Arb. Engines
Protocol-Owned Market Makers
Core Function
An Arbitrage Engine is a specialised smart contract that acts as a protocol-owned market maker. Its purpose is to systematically re-peg whitelisted, discounted derivative assets by purchasing them at their full underlying (intrinsic) value, simultaneously adding yield-bearing assets to the treasury and enforcing market efficiency.
Upon the Stage 3 main-net deployment, three engines will be active, targeting the initial derivative assets: sdCRV, cvxCRV, and yCRV.
How It Works: The Re-Pegging Mechanism
Each engine operates identically in structure, differing only in the asset it targets.
Capital Allocation: An engine receives crvUSD from the Arb Master Node. The amount is determined by the proportion of total VW3 governance tokens staked within it, allowing the community to strategically weight capital towards specific assets.
Executing a Re-Peg Trade:
A user supplies a discounted derivative asset (e.g., sdCRV) to the engine.
The engine pays the user 1 crvUSD for every $1 of the underlying asset's value (e.g. the value of CRV). This is the core re-pegging action; it ignores the derivative's depressed market price and pays its true, intrinsic value.
To complete the trade, an Arbitrage Fee must be paid in GUILD. This fee can be paid by the user or, if available, subsidised by the engine itself (e.g. from donations by the derivative project).
The Arb Fee Safeguard: This dynamic GUILD fee is calculated as a percentage of the discount. It increases exponentially as the peg worsens, acting as a circuit breaker that makes unsustainable trades economically unviable and protects the protocol's capital.
Strategic Purpose & Collaboration
Arbitrage Engines are a powerful primitive for ecosystem collaboration.
For the 3 Protocol: They are a disciplined mechanism for acquiring yield-bearing assets below their intrinsic value, directly growing the treasury.
For Partner Protocols (e.g. StakeDAO): They provide a powerful, programmable tool to incentivise arbitrage for their own tokens. By donating GUILD to their dedicated engine, a project can subsidise fees, making their token more attractive to arbitrageurs and actively supporting its price stability.
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