In the current implementation, anybody can earn money arb’ing the BTC2x-FLI on the secondary markets. In order to bring that revenue source in house, this IIP proposes that the Coop initializes the Debt Issuance Module on the BTC2x-FLI with an issuance hook that checks:
- Only whitelisted smart contract addresses are allowed to mint the BTC2x-FLI. This does not apply if the caller is an externally owned account (EOA). And this does not apply to the redeem flow.
- New issuances won’t push the totalSupply over the supply cap (similar to ETH2x-FLI).
Adjust the following parameters on theBTC2x-FLI:
- Initialize the SupplyCapAllowedCallerIssuanceHook to the DebtIssuanceModule
- Whitelist Set’s Arbitrage bot once deployed.
The bot will be created such that:
- Anyone can call the arb transaction.
- Upon a successful arb, ETH used for gas is returned to the caller.
- Excess profits are transferred to the treasury at the end of the transaction.
Currently, anybody is able to earn money arb’ing the NAV vs. secondary market spread for the BTC2x-FLI.
Instead of giving that profit opportunity away right at launch, we can internalize it into the Coop by only allowing whitelisted bots (starting with Set Labs). These arbitrage bots will flashloan and source underlying tokens from DEXs, mint the BTC2x-FLI and sell the BTC2x-FLI when price is higher than NAV.
Anyone can call the arb bot to execute an arb, not just Set Labs. At the end of a successful arb, the ETH used for gas in the transaction is returned to the caller, and revenue from arbitrage is automatically deposited into the Index Coop treasury.
Other arbitrage bots run by Coop community members can be added to the whitelist through follow on IIPs. Additionally, if the market reaches maturity, governance can choose to remove the whitelist functionality altogether.
We view this as an experiment to test if we can potentially double or triple the revenue for the Coop per new product. If successful, we can massively increase the profitability of the Coop. If unsuccessful, we can easily remove the whitelist and allow for an open market again.
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