Arbitrage opportunities

Volatility farming works ideally in environments characterized by rapidly changing asset prices, a scenario common in crypto markets. The supply side of volatility farming consists primarily of arbitrageurs and traders who actively pursue opportunities arising from price discrepancies between similar assets.

The Watt protocol satisfies all fundamental conditions essential for successful arbitrage:

• Watt tokens are freely tradable without requiring permission or encountering any constraints.

• Watt tokens can always be redeemed back into their original underlying tokens.

• Integration with permissionless decentralized exchanges (DEXs) makes opportunities accessible to everyone.

Examples of arbitrage trades in Watt protocol

• Scenario 1: Suppose the wattBONK token trades at a lower price than the original BONK token. Arbitrageurs can capitalize on this price difference by buying wattBONK on a DEX and then unwrapping it into the native BONK token. The native BONK can subsequently be sold, completing the arbitrage. This opportunity persists until the price difference between wattBONK and BONK equals the sum of the transfer and unwrap fees associated with wattBONK.

• Scenario 2: Conversely, if wattBONK trades at a higher price than the original BONK token, traders can take advantage of this situation by purchasing BONK tokens and wrapping them into wattBONK. The resulting liquid-staked wattBONK can then be sold on a DEX to complete the arbitrage. This arbitrage opportunity remains viable until the price difference between wattBONK and BONK matches the total wrap and transfer fees for wattBONK.