{"id":391011,"date":"2022-01-07T22:30:00","date_gmt":"2022-01-07T19:30:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/heres-how-terra-traders-use-arbitrage-to-profit-from-luna-and-bluna\/"},"modified":"2022-01-07T22:30:00","modified_gmt":"2022-01-07T19:30:00","slug":"heres-how-terra-traders-use-arbitrage-to-profit-from-luna-and-bluna","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/heres-how-terra-traders-use-arbitrage-to-profit-from-luna-and-bluna\/","title":{"rendered":"# Here\u2019s how Terra traders use arbitrage to profit from LUNA and bLUNA"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3ccea5a7bc1\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3ccea5a7bc1\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/heres-how-terra-traders-use-arbitrage-to-profit-from-luna-and-bluna\/#Why_are_there_spreads_across_Terras_markets\" >Why are there spreads across Terra&#8217;s markets?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/heres-how-terra-traders-use-arbitrage-to-profit-from-luna-and-bluna\/#How_to_capitalize_on_Terras_arbitrage_opportunities\" >How to capitalize on Terra&#8217;s arbitrage opportunities<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/buradabiliyorum.com\/en\/heres-how-terra-traders-use-arbitrage-to-profit-from-luna-and-bluna\/#Arbitrage_between_DEXs_and_Anchor\" >Arbitrage between DEXs and Anchor<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/buradabiliyorum.com\/en\/heres-how-terra-traders-use-arbitrage-to-profit-from-luna-and-bluna\/#Savvy_investors_are_always_watching_for_the_next_opportunity\" >Savvy investors are always watching for the next opportunity<\/a><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong># Here\u2019s how Terra traders use arbitrage to profit from LUNA and bLUNA <\/strong>&#8221;<\/p>\n<div class=\"post-content\" data-v-128018ef>The end of the year is normally a time to wind down and prepare for the holiday season, but the last few weeks of 2021 saw a crypto market that showed no signs of resting.\u00a0<\/p>\n<p>One of the headline-grabbing stories related to Terra reaching an all-time high in terms of the total value locked (TVL), and the project surpassed Binance Smart Chain (BSC) as the second-largest decentralized finance blockchain after Ethereum. After reaching the $20-billion TVL mark on Dec. 24, Terra\u2019s TVL has come down to around $19.3 billion at the time of writing according to data from <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/defillama.com\/chains\">Defi Llama<\/a>, but this is in no way, shape or form a bearish signal.<\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2022-01\/a02da747-8f64-4547-a895-4202119ce15d.png\" alt=\"\" title=\"\"><figcaption style=\"text-align: center;\"><em>Top 5 total value locked on the top 5 blockchains. Source: Defi Llama<\/em><\/figcaption><\/figure>\n<p>Currently, Terra has only 14 protocols built on the chain, compared to the 257 protocols on BSC and the 377 that are on the Ethereum network. Terra\u2019s protocols have managed to attract liquidity very successfully, and the recent Astroport protocol launch coincides nicely with the swift rally of Terra\u2019s native governance token, LUNA, to a new all-time high on\u00a0Dec. 26, 2021. <\/p>\n<p>Looking at the TVL in United States dollars versus LUNA, the former has experienced exponential growth since September 2021 while the latter remains quite flat during the same period. It is not hard to see that the contributing factor to the recent increase in the U.S. dollar TVL is the increase in LUNA\u2019s price itself.<\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2022-01\/60653ad2-d5d7-48c8-a952-e113e073ca77.png\" alt=\"\" title=\"\"><figcaption style=\"text-align: center;\"><em>Terra TVL in USD (left) vs. in LUNA (right). Source: Defi Llama<\/em><\/figcaption><\/figure>\n<p>While price increases in the governance token often show investors\u2019 confidence in the chain and the protocols, it seems to also produce more lucrative arbitrage opportunities. <\/p>\n<p>Let\u2019s take a closer look at some of the strategies used to arbitrage between LUNA and its bonded asset bLUNA.<\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2022-01\/393c3676-4823-4dc7-9811-c7b6bb3d623b.png\" alt=\"\" title=\"\"><figcaption style=\"text-align: center;\"><em>LUNA price vs. Luna\/bLuna premium in %. Source: <\/em><a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/app.flipsidecrypto.com\/velocity\/visuals\/d3fa78ec-0bca-4f9b-9ae1-86d41d7ed5fd\/e926afbe-ca38-4a8b-b55c-a586e893ad0f\"><em>Flipside Crypto<\/em><\/a><\/figcaption><\/figure>\n<h3><span class=\"ez-toc-section\" id=\"Why_are_there_spreads_across_Terras_markets\"><\/span>Why are there spreads across Terra&#8217;s markets?