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    TERRA: Terrarbitage, Part 1

    bLUNA is a bonded/staked asset which can be used as collateral to borrow against on Anchor protocol. Initially, you will need to bond $LUNA and mint $bLUNA on Anchor site and $bLUNA should always be 1:1 to $LUNA but in case when $LUNA price having sudden increase it will leave the $bLUNA price behind. So, users can swap $LUNA to $bLUNA on DEXes like Terraswap to get better rate(more $bLUNA). After that, users can either; 1) burn back the $bLUNA on Anchor to get 1:1 or wait until $bLUNA/$LUNA pair to fluctuates again. So this fluctuating peg of $bLUNA to $LUNA introduces an arbitrage opportunity. In this dashboard, we will take a look at how users can benefits from this.

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    Graph below shows the historical hourly price of $bLUNA/$LUNA. We can see $bLUNA has been erratic recently relative to few months before. This can be good time for users to swap their $bLUNA for more $LUNA or vice versa.

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    On average, average positive premium rate in year 2021 is at 3.44%. If you start with 100 $LUNA and swapped for 103.4 $LUNA at 3.44% premium then wait 21 days to burn on Anchor and get back 103.4 $LUNA. Repeat this 14 more times at least and at the end of the year you will have 166.08 $LUNA which is 66% gains. Details of the swaps can be found in table below. You can also trade $bLUNA to $LUNA at lower premium rate too.

    Graph below shows the premium percentage of $bLUNA. This is calculated from ($LUNA price - $bLUNA price)/$LUNA price. Recently, you can get 2-6% premium. In order for you to be profitable, we will assume best method to get your $LUNA back is through burning on Anchor but it will require 21 days to get back your 1:1 value of $LUNA from $bLUNA. So using this as baseline, in a year you will need to do around 16 or 17 swaps on Anchor.

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    Up until today, there has been 68 days with average of 2.5% premium out of 274 days.

    In conclusion, I believe a good premium is 2.5% and above and you will be able to get 44% which is much higher than staking rewards and also $LUNA-$bLUNA LP. And if you manage to burn $bLUNA on Anchor burn, you will end up with 52%. I also had this realization when writing this dashboard and you bet I will be doing this exact thing soon.

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