3. Inventory-Based Arbitrage
Keep T and $CAST on both chains, watch for price gaps, execute trades quickly, and watch your total balance grow as the market self-adjusts to your arbitrage.
Inventory-based arbitrage is a strategy where you pre-hold some inventory of both your target token (T) and the bridging token ($CAST) on each chain. By maintaining balanced holdings across, for instance, Base and Solana, you can instantly execute trades whenever a price discrepancy arises—buying T where it’s cheap and selling T where it’s expensive.
1. Spot a price discrepancy.
2. Buy $T where it’s cheaper using $CAST.
3. Simultaneously sell $T on the other chain’s pool where it’s more expensive.
4. Rebalance holdings afterward.
1. Overview
• Why Inventory?
Holding T and $CAST on both chains removes the need to borrow or bridge T itself. You only bridge $CAST if you need to rebalance or capture profits.
• Advantages
• Simplicity: No lending protocols or short positions needed.
• Instant Trading: You already have T on the expensive chain and $CAST on the cheaper chain, ready to go.
• Price Stabilization: Frequent arbitrage actions keep token prices on Base and Solana aligned.
2. How It Works
1. Pre-Hold T + $CAST
• Allocate a certain amount of T and $CAST on each chain (e.g., T = 1,000, $CAST = 5,000 on Base and the same on Solana).
2. Monitor Prices
• Continuously fetch the price of T (in $CAST) on both chains. If T is cheaper on Chain A than on Chain B, an arbitrage window may appear.
3. Compare & Check Threshold
• Calculate the percentage difference. If it exceeds a configured threshold (e.g., 1%), proceed with the trade.
4. Execute Trades
• Buy T on the cheaper chain (using $CAST).
• Sell T on the more expensive chain (using your existing T balance).
5. Rebalance (Optional)
• If you wish to maintain a specific inventory target, you can bridge some $CAST back and forth and swap to restore your original T + $CAST allocations on both chains.
3. Step-by-Step Example
1. Initial Balances
• Base: 1,000 T & 5,000 $CAST
• Solana: 1,000 T & 5,000 $CAST
2. Fetch Prices
• Base Price: 1 T = 10 $CAST
• Solana Price: 1 T = 12 $CAST
3. Identify Opportunity
• Price on Solana is higher: 12 vs. 10
• Difference = (12 - 10) / 10 = 20% (well above threshold!)
4. Arbitrage Action
• Buy T on Base: Suppose you spend 500 $CAST → you get 50 T at 10 $CAST/T.
• Sell T on Solana: From your 1,000 T on Solana, you sell 50 T for 12 $CAST/T = 600 $CAST.
5. Profit Check
• You spent 500 $CAST on Base but gained 600 $CAST on Solana.
• Net Profit = 100 $CAST (before minor fees/slippage).
4. Diagram
1. You pre-hold T and $CAST on both chains.
2. You detect a price gap.
3. You buy T where cheaper, sell T where expensive.
5. Benefits & Considerations
• Benefits
• Fast Execution: No waiting to borrow T.
• Simplicity: No direct T bridging. Only $CAST might cross chains for rebalancing.
• Market Stability: Regular arbitrage closes the price gap, benefiting the entire ecosystem.
• Considerations
• Capital Requirements: You need enough T and $CAST on each chain to capture meaningful arbitrage.
• Rebalancing: Over time, one chain’s T holdings may deplete. You might bridge $CAST or buy T to restore inventory.
• Fees & Slippage: Must be lower than the expected profit.
6. Conclusion
Inventory-based arbitrage is a straightforward way to maintain price parity between two chains, such as Base and Solana. By pre-holding T and $CAST on both sides, you can seize price discrepancies instantly—buying low on one chain and selling high on the other—ensuring net gains to your combined holdings of T + $CAST while also stabilizing cross-chain prices.
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