Arbitrageurs

"It was soon learned that using each Portal required balance. Economic time travel was no easy feat.

A group of mechanics emerged, devoted to the maintenance of a harmonious system."

-Epigraph of the Traveler

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There’s a fixed amount of PSM in each Portal which gets paid out as a representation of the accrued yield from the Portal’s strategy (in our running example, yield would accrue in USDC via the Aave Portal).

The system takes in USDC, receives USDC yield and pays out PSM.

This creates an arbitrage opportunity.

When the Portal is first created, there’s a fixed amount of PSM tokens that will be able to buy the entire balance of accrued yield tokens (USDC) within the Portal. Let’s say this amount is 100 PSM.

Later on, the USDC balance within the Portal has grown to 1000 USDC. However, the market price of PSM is $9. So, someone could buy 100 PSM for $900, and then deposit them into the Portal and receive 1000 USDC: a profit of $100.

Additionally, 10% of that PSM goes to the funding pool, which can then be claimed by bToken holders.

This is an effective means to continue funding the Portal with PSM to pay out to depositors. It’s a predictable arbitrage scenario where the arbitrageur wins by making “free money” while the users win as the Portal can continue paying them PSM tokens.