CPIT summary
- Every time a trade is made, the price of the underlying asset is moved by some amount
- As a nefarious vault manager, I could profit by manipulating the price of any token by using the vault funds
- CPIT, expressed relative to the NAV of the vault, works a safeguard against nefarious vault manager behaviour by ensuring that the economics of “rugging” are not viable
- Why are the rugging economics not viable? Suppose daily CPIT of some vault is set at 3% - this means that the vault manager could, in theory, steal 3% of total funds through manipulations described above. For every 100m in their vault, they could steal 3m (assuming depositors don’t catch on in time). The up-front cost of achieving 100m TVL in your vault likely exceeds 3m
- Since CPIT is initialised by each vault manager individually, the values are expected to converge such that rugging is economically not optimal
Last modified 1mo ago