BWG Loonshots

In 2022, a DeFi swap could finish in seconds. Its economic afterlife did not.

A user makes a large swap through an AMM. The pool's reserve ratio moves, opening a price gap against another DEX. A searcher spots the gap and immediately submits the opposite trade. The two prices that had drifted apart move closer again, and the searcher captures the arbitrage profit.

The market appears to have worked as intended: arbitrage brought prices back into line. But the transaction leaves an uneasy ending for the trader. The user's action created the price gap, and the user paid the slippage and gas. The value created by that trade went instead to whoever followed it fastest.

At the end of 2022, our question began there.

What if the arbitrage did not have to wait outside the user's transaction? Could the protocol capture it first and return the remaining value to the user?

For a time, discussions of RWAs and tokenized securities focused on how finely an asset could be divided for trading.

Real-world assets that are difficult to trade or costly to access—real estate, music copyrights, artwork, and accounts receivable—could be represented as digital tokens, allowing fractional interests or claims to be held and transferred in smaller units. The first promise of tokenization was that rights with little liquidity could become tradable in new ways.

But making the units smaller does not, by itself, change how finance works.

Real estate produces rent. Music and patents produce royalties. Loans and accounts receivable accrue interest and repayments. Once the rights to those assets are divided into tokens and circulated, a harder question remains after the trade.

How should the income an asset produces—and the power to make policy decisions about that asset—be allocated among token holders who keep changing over time?