Self-balancing pools

The Arbiter smart contract manages the self-balancing pools and continually monitors if the asset value ratios within the pool are unbalanced.

If an imbalance is detected, the system calculates the size and direction of the required rebalancing trade and then selects the best external decentralized exchange as a counterparty to execute the arbitrage operation, aiming to maximize profits.

Given the highly volatile nature of crypto assets, these strategic arbitrage operations can generate substantial profits, which are usually captured by external arbitrageurs in traditional DEX pools.

The profits from these operations are periodically auto-compounded by adding liquidity back to the self-balancing pools to increase profitability and efficiency; the newly minted LP tokens are then distributed to liquidity providers.

Smart contracts are typically dormant and need an external entity to activate them and initiate a specific function. This can create a single point of failure where developers establish internal infrastructure to execute the function when required, leading to an unreliable and opaque solution.

By leveraging Chainlink Automation, FlashLiquidity AI has developed a fully automated system that searches for profitable on-chain arbitrage opportunities, executes the swap, and distributes profits to liquidity providers—all on-chain. This approach eliminates the need for a centralized automation stack, reducing associated risks and increasing transparency.

The Arbiter performs rebalancing when the value ratio difference between the assigned FlashLiquidity AI pool and an equivalent external pool on another decentralized exchange exceeds a minimum arbitrage profit threshold. Once executed, the rebalancing operation brings the FlashLiquidity AI pools back to fair market prices.