Money 2.0 Stuff: LosemoneyDAO

One way of thinking about Ethereum is as an arbitrage opportunity manufacturer. Many of these arbitrage opportunities — notably, those involving non-custodial exchanges — are structural: asset A trades for price $100 on venue X and price $105 on venue Y and so there is money to be made from buying A on X at $100 and selling A on Y at $105. These opportunities will persist as long as liquidity remains fragmented. Perhaps we can think of them as ‘bottom-up’ arbitrage opportunities.

The second class of arbitrage opportunities is ‘top-down’: that is, they are opportunities by design. These opportunities typically appear in the lending landscape, where maintaining solvency at all times is paramount. Protocol governors typically set discounts on collateral to be liquidated, ensuring that third parties are incentivized to cover the system’s outstanding debt before it falls into default. In some ways, this collateral discount is an implicit bid-ask spread: the protocol requires instant liquidity for the borrower’s collateral and these third parties provide it at a price.