# 5. Price Bands, Routing, and Controlled Arbitrage

[Back to whitepaper overview](/lsteak-protocol-docs/lsteak-whitepaper-v2.2/overview.md)

LSteak does not attempt to enforce a fixed peg between market price and backing-derived value. Instead, it defines behavioural zones around BPT and applies deterministic routing rules within those zones.

This approach preserves price discovery while ensuring that volatility strengthens the system rather than destabilising it.

### 5.1 The Three Price Bands

These bands are protocol parameters.

They are not adjusted reactively.

Any changes are timelocked and bounded (see [Section D — Parameter Registry](/lsteak-protocol-docs/technical-appendix/section-d-parameter-registry.md)).

All routing logic references the relationship between market price and BPT:

* Deadband (±1%): Price is considered effectively aligned with backing value
* Premium (> +1%): Market price exceeds backing-derived value
* Discount (< −1%): Market price falls below backing-derived value

### 5.2 External User Routing

When users enter the system, routing depends on the active price band:

* Deadband or Premium: New LSTEAK is minted at BPT-equivalent value
* Discount: The protocol first buys LSTEAK from the market up to parity (as close as possible without overshooting), then mints any remaining value

This ensures that discounted market liquidity is absorbed before new supply is created.

### 5.3 Internal Protocol Routing

Internal protocol actions follow a different priority set, optimised for long-term system strength rather than user convenience.

* Deadband: Mint at BPT
* Premium: Choose best execution between minting at BPT and market-buying (without pushing price beyond parity)
  * If execution creates surplus value, split it 50/50 between protocol-owned liquidity (POL) and the internal endpoint
* Discount: Execute market-buy routing if it returns more value than mint-equivalent
  * 50% of the excess value is burned
  * 50% is routed to POL

Internal routing is explicitly constrained to avoid pushing price beyond parity.

### 5.4 Why Arbitrage Is a Feature, Not a Threat

In LSteak, arbitrage does not extract value from the system. It feeds it.

When market price deviates:

* Discounted buys reduce circulating supply or redirect value into POL
* Premium activity increases backing growth or protocol reserves

### 5.5 No Peg Defence, No Reflexivity

There is no emergency mechanism to “defend” price, no discretionary intervention, and no reactive parameter tuning during volatility.

Price is allowed to move. Routing rules are allowed to execute.


---

# Agent Instructions: Querying This Documentation

If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question.

Perform an HTTP GET request on the current page URL with the `ask` query parameter:

```
GET https://lsteak-protocol.gitbook.io/lsteak-protocol-docs/lsteak-whitepaper-v2.2/5.-price-bands-routing-and-controlled-arbitrage.md?ask=<question>
```

The question should be specific, self-contained, and written in natural language.
The response will contain a direct answer to the question and relevant excerpts and sources from the documentation.

Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.