➿The APPRECIATING Loop
Introduction:
$aETH has designed a self-sustaining loop that not only amplifies its value but also continually boosts its attractiveness to participants. This documentation simplifies how this beneficial loop works.
1. Launch & Initial Attraction:
Kickstart: The launch introduces the $aETH token and its enticing features.
The Allure of High APR: An impressive Annual Percentage Rate (APR) is presented, acting as the initial magnet for liquidity providers.
2. Attraction of High APR:
Liquidity Multiplies: The tempting APR lures more investors to the liquidity pool.
Key Activity: To join this pool, participants buy or mint $aETH to pair it with assets like $ETH and $USDC.
3. Ramifications of Increased Liquidity:
Boost in LP Price: With a growing number of participants and deepening liquidity, the Liquidity Pool (LP) token price starts its ascent.
4. Emergence of Arbitrage Opportunities:
Spotting the Discrepancy: A rising LP price manifests a gap between the contract and the LP rates.
Capitalizing on the Gap: Astute traders grab this window of opportunity. They mint $aETH from the contract for less and offload it in the higher-priced liquidity pool.
Dual Rewards: Minting boosts the token’s contract price and simultaneously amplifies the APR.
5. The Natural Profit Extraction:
The Dynamic: After enjoying appreciable gains, some holders decide to liquidate, selling their assets.
LP’s Reaction: This sell-off nudges the LP price downwards.
6. Round Two of Arbitrage:
Spotting a New Gap: The lowered LP price vis-à-vis the contract rate opens a fresh arbitrage door.
Acting Again: Traders now purchase from the deflated liquidity pool and proceed to burn in the contract in order to redeem the corrisponding amount of ETH, reaping the price differential.
Double Boost: Each redeem action elevates both the contract's price and the overall APR.
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