As mentioned earlier, one of the advantages of Falcon Finance is its ability to generate consistent returns through institutional arbitrage strategies. This strategy is executed by a professional team with experience in traditional and crypto financial markets, leveraging price or rate differences across various markets to gain profit without significant price risk. Here is a detailed explanation of the types of arbitrage strategies used:
1. Funding Rate Arbitrage
This is the most common strategy used by Falcon Finance, especially in crypto futures markets. In the futures market, the "funding rate" is the amount of money transferred between long and short traders every 8 hours to ensure the price of futures contracts aligns with the spot price of the asset.
- If the futures price is higher than the spot price, the funding rate is positive: long traders pay short traders.
- If the futures price is lower than the spot price, the funding rate is negative: short traders pay long traders.
Falcon Finance leverages this by forming a pair position (hedge):
- Buying assets in the spot market.
- Selling the same value futures contracts in the same market.
With this position, the risk of asset price is significantly reduced. The Falcon Finance team selects markets where the funding rates are positive and stable, allowing the platform to receive payments from long traders regularly, which are then distributed as yields to holders of $suSDF.
2. Cross-Exchange Arbitrage
This strategy exploits the price differences of assets that occur on two or more different crypto exchanges simultaneously. For example, the price of BTC on Exchange A may be $40,000, while on Exchange B it may be $40,200 at the same time.
How the strategy works:
- Buying assets on exchanges at lower prices.
- Selling the same asset on exchanges at higher prices.
Profits are generated from the price differences, minus transaction fees and settlement time. Falcon Finance employs an automated system that can detect price discrepancies in real-time and execute transactions quickly, maximizing profit opportunities before the price difference disappears (as markets tend to adjust quickly).
3. Native Asset Staking Arbitrage
Some blockchain chains use a Proof of Stake (PoS) mechanism, where asset holders can stake to help secure the network and earn yields. Falcon Finance leverages this by combining staking of native assets with hedging strategies.
How the strategy works:
- Staking PoS assets (like ETH, SOL) to earn staking yields.
- Forming a hedging position in the futures or options market to protect against price declines of the asset.
In this way, the platform can maintain yields from staking even if the asset prices drop. The net profits are then distributed to holders of $suSDF.
4. Synthetic Arbitrage
This strategy exploits the price differences between native assets and their synthetic counterparts traded in the DeFi ecosystem. For example, the synthetic price of BTC (sBTC) on a DeFi platform may differ from the spot price of BTC on major exchanges.
How the strategy works:
- Buying synthetic assets at lower prices.
- Selling the same value native assets (or vice versa) to profit from price differences.
Falcon Finance uses integration with various synthetic platforms to detect and exploit these opportunities, adding diverse yield sources.
How Are Yields Distributed?
All profits generated from this arbitrage strategy are collected and then distributed to users who have staked $USDF to receive $suSDF. Yields are paid periodically (usually daily or weekly) in the form of $USDF or $FF, depending on the protocol rules.
The Falcon Finance team also continuously monitors and adjusts arbitrage strategies to adapt to market changes, ensuring that yields remain consistent and balanced with the risks involved.
