The world of decentralized finance (DeFi) is rife with opportunities for savvy investors to capitalize on price discrepancies across different platforms. One such opportunity has recently emerged with the LPT token, which has been trading at a significant discount on the Arbitrum network compared to centralized exchanges (CEXs) like Binance. The reason behind this price discrepancy reveals some interesting insights into the mechanics of arbitrage and the future direction of LPT’s price.
LPT is a token with a market capitalization of approximately $200 million. Since August 7th, it has been the target of persistent manipulation, artificially pumping its price. However, with a market cap of $200 million, it may be clearer how the token is being manipulated with such ease. The answer is that nearly 50% of the LPT supply is staked on the Arbitrum network, reducing the real circulating market cap to only half its apparent value.
Stakers on the Arbitrum network must wait for a 7-day unstaking period before selling their LPT tokens. Once unstaked, they have two options: sell on-chain or send their tokens to exchange for selling.
However, there’s a catch. Major CEXs do not accept LPT deposits from Arbitrum, only from the ERC-20 network. This means that there is an additional 7-day bridge time required to transfer LPT tokens to CEXs for selling.
What you'll learn 👉
Price Discrepancy and Desperation to Sell
The price of LPT is currently artificially propped up, and many holders are betting that selling at a 10-20% loss on-chain is a better option than waiting an additional 7 days to sell on a CEX.
This desperation to sell is evident in the on-chain discount, with many holders choosing to sell at a 20% discount rather than wait for the 7-day bridge period. As a result, a significant amount of LPT is currently in transit in the 7-day bridge lock, waiting to be sold on CEXs.
LPT’s funding rate is currently consistently negative. Those who do not want to sell at a discount on-chain and wait for their LPT tokens to make it through the bridge use perpetual contracts (perps) to hedge their tokens.
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Show more +This creates a potential arbitrage opportunity if the perps funding over a 7-day period is less than the discount between the on-chain and CEX prices. However, this opportunity is limited due to on-chain liquidity and is subject to risk due to funding fluctuations.
Timeline and Future Outlook
The timeline for these coins being bridged to sell is approximately 14 days from the points that LPT was pumped. The key pump dates were August 7th, 12th, and 13th, making August 21st through 28th the period to monitor.
If the on-chain price is any indication, LPT holders believe the price is trading at a minimum of 10-20% over fair value and plan to sell as soon as their funds make it through the Arbitrum bridge.
While LPT has been associated with other manipulated coins like BLZ and AKRO, it fundamentally differs in that a large supply is actually on its way to being sold, unlike the other coins. Initial Dune queries suggest that the amount of LPT currently on its way through the Arbitrum bridge is more than 20% of the total daily spot volume of LPT.
The desperation to sell following these pumps is likely because the protocol earns virtually no real fee revenue, relying on infinite inflation to appear sustainable. Investors should be cautious and monitor the market closely during the upcoming period.
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