Arbitraging Pizza? How Liven’s Internal and External Exchange Rates Work
If you’re savvy in the world of markets and finance, you might have heard of the concept of arbitraging, where traders buy an asset on one market and quickly sell that same asset on a different market, profiting from the price imbalance between the two.
It’s an inevitability when assets are traded across multiple platforms, or intrinsically have different value across different platforms. Unsurprisingly, the same thing happens in the world of cryptocurrency, albeit with greater amounts and with far greater price volatility.
In the case of Liven and our world-first cryptocurrency for food (a bit more information on that here if you’re not up to speed), our arbitrage becomes a bit more unique.
Liven’s new coin, LVN, will be able to be used in a network of over 1,000 restaurants, cafes, and bars in Australia to purchase food and drinks. The value of LVN within our partner network will be intrinsically set by our balanced rewards curve protocol, and trends marginally up or down depending on the amount of people purchasing through the network.
But regardless, users will always know how many fiat dollars their LVN coins convert to.
However, just like most cryptocurrencies, LVN will have its own value if it begins to trade on external cryptocurrency exchanges. The value of the coin externally is entirely independent, and based on common market forces such as demand and public perception.
This means there may be times when the value of LVN on external exchanges is higher or lower than the value of LVN within the Liven network. We’ve outlined two scenarios where this happening could lead to changes in users’ behaviours, and where it could lead to arbitrage opportunities (read: free food) for clued-in users.
1. The price on exchanges is significantly higher than the internal value.
If LVN begins to trade at a price much higher than the intrinsic value within the network, quick-thinking users will be presented with an opportunity to eat at partner restaurants, earn LVN, and then transfer it to an exchange to sell at a higher price.
Think about it this way: instead of getting 10–25% of your bill back in LVN, you might be getting 50% or more of your bill back, thanks to the heightened price of LVN on external exchanges. Smart users could even eat for free, or earn a profit on their meal depending on the price difference! What a time to be alive.
2. The price on exchanges is significantly lower than the internal value.
On the other hand, if external prices are significantly lower than the current intrinsic value of the LVN token, users would be able to purchase LVN externally and transfer it to their app wallets.
That user would then be able to purchase meals within the Liven network for a discounted price while still receiving rewards. It’s not a free meal, but it’s pretty damn close.
These events act as a balancing mechanism to hopefully prevent significant discrepancies between internal and external LVN prices. These concepts will be explained further in Liven’s whitepaper, which is set to be released soon.
Finally, users who hold LVN can always have confidence in their coins having value within the Liven network. So even if external markets crash, governments collapse, and riots overwhelm the streets, you’ll still be able to use your LivenCoins to buy yourself a burger, fried chicken, or pretty much any food you feel like.
So it might be time to stop watching Blockfolio, and start watching your waistline.
Read more about how The LivenPay project is building a stable cryptocurrency for the real world, and making the capabilities and benefits of blockchain technology accessible for brick and mortar businesses and everyday consumers in this announcement.