Liquidity

Using Liquidity to Create Arbitrage

Unlike most cryptocurrencies, JAY exchanges do not rely on liquidity pools or market makers on a CEX/DEX. Instead, the liquidity that is required to exchange ETH/JAY or JAY/ETH is derived from the Jaypeggers vault and corresponding mint/burn mechanism.

While Jaypeggers is not reliant on liquidity, as stated above, a JAY/USDC liquidity pool will enable the creation of arbitrage opportunities beyond those found in the Arbitrage Marketplace.

For example, if ETH increases in USD value, then it will be cheaper to purchase JAY from the USDC pool than from the contract. Since new tokens are not minted when purchasing from the liquidity pool, the user also avoids the fees that are applied when purchasing JAY with ETH on the Jaypeggers app. Conversley, if ETH decreases in USD value, then it may be cheaper to eat the fees and purchase JAY with ETH from the contract on the Jaypeggers app.

The fee structures shown below in #buying-jayand#selling-jaydetail an incentive model for users to provide liquidity to JAY/USDC and stake their corresponding LP tokens.

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