Arbitrage Feeds
First Semi-Automatic User Arbitrage
Guess who’s back?
The Yel Finance Team is pleased to announce that our new prime product — Arbitrage Feeds — will go live in Beta mode very soon. Arbitrage Feeds is the first semi-automatic arbitrage solution for users within the Potion Ecosystem, providing real-time arbitrage opportunities that users can execute with a single click.
Brief Recap: Potions Basics
Last summer, we introduced our volatility farming product — Potions. If you’re familiar with it, feel free to skip ahead. If not, let’s review the basics.
Volatility farming leverages ongoing fluctuations in original and derivative asset prices through a parallel liquidity approach. This creates a self-sustaining, closed ecosystem where arbitrage opportunities arise without relying on oracles or price feeds. Users sustain this mechanism by creating derivative assets and providing parallel liquidity, enabling other participants to efficiently capitalize on arbitrage opportunities.
We took it one step further and created Potions, a closed yield ecosystem. Here’s how the mechanics work:
- Users first create derivative tokens by wrapping them (e.g. ETH -> lETH).
- Further users provide liquidity for derivative tokens (e.g. user provide lETH and USDC to create lETH/USDC Pool and receive slETH LP Token) to enable a parallel liquidity pair to the original pair (in this case ETH/USDC).
- This creates opportunities for price discrepancies between the original liquidity pool (ETH/USDC) and the parallel liquidity pool (lETH/USDC), which arbitrage seekers can exploit.
A small note: the parallel pool can mirror the original completely, with both assets wrapped. For example, the original pool could be ETH/USDC, while the parallel pool would be lETH/lUSDC. This enhances volatility and creates even more opportunities for farming and arbitrage.
The system’s incentivization mechanism rewards participants — derivative holders and liquidity providers — through the ecosystem’s fee structure. Fees collected from actions such as wrapping and unwrapping are redistributed to sustain the ecosystem.
All ecosystem participants benefit from executing their role, in particular:
Participant Group
Derivative Holder
Liquidity Provider
Arbitrageur
Role
Create Derivatives
Create Parallel Liquidity
Drive Volumes
Actions
Wrap Tokens
Provide Liquidity
Arbitrage
Benefits
Holders APR; Single-Side Token Utilization
DEX LP APR + Potion LP APR
Revenues from Arbitrage
Potions are built around $YEL tokenomics, creating a deflationary token model that further supports APRs for derivative token holders and parallel liquidity providers.
Why Arbitrage Arises? A Closer Look.
Arbitrage opportunities occur within the Potions ecosystem due to market and ecosystem dynamics factors. Market dynamics is linked to original liquidity pairs, while ecosystem dynamics to parallel liquidity pairs. Important to state that derivative assets and parallel liquidity are not relying on oracles or price feeds from original assets, which makes them “move” independently.
Let’s break down these 2 groups of factors — market fluctuations and ecosystem dynamics.
Market Fluctuations
Original markets are influenced by numerous factors that drive their volatility, such as: market demand and supply dynamics, external market sentiment, price movements across numerous venues (CEXs, DEXs, cross-chain), trading volumes and liquidity imbalances. This all affects original assets prices.
For example, when the price of ETH drops in the original pool (ETH/USDC), the wrapped counterparts (separately, lETH and lUSDC) in the parallel pool (lETH/lUSDC) retains its value, creating a price discrepancy. Arbitrageurs can sell lETH in the parallel pool and buy ETH in the original pool, pocketing the price difference.
Ecosystem Dynamics
In contrast, derivative markets are purely dependent on user actions within the ecosystem that drive volumes and shift proportion of assets in parallel liquidity pools, meaning that buy/sell derivatives and arbitrage execution by participants are keys for arbitrage opportunities to occur.
For example, consider an original pool (ETH/USDC) and a parallel pool (lETH/lUSDC) with identical reserves. In the parallel pool, the price of 1 lETH is 3,600 lUSDC due to active trading, while in the original pool, the price of 1 ETH is 3,500 USDC. This discrepancy presents a clear arbitrage opportunity. Arbitrageurs can sell lETH in the parallel pool and buy ETH in the original pool, profiting from the price difference.
These variations, combined with ongoing market movements, create additional arbitrage windows for users to exploit.
