Arbitrage and Market Efficiency

As mentioned earlier, Helios will become part of the arbitrage loop between different crypto markets. A few scenarios:

• Cross-Market Arbitrage: If borrowing costs differ between Helios (Bitcoin market) and Ethereum-based markets, traders will arbitrage. For example, if borrowing BTC is cheaper on Helios than on Aave, a trader can borrow on Helios, convert to WBTC, lend it on Aave, and pocket the rate difference. This will continue until rates equilibrate. Conversely, if Helios offers higher BTC deposit yields than elsewhere, BTC will flow into Helios. This cross-market activity ties Helios’s rates to the broader crypto credit market, ensuring Helios offers competitive yields and costs. Over time, we expect rate convergence where Helios’s rates reflect global demand for BTC lending, plus perhaps a small premium for being Bitcoin-native (which is actually reduced risk, ironically).

• Lightning Network or Sidechain Integration: Though not in initial scope, Helios’s architecture can extend to layer-2s or sidechains for faster/cheaper transactions. If Helios expands to e.g. the Lightning Network or a sidechain, then arbitrage between on-chain Helios and off-chain Lightning pools might occur. This further increases Bitcoin market efficiency.

• Inefficient Market Opportunities: Because Helios is bringing new capabilities to Bitcoin, early on there might be inefficiencies – e.g., maybe BTC borrow demand is low, so rates are low, allowing cheap leverage; or maybe there’s high demand for stablecoins on Bitcoin, so one could borrow BTC, convert to stable, and lend at higher rates on Bitcoin itself. Sophisticated traders will find and smooth out these, which benefits the system by increasing usage and ensuring lenders always get a fair return relative to risk.

Overall, Helios can improve market efficiency for Bitcoin. By connecting Bitcoin’s liquidity to interest rate markets, it helps price the time value of BTC (something that was hard to do natively before). Arbitrage ensures no big discrepancies last for long, which in turn signals that Helios is functioning well and trusted by arbitrageurs (who are often the quickest to flee if something seems unsafe).