# Arbitrage

Arbitrage is the act of profiting from price discrepancies across markets. Within the Peapods system, these opportunities arise when the market price of pTKN diverges from its redemption value, which is determined by the Collateral Backing Ratio (CBR).

Because pTKN is actively traded in AMM pools, its price can move independently of the amount of TKN it is redeemable for. This creates arbitrage loops that feed value back into the system.

### **Arbitrage Routes**

**If pTKN is trading below its redemption value:**

1. Arbitrageurs buy discounted pTKN from the AMM pool.
2. They unwrap pTKN to receive more TKN, based on the current CBR.
3. TKN is sold externally at market price, generating a profit.

**If pTKN is trading above its redemption value:**

1. Abitrageurs buy discounted TKN from the market.
2. They wrap TKN into pTKN, based on the current CBR.
3. They sell the newly minted pTKN into the AMM at the inflated price, generating a profit.

<figure><img src="/files/vX7P5HBglb2O16DIA5iE" alt=""><figcaption></figcaption></figure>

Each arbitrage event delivers three key outcomes:

**Pod Revenue**:\
Buy, Sell, Wrap and unwrap fees are captured and allocated to the Pod. The rate of fees and distribution mechanics are specific to the settings of each Pod.

**CBR Growth**:\
If a portion of Pod revenue is allocation to pTKN burns, then the CBR of the Pod will increase thus increasing the value of each pTKN relative to TKN.

**Price Stability**:\
Arbitrage pressure pulls the AMM price of pTKN back toward its redemption value, improving capital efficiency and liquidity reliability.

Arbitrage is therefore not only self-correcting—it is value-generating. It ensures that price dislocations benefit both LPs and pTKN holders, while continuously reinforcing the underlying economic loop of the Pod.

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