For ease of expression, we will use BAYC as our target NFT to be fractionalized. The following rules will apply to other NFT collections, such as CryptoPuns, Sandbox, and Otherdeed.

Since there are multiple standards of tokens in Fracton’s system, the prices of the fractionalized tokens of BAYC in different markets may deviate from the intrinsic value due to varying levels of liquidity and depth. However, by taking advantage of the instant conversion of Meta-Swap at a stable exchange rate, you can exploit arbitrage opportunities in other markets and for different token combinations.

1. Peope’s BAYC/Blind Box - hi BAYC
   People’s BAYC and Blind Box are ERC1155 BAYC fractions that can be traded on NFT marketplaces such as Opensea and LooksRare. Generally speaking, the listing\offering mechanism of most NFT markets has the problems of lack of liquidity and price volatility. Therefore, when the market price of Blind Box or People’s BAYC is lower than 1000 times the price of hiBAYC, it is an excellent time to buy Blind Box or People’s BAYC from the market, convert them to hiBAYC through Meta-Swap and sell them on Uniswap or the centralized exchange, from which you can earn a risk-free spread.
   Tips: for this type of arbitrage transaction, you can lower your average gas fees and improve arbitrage yeild if you convert multiple Blind Boxes or People’s BAYC simultaneously.
2. People’s BAYC - BAYC
   When you discover the price of People’s BAYC is, to a certain extent, lower than 1/1000 of the cost of a BAYC, you should collect 1003 People’s BAYC to redeem for a BAYC from the vault, also through Meta-Swap.
   Tips: if you want to sell the BAYC immediately after the redemption to realize your arbitrage profits, ideally, the price of People’s BAYC you acquired is discounted by at least 6% compared to the cost of the BAYC. 5% is for the royalties and transaction fees on Opensea, and the remaining 1% accounts for the gas fee and transaction fees charged by the protocol.
3. hiBAYC - BAYC If the price of hiBAYC on Uniswap or the centralized exchanges is less than the value of a BAYC, you can acquire enough hiBAYC in the secondary market and convert them to People’s BAYC through Meta-Swap to redeem for BAYC from the vault. Tips: considering the cost of gas fees, transaction fees, and royalties, the average cost for hiBACY should be at least 6% discounted to the current floor price of the BAYC to make a profitable trade.
4. BAYC - People’s BAYC/hiBAYC In the upcoming v2 update, the curator system will allow users to add new BAYC to the BAYC vault using Meta-Swap. If the market price of People’s BAYC or hiBAYC is higher than that of BAYC, you can fractionalize the BAYC into People’s BAYC or further into hiBAYC and then sell the fractions in the market. Considering the level of liquidity and depth of ERC20 tokens, we highly recommend fractionalizing the BACY into hiBACY before selling. Tips: considering the cost of gas fees, transaction fees, and royalties, the average cost for hiBACY should be at least 6% discounted to the current floor price of the BAYC to make a profitable trade.

The above arbitrage strategies can be instantly done through Meta-Swap. In future versions, Fracton Protocol will bring more arbitrage opportunities for our users with the increasing corporative marketplaces and chains and the blue-chip NFTs in our vaults. Stay tuned!

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