With UST at 0.95 on major CEX / Curve, can someone explain in a clear way why the UST-Luna arbitrage doesn’t work currently? Wouldn’t arbitrageurs make massive profits with UST at 0.95?
Hey! This thread does a good job explaining what drives the swap spread increase. This is a big part of what made arbitrage yesterday difficult: https://twitter.com/jp12__/status/1512582688401592323
Moreover, cross-chain arbitrage is difficult to execute when a network is congested, as it was yesterday due to crazy demands for block space.
That said: if you’re willing to bet on the peg restoring, you can simply buy UST off-peg and wait for the peg to return to $1, pocketing the difference as profit. Speaking personally: my play yesterday was to take advantage of a wide bLUNA-LUNA spread, but this is what I did during the May 2021 crash for a significant profit.
Hope this helps! Happy to dig deeper if you have more questions.
Here is my feedback as one who engaged in arbitrage until it broke with the first halting yesterday.
Arbitrage was wildly profitable. I turned 17 dollars into 15k and was on track for half a million until the first halt yesterday broke all the exchanges.
The arbitrage process burnt 1/3 of UST in four days. Wow. It clearly works, but there are significant issues. UST supply grew from 2 billion to 18+ billion in a year and that isn’t going to unwind overnight.
Arbitrage was way more profitable than it should be because the ecosystem makes it incredibly difficult to do at any sort of scale.
The oracle failed. I don’t know exactly how it gets to the price it does, but the Luna mint rate was absurdly high compared to the Coinbase Luna value. Coinbase values were continuously 10x+ higher than the value being used for Luna minting.
To be clear, Luna would still get crushed and approach 0, but inflation accelerated faster than required.
The major exchanges are using the eth network. There is no good direct path to move Luna/UST cross chain from these exchanges. Moving it involves using intermediary wallets or another intermediary exchange that supports both networks. This prevents the exchanges with the best ability to absorb arbitrage Luna from easily doing so.
The exchanges that had direct support for terra network are also lower volume and got crushed first. This may have sabotaged the Oracle contributing to inflation.
The network halt yesterday afternoon broke all the direct exchanges.
The 1.5 billion of loaned reserve BTC was doomed to fail. The market gap was and still is larger than 1.5 billion. There was no chance at all of stabilization.
The changes I would propose:
- Add a burning floor. Each stable coin should have a partial to full reserve that represents a worst case minimum, like the 1.5 billion. The burning floor price should be the reserve value divided by supply. If the Oracle value of Luna is at or lower than the burning floor value then Luna swaps are disabled and burning floor is activated. In this case the stable coin is swapped for reserve instead.
The expectation is that the burning floor would activate in times of significant turmoil to deliver an orderly unwind of excess demand in a particular stable coin.
Price perception is important in consumer confidence. Luna should rebase to a target minimum price per stablecoin.
A simple and direct mechanism to participate in the minting/burning process for stable coins / Luna trading on the eth network.
Improvements to the Oracle to weight exchange values better. Perhaps weight exchange volumes or something.
Can LGF be open about their bitcoin. the wallet address shows zero balance. can i assume all the btc was sold already?