Today, The DAO tokens are trading on exchanges below the value of the Ether that underlies them. This creates more than an 8% spread between DAO tokens and the Ether being held in The DAO’s smart contract. As /u/eeksskee points, out this is quite an opportunity for arbitrage.

The process is that a trader can head over to ShapeShift and instantaneously purchase, say, 10000 DAO at 91.766 ETH. Then — over the course of 48 days and with significant technical sophistication — they may split from the DAO and recover the underlying funds of 100 ETH, thus generating a near-riskless return.

Interestingly, though this opportunity is now well known, only 47 split proposals have been extended at the time of writing, and it is difficult to tell which are performing arbitrage. Yet, for sophisticated users an 8% spread could be a compelling return level and once the process is proven out (~40 days from now, the first of the split proposals should be completing their Ether recovery phases), we could see a much higher demand for DAO token arbitrage.

This morning the BTC/DAO market on Poloniex alone would have supported approximately $800K in underpriced DAO token liquidity, and if completely arbitraged could theoretically produce a ~$880K outflow from The DAO contract. Today, this represents about 0.5% of The DAO’s holdings.

It seems that as long as holders consider splitting a technologically insurmountable or even just annoyingly complicated obstacle, they will be willing to pay a non-zero spread for Ether recovery. Thus, for the foreseeable future there will be a small but significant economic pressure to cleave off pieces of The DAO for risk-less returns.

By analogy to Stephen Hawking’s black hole mass shedding, would it be fair to call this phenomenon “Jentzsch Radiation”?

This phenomenon should not necessarily concern DAO token holders, but it is an interesting example of markets at work and how latent economic pressures spur market agents into action.

Addendum (6/9/2016): Please also check out “TheDAO Should Perform Arbitrage By Buying Back Tokens”, a proposal to add buyback code to the Standard DAO Framework which economically extinguishes “Jentzsch Radiation” and offers a compelling innovation on real-world closed investment funds (via CoinFund Slack).