117. [Hard] Terrarbitage, Part 1

    Fluctuations in the bLUNA/LUNA pool allow for arbitrage opportunities for users to gain more LUNA. Explore the potential yield (APY) from arbitrage in the pool. -How frequently do these premiums come about? -What strategies yield the best returns (burning on Anchor vs swapping BLUNA back to LUNA)? -At what premium should users swap their LUNA and bLUNA to generate the most yield?

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    Introduction

    From the chart below, there are at least weekly arbitrage opportunities to be made.

    Strategies

    Personally, I feel that anything about a 3% swap rate is good enough for me to take the arb opp. Burning Luna on anchor takes about 21-24 days, and if we include fees of about 1% (roughly estimated), I get a a net 2% ROI. Multiplying this by 2%*365/24 days, it will be an annual return of about 30.4% which is way more then staking luna directly.

    If you can make the swap back to Luna at <1% spread, it's also possible to get a faster turn around, but it'll be a more active strategy.

    Premium

    Anything about 3% for me to be worth it, bot might pick a lower % as that might be their only thing that they are interested in.