Alternative arbitrage pool mechanism

[synthetixio]

Alternative arbitrage pool mechanism

[nocturnalsheet]

A little insight on how this arb pool system can be exploited and is currently exploited

Firstly the mechanics of Arb pool design favours anyone with large sETH supply as they can control when the Arb pool can be triggered + exiting their sETH position with minimum slippage (by using the arb pool to bring the peg back up before selling down again)

Example onchain
Sells large amount of sETH to push down the peg: https://etherscan.io/tx/0xb521b732dcf20f848c60d6eaa7f60880afcf551a10c0d043b1d58aefcd743db0
Uses the ETH from selling sETH to buy SNX from the Arb pool
https://etherscan.io/tx/0xd5a18eb179ead5a5775428ac9fe952f6a2b02e5d3e535cf51cf4a98595a889ee
Repeat the sell of sETH
https://etherscan.io/tx/0x2e25f80639d200b01741ec66f7efe080b6528ee1e593317c33ae3beeeee5a561
Another buy using the ETH from selling sETH through the Arb pool
https://etherscan.io/tx/0x8a2297da7b960c0a693eb8b6904c319f28a063f74affce833e24fd6b4358350c

Another bot offloading SNX automatically from Arb pool
https://etherscan.io/token/0xc011a72400e58ecd99ee497cf89e3775d4bd732f?a=0xc0fb2a3be460a9a027ab55b947f8461402284f7d

These bots can then offload the SNX on Uniswap (which is the current method) and this puts a weekly sell pressure of 72k SNX on open market as users who have long term incentive alignment with SNX are not able to win/have opportunity to get discounted SNX by helping to restore the peg

[capnstash]

Not closing the arb loop is a big no-no. Arbitrageurs have opex, they will not long, more likely switch to some other arb.