed decision on a one-month basis thereafter
-
Upload trading volume and progress to Telegram Group Chat or other medium on a daily basis
-
In the case of Blockwave Labs, continuous updates along with lending protocol development (6-8 weeks) to the foundation or community
-
** If possible, a pilot test will be conducted to improve trading volume before/after the voting period - done
-
** Going to see if there is any opportunity to borrow FNSA - if not, starting with KLAY and directly conribute to the DEXes & Klay ecosystem before the merge.
Team Introduction
Blockwave Labs is the trading firm which specializes in the arbitrage, liquidity provision, orderbook filling and market making. Building the dapps for the on-chain market efficiency as well.