I won’t say much about the previous situation of UST’s de-anchoring. There have been many analysis articles on this, and the essential problems have been thoroughly analyzed.
It is also the first time I have seen a token that fell by 95%+ on the first day, and it can continue to fall by 99% on the second day. In this case, the exchange has not yet been delisted, and the lending agreement has not suspended lending.
From here, you can analyze a lot, and try to pass this event so that you can learn more risk management knowledge, arbitrage strategies and risk aversion actions.
The watershed of the whole incident should be DK’s speech. Until then, the main focus is on what can be done to re-anchor the UST.
And DK’s statement made it clear that they don’t have any external solutions. It can be seen from the tweet that he first said the principle of UST stability, citing a detailed description of DEPEG:
After that, these two points are the key points. He made it clear that he can only rely on the DEPEG mechanism to continuously burn UST, issue additional LUNA, and return UST to 1 through arbitrage. To increase this process, the community is also voting on a proposal to increase burn efficiency in order to speed up UST arbitrage.
When I saw these two news, my first reaction was that the project was over. If it burns like this, according to the market value of LUNA at that time, it will basically return to zero soon.
The first opportunity is to go short on the news. The risk is that the exchange closes deposits and withdrawals, killing short positions.
After DK’s speech in the afternoon, the price of LUNA on the exchange also quickly reached around 0.7. But at this time, the exchange closed the deposit and withdrawal, and the LUNA price was pulled to 7.
Since then, it has probably entered the US trading time, and the price of LUNA has entered the market game, without plummeting again, and has stabilized around 1.
On May 11, everyone mainly focused on the prices of LUNA and UST. Most of the news was about the restoration of anchoring measures and the long-short battle on the exchange.
From the perspective of LUNA’s additional issuance, the volume of additional issuance on May 11 did not exceed the cognitive scope, and the price and additional issuance can basically be aligned.
If the exchange directly removes the trading pair after May 11, the subsequent 512 drama will not be staged, and there is not such a large pool on the chain to accommodate this huge amount of additional issuance arbitrage.
The key point is that the firm did not close the trading pair during the whole day of 512, so that the entire arbitrage chain could run completely.
And if you don’t understand this mechanism, you can’t imagine such a huge increase in issuance. The trading volume is so large because there is a huge information gap here. Some people think that it has fallen by 99%. With such a large ecosystem, they can give it a try.
The huge information gap has formed a huge transaction volume, so that while Luna is issuing a large number of additional issuances, the price does not fall as fast as the additional issuance.
The price of LUNA has a huge deviation in different markets, and the breakthrough is mainly in two places, one is the official exchange channel, the price of the oracle machine is priced at 1 USD, and the other is the exchange channel, which has a huge trading volume to support the bottom.
The main arbitrage path here becomes: buy UST on the exchange -> mention terra station to exchange LUNA -> recharge to the exchange to sell USDT -> then buy it into UST
Among them, there will be a discount of about 4% at the station exchange. However, compared with the discount of UST and USDT, this space is still huge. If UST/USDT is 0.5, 96% – 50% = 46% and then arbitrage will yield close to 46% profit. When UST reaches 0.7, there is also a 26% profit.
This process also requires 2 price protections, one is when buying UST and the other is when exchanging LUNA.
In DK’s tweet, there is a proposal by the community to increase the combustion efficiency of UST. I checked the status of this proposal, and it is still under voting. That is to say, even if there is no increase in efficiency, the action of the market has fully played its role.
In fact, consider it from a rational point of view. When DK said to let UST restore the anchor through the DEPEG mechanism, as long as you have an understanding of the calculation stability, you must know that this is a declaration of death. This process is too fast.
And LUNA didn’t die immediately. The exchange here was abruptly taken off the shelves for a day. I don’t know why, so many people who didn’t understand the situation were fighting in it.
From the perspective of arbitrage, when the market price does not reflect the actual situation of the project, there is room for arbitrage. To be able to do it, you may need to understand the principles, be able to operate related operations, find specific data, do a good job of risk aversion, and finally have a little bit of courage or muscle memory that has been trained.
Judging from the amount of additional issuance and the market price trend, 512 one-day LUNA is stably issued according to the upper limit of each block, and the price basically continues to decline, and it continues to drop by 99%.
On 513, the exchange delisted LUNA and UST, and the drama ended.
In fact, it can be seen from the price trend of UST that the core of supporting this drama is that there are these two currency trading pairs on the exchange, because there are many opaque factors in the centralization, so there is a lack of information.
At 9:00 a.m. on 512, the price of UST reached a 3d high on the exchange, and since then it has been all the way down, as does the price of LUNA.
From 7 pm on 511 to 9 am on 512, the price of UST recovered from 0.35 to 0.8. If you don’t understand the mechanism, you may think that this is the market’s restoration of confidence and self-healing.
Combining with the additional issuance data, LUNA has roughly tripled during this time period, and the rebound in UST price was actually bought by arbitrageurs.
And after 9 o’clock on 512, entering the trading hours of East 8th District, everyone found that the additional issuance was so large that the price went down again. However, UST has not had a big waterfall in the downward process, which is also a manifestation of the continuous arbitrage.
Everything still starts from DK’s tweet. Its 14 tweets actually mean the same thing. Let’s go arbitrage. Normally, if the founder said this, there is a high probability of going straight to the end. For the arbitrage mechanism to take effect, it needs to be supported by the opponent’s disk. If it is an on-chain project, the one-time pool will be done. With the existence of the exchange, this feast can last for more than a day.
It’s a bit loose, so let’s briefly summarize:
• DK tweeted, announcing to be flat
• Market feedback price from 3.5-0.7
• Exchange closed deposit and withdrawal, price to 7
• 511 pm – 512 am 9, market price game, no big fluctuations
• LUNA during this time period About 3 times the increase in issuance, arbitrageurs acted secretly
• 9 in the morning of 512, UST recovered to 0.8, the arbitrage effect is more obvious
• After 9 in the morning of 512, in East 8th district time, panic again after the discovery of a large number of additional issuances
. A lot of rushes and became the opponent’s offer
• 513 exchange delisted LUNA, the drama ended
• UST price 0.1
• LUNA supply trillion+
The knowledge and information that need to be understood:
• The mechanism
of UST • The relationship between UST and LUNA
• The operation method of minting and burning UST • The operation method
• The price difference between various exchanges and chains
• Additional data of LUNA • Oracle
price Difference from actual price
• How well the market reflects the current reality
• The exchange closes deposits and withdrawals
• The hedging policy is exploded
• Half of it is removed from the shelves
• Various unknown centralization risks
The above content is purely fictitious.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/a-gluttonous-feast-for-luna-arbitrageurs/
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