A Unique Approach to LVR in Synthetic Markets
Traditional AMMs suffer from Loss-Versus-Rebalancing (LVR): Arbitrageurs enforce the true market price instantly, extracting riskless profits every time the price moves. The LP becomes a forced counterparty who:
sells too cheaply when prices rise,
buys too expensively when prices fall,
and loses value continuously to arbitrageurs who remain delta-neutral.
This happens because classic AMMs assume:
Instant, permissionless access to the reference price (spot market).
Frictionless arbitrage loops between the AMM and the reference market.
Continuous rebalancing allows arbitrageurs to stay risk-free.
The Fedz breaks all three assumptions — by design.
In the Fstocks architecture:
The reference price (TSLAx) lives inside a gated PLP, not a public spot market.
Conversion between FTESLA ↔ TSLAx is sequential, rate-limited, and not instantaneous.
Arbitrageurs cannot close the loop without holding real exposure to FTESLA over time.
This turns arbitrage into a directional convergence trade, not a riskless rebalancing trade.
As a result:
Arbitrageurs no longer extract guaranteed profits.
LPs are no longer systematically “picked off.”
The classical LVR tax is structurally disrupted.
Short-term price drift often benefits LPs (buying cheap / selling rich).
This unique isolation of price discovery — between a fast, noisy public market and a slow, accurate private anchor — is what makes the LVR dynamics of Fstocks fundamentally different from traditional AMMs, and why LPs can operate profitably without needing perfect price tracking at every block.
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