How it Works
Core Concepts
Arbitrage Mechanism
unRoll allows users to take advantage of price differences between the two native tokens: $ROLL and $unROLL. These tokens reflect different aspects of market volatility, and users can exploit their price divergences to execute profitable arbitrage trades.
Here’s a step-by-step guide to how arbitrage works in unRoll:
Monitor Price Movements: Users track the price of $ROLL and $unROLL, compared to a base token, by using the protocol’s interface or integrated price feeds.
Identify Price Disparity: A price difference between $ROLL and $unROLL indicates a potential arbitrage opportunity - this is shown directly on our app.
Buy the Lower-Priced Token: The user buys the token that is temporarily undervalued.
Trade it for the opposite token: On our protocol you'll always be able to trade 1:1 ROLL/unROLL.
Sell the Higher-Priced Token: Simultaneously or shortly after, the user sells the token that is priced higher in the market, securing a profit.
Profit from the Spread: The profit is made from the price difference (the spread) between the buy and sell prices.
The arbitrage process can be made by anyone, but it is facilitated by automated smart contracts that execute trades when certain price thresholds are met, ensuring timely and efficient trading.
Token Pairing
The relationship between $ROLL and $unROLL is central to how users engage in volatility trading. The tokens are paired together, by the protocol and paired to other tokens in liquidity pools hosted on Uniswap.
Example of a pair with ETH:
$ROLL/ETH LP
$unROLL/ETH LP
$ROLL/$unROLL 1:1 pairing supported by the protocol
As the market’s volatility shifts, the price ratio between these 3 tokens changes, creating opportunities for arbitrage. Users can trade between these tokens to profit from these fluctuations, making unRoll an effective tool for volatility trading.
Volatility Trading
Volatility trading on unRoll is designed to allow users to capitalize on the natural ebb and flow of market prices. Traders can:
Profit from Price Swings: As market conditions shift, the values of $ROLL and $unROLL adjust in opposite directions, allowing traders to buy low and sell high.
Manage Risks: By trading between $ROLL and $unROLL, users can manage risks associated with sudden market changes. Arbitrage traders can minimize their exposure by taking advantage of market-neutral strategies.
Hedge Against Risk: Volatility trading can also be used as an edge against risk, as all the trades can be simulated and if profitable for the trader, then executed.
No Oracle Integration
Oracles allow for potential exploits and backdoors. unRoller works without the need of any third-party off-chain data.
Underlying Technology
1. Smart Contracts
unRoll is powered by a series of decentralized smart contracts deployed on the Base network. These smart contracts handle everything from price monitoring to trade execution, ensuring:
Automated Trading: When predefined price conditions are met, smart contracts automatically execute trades, ensuring timely arbitrage opportunities without user intervention.
Liquidity Management: Smart contracts also manage the liquidity pools for $ROLL and $unROLL, ensuring that users can efficiently trade between tokens.
2. Blockchain Tech
unRoll leverages the Base network, a Layer-2 solution designed for scalability and low transaction fees. By deploying on Base, the protocol benefits from:
High Throughput: Base supports fast transaction processing, ensuring trades are executed quickly, even during periods of high market activity.
Low Gas Fees: Layer-2 networks like Base offer significantly lower gas fees than Ethereum’s Layer-1, making arbitrage trading more cost-efficient.
Decentralization: As part of the Ethereum ecosystem, Base ensures that the protocol operates in a secure and trustless environment.
By integrating cutting-edge technology and leveraging the Base network’s scalability, unRoll offers a seamless and efficient platform for volatility trading, allowing users to engage in decentralized arbitrage with minimal friction.
Last updated