The first week of the new year saw a vicious pullback across all cryptocurrencies in the market. Ether (ETH) price dropped from its November peak at $4,800 peak to under $3,000 on Jan. 8 and Terra’s LUNA governance token also dropped from $85 on Dec. 31 to $67 on Jan. 8, 2022.
These unexpected dramatic moves often cause liquidation cascades in the lending market, but they also create unique buying opportunities in the collateral liquidation markets.
Kujira’s Orca protocol is a platform built on the Terra network and it allows investors to bid on bETH (bonded asset of Ether) and bLUNA (bonded asset of LUNA) at a discounted price when the at-risk collateral is liquidated.
As a pseudonymous analyst at Kujira pointed out,
“Liquidation has for so long been the “shady underbelly” of lending platforms and monopolized by bots so much that the average user barely knows it’s going on, least of all how they could benefit from it”.
Kujira allows anyone to participate in the liquidation process by grasping the opportunity to acquire these assets at a discounted price.
In the recent crash on Jan. 8, the lowest price one could buy Ether (in its bonded asset bETH form) was $2,833, while the market price of Ether was around $3,000. Similarly, traders could buy bLUNA as low as $58.90 while LUNA’s spot price was around $67.
Liquidation stats from Kujira. Source: Twitter
Let’s take a closer look at the strategies for acquiring bETH and bLUNA at a discount during a market crash.
Market structure provides unique opportunities to buy at a discount
In the Terra ecosystem, participants can borrow Terra USD (UST), the stablecoin of the Terra blockchain, from DeFi protocols such as Anchor to participate in high-yield liquidity pools, initial decentralized exchange offerings (IDOs) or any other profitable trading activities involving UST.
To borrow UST, participants need to deposit bonded assets (bETH or bLUNA) as collateral to Anchor. The maximum amount each wallet can borrow is 60% of the collateral value, often referred to by DeFi protocols as the maximum LTV (loan-to-value).
In a bull market where Ether and LUNA prices are on…