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>LUNA is the governance and staking token of the Terra blockchain, whereas bLUNA is the token that represents the staked LUNA and its corresponding block rewards. Since bLUNA is fungible and transferable just like LUNA, it\u2019s also traded on Terra\u2019s decentralized exchange. <\/p>\n<p>Like other currency or token pairs traded on exchanges, the LUNA\/bLUNA pair traded on different decentralized exchanges (DEX) such as <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/app.terraswap.io\/#Swap\">TerraSwap<\/a>, <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/dex.loop.markets\/swap#Swap\">Loop Markets<\/a> or <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/app.astroport.fi\/swap\">Astroport<\/a> may have different prices due to price inefficiency across different platforms. Arbitrageurs will profit from buying at a lower price from one protocol and selling at a higher price on another, helping the platforms resolve price inefficiencies and eventually reach a fair price across all exchanges. <\/p>\n<p>Besides the common reason for price inefficiency, there are other factors specifically related to the nature of bLUNA that make the LUNA\/bLUNA price different across protocols.<\/p>\n<ul>\n<li>bLUNA is priced higher than LUNA on <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/app.anchorprotocol.com\/\">Anchor Protocol<\/a>. This is because bLUNA, once bonded and minted on Anchor, can only be burned and exchanged back to LUNA after 21 days (plus three days processing time) unless it\u2019s an instant burn. <\/li>\n<\/ul>\n<ul>\n<li>Since bLUNA not only represents the value of the staked LUNA but also the block rewards from staking during the 21-day lock-up period, its value is always higher than LUNA. As shown in the graph below, bLUNA\u2019s price per LUNA is slightly below 1 on Anchor most of the time, with three distinct outliers showing bLUNA h<a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>ened to be more valuable at the rate of 0.97 bLUNA per LUNA.<\/li>\n<\/ul>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2022-01\/6e5ed707-02a1-45a9-b18e-0901f19e6064.png\" alt=\"\" title=\"\"><figcaption style=\"text-align: center;\"><em>Anchor bLUNA hourly price per LUNA is below 1. Source: <\/em><a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/app.flipsidecrypto.com\/velocity\/visuals\/d2f11fb6-b1b6-425b-8297-de87cfbdf630\/1cdce52c-819e-49e3-9915-e1126b37e79f\"><em>Flipside Crypto<\/em><\/a><\/figcaption><\/figure>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2022-01\/012383b0-0092-4b50-bddb-995133c20a80.png\" alt=\"\" title=\"\"><figcaption style=\"text-align: center;\"><em>Anchor bLUNA hourly price per LUNA is always below 1. Source: <\/em><a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/app.flipsidecrypto.com\/velocity\/visuals\/af2ed066-1465-48eb-ae4d-c530dd040216\/1cdce52c-819e-49e3-9915-e1126b37e79f\"><em>Flipside Crypto<\/em><\/a><\/figcaption><\/figure>\n<ul>\n<li>LUNA is priced higher on DEXs than bLUNA most of the time possibly due to: <\/li>\n<\/ul>\n<p>(1) More users selling bLUNA than buying on DEXs (hence bLUNA is worth less) because burning bLUNA on Anchor Protocol takes 21 days if it\u2019s not an instant burn. So, if users want to get LUNA back instantaneously, they need to go to a DEX to sell bLUNA. (For an instant bLUNA burn on Anchor, the rate is the same as TerraSwap.) <\/p>\n<p>(2) Users don\u2019t normally want bAssets as much as bLUNA unless they need to use them as collateral on Anchor. Currently, Anchor provides bonding functionality to exchange LUNA for bLUNA at a very close to but slightly lower than 1 ratio \u2014 i.e., investors get slightly less than 1 bLUNA for 1 LUNA. Even though the exchange rate on DEXs is better (traders get more than 1 bLUNA for 1 LUNA on DEXs), users tend to seek the most convenient way, which is to use the Anchor Bond, to get their bLUNA so they don\u2019t have to switch between different protocols.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"How_to_capitalize_on_Terras_arbitrage_opportunities\"><\/span>How to capitalize on Terra&#8217;s arbitrage opportunities<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Based on the price difference explanations presented earlier, there are two main ways to arbitrage LUNA and bLUNA.