The Capital Sink

This description is still work in progress. Images and diagrams coming soon TM.

WCM: Arbitrage, Equilibrium, and the Capital Sink

For over five years, a persistent arbitrage has existed between lending and funding rates, worth more than $4 billion in cumulative PnL. In theory, lending and funding rates should converge in an efficient market, but on-chain history shows they have not.

The reason is structural: closing this gap requires a venue that unifies lending and perpetuals under a single risk engine. Without such unification, the spread remains open.

The Internal Arbitrage

WCM solves this by recognizing that a loan, a spot position, and a perp hedge can net to zero market exposure. With unified risk management, traders are able to apply more leverage than anywhere else.

The arbitrage is simple: borrow at the lending rate and short the perp at the funding rate. The difference between the two becomes profit, amplified by leverage — e.g., a 5% spread turning into a 50% return. If the rates flip, the trade can be reversed.

This opportunity extends across all liquid assets, especially yield-bearing pairs like ETH–stETH or BTC–LBTC, as long as they are listed in both lending and futures markets.

Over time, however, lending and funding rates on WCM converge. For example, a 5.5% lending rate and an 11% perp rate would settle around 7.75%. That convergence introduces new arbitrage opportunities, now between WCM and external venues such as:

• Lending platforms like Aave or Morpho

• Perps venues like Hyperliquid or Lighter

Because WCM’s structure is fundamentally different, these external spreads persist until capital moves in to close them.

The Capital Sink Effect

This dynamic is what makes WCM a capital sink — capital naturally flows into it without external incentives. In finance, capital efficiency functions like gravity: liquidity is drawn to wherever it can be deployed most effectively.

Flow of Capital

The gravitational pull of WCM plays out in predictable stages:

1. Local inflows (~$100M TVL): capital shifts from WCM’s nearest neighbors on the same network.

2. Network inflows (~$50B TVL): liquidity expands outward into adjacent networks.

3. Global inflows (~$500B TVL): eventually, WCM’s pull extends across all comparable markets, from crypto to FX (stablecoins).

The Iterative Arbitrage Cycle

The arbitrage mechanism follows a repeating cycle:

• Starting point: WCM’s lending rates mirror Aave’s (~5.5%), while its perps track Hyperliquid (~11%).

• Internal arbitrage: Traders close the lending–perps spread within WCM, forcing internal equilibrium.

• External arbitrage: That equilibrium exposes spreads with external venues, creating incentives for inflows.

• Iteration: As traders exit, they unwind arbitrages, reopening spreads for new entrants.

With each cycle, capital is pulled inward. The process only ends when WCM is in equilibrium with the broader market — but crucially, that equilibrium requires capital to sit on WCM.

Conclusion: Gravity Beyond Crypto

WCM’s unified structure doesn’t just eliminate a temporary inefficiency; it creates a self-reinforcing cycle. Each round of arbitrage strengthens its gravitational pull, concentrating liquidity inside WCM until it becomes the central clearinghouse for rates.

In this way, WCM is more than just another exchange. It is a true capital sink — one where liquidity doesn’t need incentives, only the gravity of productivity. And over time, that gravity is not limited to crypto. Wherever rates exist, the same mechanism applies.