Pre-Feed Era
Smart users have already taken advantage of price movements and collected some on-chain revenue. They have searched for the opportunities on the swap router and executed them whenever they have found a beneficial one.
Here is an example of how a user went from ~0.22 USDC to ~40 USDC in approximately 4 minutes.
Automating Arbitrage for DeFi Users
One day Yeloper (Project & Tech Lead) [add link — https://x.com/yel_oper] thought that why should users search manually for arbitrage opportunities, when we can provide them for their respective execution just like that on our front-end.
This led to the development of Arbitrage Feeds — a semi-automatic user arbitrage product operating within Potions ecosystem. It offers Yel’s users real-time information, routing, and semi-automatic execution of arbitrage opportunities that arise between different types of assets within volatility farming logic.
Key features of the Beta Arbitrage Feeds include:
- Real-Time Opportunities: Arbitrage routes and opportunities are updated in real time.
- Semi-Automatic Execution: Users can execute opportunities directly within the interface, requiring only a single transaction.
- Ecosystem Focused: Arbitrage opportunities are exclusive to the Yel ecosystem, simplifying processes by ensuring users typically enter and exit arbitrage with the same asset.
- Cost-Awareness: Gas fees, wrap/unwrap costs, and buy/sell fees are calculated for each arbitrage opportunity, ensuring users receive the pure profit margin.
How will it work?
It’s as simple as possible:
-> Users should navigate to the Arbitrage Feeds Page.
-> They will see real-time arbitrage opportunities with following details: opportunity id, efficient sum required to perform arbitrage, approximate revenue and route.
-> If the user has a sufficient amount of tokens to perform arbitrage, he clicks “ARB” and allows for the transaction to be executed.
-> receive revenue.
That’s all, folks.
By the way, if 2 users simultaneously try to execute the same arbitrage opportunity — “first come, first serve”. Second to come user will have his simulation failed as on screenshot above, and would not be able to execute the opportunity.
Wen
Beta version of Arbitrage Feeds release is pretty-pretty soon initially supporting v2 pools across Base, Blast, Sonic, and Fantom. Support for v3 pools will follow, as well as some upgraded features.
As usual, our OGs are going to have the ability to test it before anyone else and they already do. Btw, to become an OG and test everything first and get access to exclusive information about the development of our protocol, you need 3 things: (i) HODL $YEL for a reasonable amount of time; (ii) be an active Community Member and contribute to the Protocol development; and (iii) have another OG to vouch for you.
Discord [add link] and Telegram [add link] Communities will find out about the Launch minutes before initial announcement, so make sure you join our socials to be early.
Hint 1: It will be available only for $YEL Holders.
Hint 2: Prepare some operational funds to execute arbitrage.
All further details will be announced 72 hours before Arbitrage Feeds launch on our X [add link].
What Arbitrage Feeds Mean for Potions?
The launch of Arbitrage Feeds is a significant milestone for the Potions ecosystem. Here’s what it brings to the table:
- Increased Ecosystem Volumes: As users leverage arbitrage opportunities, transaction volumes within the ecosystem are expected to rise, benefiting liquidity providers and derivative token holders.
- Enhanced APRs: The increase in transactions drives higher fees, which are redistributed among ecosystem participants. This directly supports APRs for both LPs and holders of derivative tokens.
- User Empowerment: Arbitrage Feeds empowers users to participate directly in arbitrage activities, transforming a traditionally complex process into an accessible and rewarding experience.
- Improved Tokenomics: Yel Finance products are centered around its governance and utility token $YEL. All rewards for active participation are given to users in $lYEL tokens, as well as some portion of $YEL is burned.
Final Remarks
Thinking about it, I (Archy, Core & Analytics) can’t recall a single DeFi protocol offering users a direct way to execute arbitrage. Why? That’s an open question I will leave for your thoughts.
At Yel Finance, we position ourselves as a DeFi R&D Laboratory, constantly innovating to help users achieve smart, efficient, and real yield. Arbitrage Feeds isn’t just a tool; it’s part of our mission to build products that benefit users and redefine DeFi possibilities.
So here is the question: is Arbitrage Feeds the first prototype in DeFi for future democratized on-chain arbitrage products? 👀👀👀