<\/p>\n<p>TerraSwap, Loop Markets and Astroport all provide swaps for LUNA\/bLUNA. Small price differences often exist across these DEXs, which create arbitrage opportunities for traders to buy the pair at a lower rate on one DEX and sell at a higher rate on another. <\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2022-01\/53375f11-aba6-4836-b045-91bd6055fb32.png\" alt=\"\" title=\"\"><figcaption style=\"text-align: center;\"><em>LUNA\/bLUNA price comparison across DEXs. Source: <\/em><a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/app.flipsidecrypto.com\/velocity\/visuals\/e97c6ffd-2154-45ba-988d-eec582ad5cea\/933fc045-3afa-4c56-9ba7-9b3528a22ba0\"><em>Flipside Crypto<\/em><\/a><\/figcaption><\/figure>\n<p>The chart below shows the LUNA\/bLUNA daily average price observed from swaps from different platforms during December 2021. The ratio is the actual amount of bLUNA received (after a deduction of fees and slippage) divided by the amount of LUNA offered for the swap. As explained in the previous section, one LUNA swaps for more than one bLUNA on DEXs due to more demand for LUNA on DEXs.<\/p>\n<p>The graph below annualizes the daily arbitrage return between either two of the three DEXs. The best opportunity existed on Dec. 15 between TerraSwap and Loop, with an annual percentage yield (APY) of almost 600%.<\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2022-01\/4e498941-1d2c-4bba-b583-c86742c8fb9c.png\" alt=\"\" title=\"\"><figcaption style=\"text-align: center;\"><em>Arbitrage LUNA\/bLUNA pair among different DEXs. Source: <\/em><a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/app.flipsidecrypto.com\/velocity\/visuals\/dba9f7a2-fefe-4109-b6b6-580b2ca263c4\/2285d9b2-5a7b-4376-893a-f59d32c21141\"><em>Flipside Crypto<\/em><\/a><\/figcaption><\/figure>\n<h3><span class=\"ez-toc-section\" id=\"Arbitrage_between_DEXs_and_Anchor\"><\/span>Arbitrage between DEXs and Anchor<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Investors could swap LUNA for bLUNA on one of the DEXs that offers the highest bLUNA per LUNA, burn bLUNA on Anchor, and wait 21 days (plus three days) to get more LUNA back. Note that burn on Anchor has to be a normal \u201cslow\u201d burn; instant burns will not work because the exchange rate is the same as TerraSwap.<\/p>\n<p>Based on the 24-day (21 + three days processing from the Anchor burn) annualized return, the graph below shows the APY from arbitraging between different DEXs and Anchor. <\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2022-01\/ab9af78e-9728-45f4-9b5b-842e2c9c979a.png\" alt=\"\" title=\"\"><figcaption style=\"text-align: center;\"><em>Arbitrage between DEXs and Anchor APY vs. LUNA staking APY. Source: <\/em><a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/app.flipsidecrypto.com\/velocity\/visuals\/56c53cce-7d6b-4bd6-9161-94980ef48189\/d91434e9-c34b-4ce5-be9b-9316f6e7c061\"><em>Flipside Crypto<\/em><\/a><\/figcaption><\/figure>\n<p><a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/lido.fi\/terra\">Lido\u2019s<\/a> 8% APY from LUNA liquid staking is also added as a risk-free benchmark return comparison. During the month of December, the highest APY reached 80% on Dec. 27 and, since then, has decreased significantly, dropping below the risk-free return in the new year. <\/p>\n<p>This could be because the increased popularity of Terra and more participation in different Terra protocols have helped rationalize prices across platforms, reducing price inefficiencies and arbitrage opportunities and consequently creating a fairer price.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Savvy_investors_are_always_watching_for_the_next_opportunity\"><\/span>Savvy investors are always watching for the next opportunity<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>As shown in the December 2021 historically observed swap data, LUNA\/bLUNA arbitrage opportunities exist across different protocols on Terra. Traders can choose the riskier way to arbitrage among different DEX platforms such as TerraSwap, Astroport and Loop Markets, or they can choose the safer way to arbitrage between these DEX platforms and Anchor, given they are willing to hold bLUNA for 24 days. <\/p>\n<p>The annualized return from the DEX and Anchor arbitrage strategy consistently performed better than the risk-free Lido liquid staking in December 2021 until only recently when the return almost evaporated on Jan. 1, 2022. <\/p>\n<p>This was possibly due to more participation and price rationalization in the Terra protocols. The arbitrage opportunities will likely reappear again in the future due to volatilities in trade volumes and participation or from the launch of new DEX protocols.<\/p>\n<p class=\"post-content__disclaimer\">The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.\n<\/p>\n<p><template data-name=\"subscription_form\" data-type=\"markets_outlook\"><\/template>\n<\/div>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. 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