Glossary

Here you can find the meanings behind any industry specific jargon that you might find confusing. We hope this helps define some of the terminology used within this these documentation.

Arbitrage

Crypto arbitrage depicts the process of capitalizing from price deviations of a cryptocurrency assed between a variety of exchanges or marketplaces. In this process a trader would buy an asset for a lower price on one exchange and sell the asset on another exchange, at a higher price. The deviation between the price spreads is recognised as profit. Arbitrage example - Tim buys ETH for $1000 on Binance and sells it on UniSwap for $1010. His net profit is $10. This is an example of a successful CEX - DeFi arbitrage trade.

External Liquidity Sources

Sources of liquidity that Private Pools Network interacts with outside of our ecosystem. Price deviations between these liquidity sources and ratios within our Private Index Pools, allow our trading engine to buy or sell from one liquidity source to rebalance with our Private Index Pools, resulting in profitable yield extracted in the process. Examples of decentralized external liquidity sources would be DEX LP's such as UniSwap, PancakeSwap, SushiSwap e.t.c. Examples of centralized external liquidity sources would be order books accross Binance, HTX, Coinbase, ByBit, OKEx e.t.c

Impermanent Loss

Impermanent Loss is a risk faced by liquidity providers in decentralized exchanges (DEXs) like Uniswap. It happens when the value of assets in a liquidity pool changes compared to when they were deposited. This results in liquidity providers receiving fewer assets than they initially deposited, even when factoring in trading fees.

Priority Gas Auctions

A priority gas auction in blockchain allows users to bid higher gas fees to speed up transaction processing. Miners prioritize transactions with higher fees, incentivizing faster processing for those willing to pay more. This is a major flaw in the current arbitrage process. Due to the public nature of liquidity pools, arbitragers often race to zero as they bid for blockspace to get their order processed before the competition does. This often leads to up to 80% of the value extracted from arbitrage lost as an overhead to pay the validator.

Private Index Pool

A Private Index Pool (PIP) is our innovative approach to liquidity provision. Utilizing Balancer architecture, we create various balanced and index LP positions designed specifically to serve as counter-liquidity in the arbitrage process. We chose Balancer because it is both battle-tested and ideally suited to accommodate the diverse assets our protocol requires to maximize arbitrage opportunities. By hosting a variety of assets in an index, we enhance our network effect, fostering an environment conducive to triangular arbitrage. Additionally, this strategy provides the fringe benefit of diversified exposure against a single asset.

Private Order Flow

Privatized orderflow is what makes our model unique. DeFi orderflow is inherantly public (Public Order Flow). This is what enables users of DeFi to freely trade in and out of liquidity sources. However, the public nature of standard order flow means Liquidity Sources such as DEX LP's, are pillaged by MEV opportunists leading to value loss within LP positions (due to impermanent loss) and a huge amount of wastage (due to PGA's) in the process. We flip this model on its head, by restricting access to our index pools, allowing only our Trading Engine to interact with them, we cultivate an environment that establishes a privatize order flow, to which we extract value from external liquidity sources.

Toxic Order Flow

Toxic Order Flow refers to the risk in trading where one party exploits private or privileged information to gain an unfair advantage over others. This can lead to market makers providing liquidity at a loss, impacting market stability. In DeFi, it often involves practices like front running, where transactions are exploited for profit.

Unsustainable Token Incentives

Unsustainable token incentives is a subjective phrase, but used in our documentation to depict the incumbent process of relying on external funding (such as grants) from foundations (such as the Arbitrum Foundation) or relying on a high emissions schedule, to sufficiently incentivize liquidity as a means of outpacing Toxic Order Flows or Impermanent Loss.