Peg arbitrage mechanism

During normal market conditions it should be expected that sTAO trades on-peg, because sTAO is directly backed by TAO.

Should sTAO still trade off-peg however the peg can be restored in two ways:

1. Cross platform, external Market Arbitrage.

2. Round trip arbitrage with Taofu.

The first method implies that if there are multiple markets on which sTAO is trading and one of the markets loses peg, the difference between both markets can be arbitraged.

The second method can be performed by any entity that is approved for minting and redeeming sTAO directly with the Taofu protocol.

When sTAO trades above peg, entities can use TAO to mint sTAO, sell sTAO into the pool and recoup more TAO than they had used to mint.

When sTAO trades below peg, entities can buy sTAO from a pool, redeem the sTAO directly with Taofu and generate profit in the process.

Due to the bidirectional relationship of minting and redeeming, any whitelisted entity can successfully perform peg-arbitration for profit generation.

Taofu, in partnership with market makers, also holds a liquid buffer containing both sTAO and TAO to facilitate peg-arbitration with limited time constraints.