How does NorthBridge solve supply shortages?
Cross-chain is one of the issues for farmers, in times, farmers face supply shortages therefore transferring back and forth might be an issue.
NorthBridge solve supply shortages by leveraging the “Arbitrage” method.
To make it easier to understand, let’s use an analogical example,
Suppose Country A has a higher gold price than Country B by 10% due to the fact that the demand for gold in Country A is higher. Speculators will foresee a profitable opportunity of buying gold in Country B and selling it in Country A to profit from the margin of difference in price.
This process is known as “arbitrage” which is perceived as trading the difference in matters of second but for this analogy, the arbitrage of gold has to take in account other instances as well ; such as , travel time , shipping costs.
Unlike the DeFi world where transactions can be made within seconds.
Back to NorthBridge.
Suppose we want to cross BSC to Polygon, We’ll need to purchase kMATIC to cross to MATIC on the Polygon’s side to cross the BSC to Polygon and therefore the price of kMATIC will subsequently increase.
When the price of kMATIC increases but is not equivalent to the price of MATIC, there will be speculators who will want to leverage arbitraging from MATIC tokens from POLYGON crossing to kMATIC and then selling it causing the price of both tokens to be similar.
Hence this is why Northbridge has an indefinite amount of supply at all times.