Difference between Mark and Index Price?

A common question is what are the differences between mark and index prices?

TL;DR mark is the price to buy sqOSMO, index is the price to mint sqOSMO

So what?

When the delta between mark and index price grows the cost of minting sqOSMO becomes much less than buying sqOSMO.

Let's make a concrete example.

We want to take 100 osmo and mint sqOSMO which we then sell for osmo. Once the sqOSMO mark price drops we will buy back the sqOSMO and burn it to regain our collateral.

If the mark price is 0.688 and the index price 0.456 to mint 50 osmo of sqOSMO with a collateral ratio of 200% we could take 100 osmo and mint 968466 sqOSMO.

$$amount = (collateral * Price * SF) / (Price^2 * NORM) \newline amount = (50 * 0.677 * 10000) / (0.677^{2} * 0.7626) \newline amount = 968466$$

But if we went to the sqOSMO pool and tried to buy with 50 osmo we would only receive 643173 sqOSMO

Therefore if we minted sqOSMO for 50 osmo it could be sold for ~74.65 osmo leaving us with a gain 74.65 - 50 ~= 24.65 osmo.

So if mark price >> index price minting is cheaper than buying.

Therefore it is possible to mint sqOSMO for a lower price subsequently sell it for a lower price in the pool.

Then wait for the mark price to return to the index price.

Finally buy back the sqOSMO minted for a lower price then burn to realize the PnL and withdraw the original collateral deposited.

Stage	Collateral	sqOSMO	osmo	Total Value	Mark ($)
Deposit	100	0	0	100	0.688
Mint	100 - 50 = 50	968466	0	~100 (unrealized)	0.688
Sell	50	0	74.65	~124.65 (unrealized)	0.688
Buy	50	968466	74.65 - 60 = 14.65	~114.65 (unrealized)	0.5
Burn	100	0	14.65	114.64	0.5

$$Scale Factor (SF) = 10000, \newline Normalization Factor (NORM) = 0.7626$$