Comprehensive Harmonizer for Arbitrage Kinetics and Revenue Accumulation
The Comprehensive Harmonizer for Arbitrage Kinetics and Revenue Accumulation (CHAKRA) serves a dual purpose of maintaining the price stability of HONO, in accordance to its backed value, and generating revenue for the protocol. It achieves this by using two types of arbitrage trades — above peg and below peg arbs:
The above backing arbitrage involves minting HONO with ETH at the backing price and then selling it at an overpriced rate until it reaches the backed value. The premium collected from this sale is then used as revenue.
The below backing arbitrage, on the other hand, involves burning HONO and redeeming ETH from the collateral reserve. This is used to buy back HONO until it reaches the backed value, and again, the premium collected is used as revenue.
Advantages of CHAKRA
It’s important to note that all arbitrage trades must be completed in a single transaction and can only be executed if there is a profit to be made. This ensures that the protocol will always profit and that HONO is always fully-backed.
One of the advantages of CHAKRA is that the protocol does not have to compete for MEV. This is due to the fact that MangaFi is the only entity allowed for minting and redeeming HONO, ensuring that arbitrage trades will always be profitable for the protocol before any third party.
Additionally, the single-block mint/redemption arbitrage allows the protocol to out-compete market participants trying to take advantage of the premium/discount.