Author: CousinSY
Product:
White whale open sources automated arbitrages starting with L1 seniorage on Terra. The expected return differs on different components of the protocol, however, the flagship single asset Arb Vaults aims to provide returns that are risk-less and is higher than Anchor Protocol’s yield (currently roughly 19.5% APY). It is the first protocol doing so and it has no proper competitors, even if we look outside of Terra’s ecosystem.
Valuation of $WHALE at the time of writing:
Tokenomics:
Token Usage:
Staking and voting. Only $WHALE stakers get access to the benefits in the “War Chest” of the protocol.
Team:
Limited information, only found one post on Reddit that gives more details about their CEO “Sebastian” :
https://www.reddit.com/r/terraluna/comments/qtyf77/white_whale_is_exciting_and_concerning/
Backers:
GT Capital, 0x Ventures, Qi Capital, Yunt Capital, Petrock Capital, Do Kwon (Terra founder), Terra Ecosystem fund, etc. Assisted by Terraform Labs.
Terra is arguably the most stablecoin(s) dependent crypto ecosystem out there. If stablecoins de-peg completely or even disappear from ETH or Solana, the ecosystem won’t vanish into ashes, but if the same thing happens to Terra, I doubt if an 80% crash is avoidable.
This is partly due to its Dual-token design, thus, there’s no doubt that maintaining the peg for UST is crucial for Terra. This is particularly relevant recently as Terra is rapidly expanding and the multiple influencers have been heavily promoting the degenbox strategy using $MIM, this creates huge systematic risk for a UST collapse, as the strategy inherently utilizes leverages.
https://twitter.com/tlagomi/status/1474133465842872323?s=20
Terra obviously took these worries into consideration while designing the system, it aims to reduce the risk of complete de-pegging as much as possible through various ways, including risk-less arbitrage.
LUNA: UST‘s exchange ratio only depends on LUNA‘s price, and ignores the market price of UST. For e.g. When LUNA is $100, one LUNA would be equal to 100 UST no matter whether the value of UST is actually worth $1, the system always recognizes UST’s value to be $1 regardless of the actual market price of UST.
When the market price of UST is > $1, users can buy LUNA and swap for UST on Terraswap, then sell UST on the market for the market price, profiting from the difference of UST’s market price and $1.
When the market price of UST is < $1, users can buy UST from the market, exchange on Terraswap for LUNA then sell LUNA for riskless profit. The amount of profit is the (LUNA’s market price - money you paid for exchanging LUNA through UST).
This explains why LUNA’s price goes up when UST’s demand increases (causing UST to go above $1) and dips when UST’s demand decreases (causing UST to plunge below $1).
However, the design requires users to maintain the peg, for most users this is time-consuming and requires lots of attention. Certain users utilize bots to perform the process, but themselves alone is not enough to withstand a flash crash. Hence, a need for an automated arbitrage platform that is accessible for the general public would be a mutually beneficial situation for both the users and the Terra ecosystem, and this is exactly where WhiteWhale comes into the picture.
In plain English, Whitewhale is open-sourcing automated arbitrage programs to the general public, allowing users to simply deposit their tokens to support the program and also profits. It starts with Terra’s UST, looking for all arbitrage opportunities related to the token, then it will expand to other assets, and ultimately through the IBC interoperability, it will expand to become a multi-chain capable arbitrage ecosystem.
There are 3 components that make up WhiteWhale:
Arb Vaults (single asset arbitrage)
War Chest (holds multiple assets, rewards stakers, vote on trading strategies)
Community Fund (vote on development and enhancements)
Let’s break these 3 components down.
Every vault accepts single-asset deposition. For example, for “UST Arb Vaults”, though it could perform arbitrage between UST and LUNA, the user isn’t required to deposit LUNA but only UST. After UST is deposited, the vault would look for all arbitrage opportunities related to UST, including cross-dex arbitrage, UST-LUNA arbitrage, and arbitrage opportunities related to collateral liquidations on other protocols (e.g. Mirror’s collateral liquidation).
In short, as long as there exists a risk-less opportunity for arbitrage that is related to UST, the vault would try to detect them and calculate fees needed to perform it, the time needed to perform it, then make a decision to perform the arbitrage or not. Though in the lite paper, the frequency of detection isn’t mentioned specifically, through reading other protocols using similar refresh mechanisms, we could deduct the frequency to be around once per hour.
When there isn’t a suitable opportunity presented, the vault’s money would be shifted to Anchor and deposit there, the latter currently yields around 19.5% APY. At the same time as depositing into anchor gives the vault aUST, the vault would also try to utilize the aUST to the maximum efficiency, possibilities include degenbox strategy (using $MIM) or delta-netural mirror yield farming. Hence, if we ingore the time required for performing arbitrage itself, the vault’s yield is expected to be above 19.5%, risk-less, guaranteed.
The above explains what UST Arb Vaults do, but the ambition only is just getting started. After the UST Arb Vaults run smoothly for a while, the protocol aims to start the next vault --- Luna Arb Vault, and many more other single asset vaults after that (details to be disclosed).
Note: When you withdraw from the Vaults, you are charged a 0.1% withdrawal fee, which flows to the War Chest.
War Chest holds multiple assets such as UST and LUNA etc. The chest implements POL (Protocol Owned Liquidity) through a similar model to that of Olympus Dao’s, by allowing for bonding, the chest obtains LP token and hence controls liquidity. At the time of writing, the amount of liquidity for WHALE - UST pair that (the chest owns/ Total liquidity)*100% roughly comes to 91%, which means the chest controls the vast majority of the liquidity for this pair, and profits from the trading fees generated from these LPs.
To prevent a lack of initial liquidity when a new Arb Vault launches, the chest would also bond the $WHALE tokens it holds in exchange for the asset which the Arb Vault utilizes. For example, when LUNA Arb Vault is launched, the Chest would bond $WHALE in exchange for LUNA, then deposit LUNA into the LUNA Arb Vault to bootstrap for initial liquidity. Hence it also profits from the Vault’s arbitrage profits. The same procedure is repeated for every Arb Vault’s launch, over time, the chest hence owns multiple assets deposited into multiple Arb Vaults, profiting from multiple asset’s arbitrage opportunities.
In summary, the War Chest is filled using:
revenues from LP tokens that it owns (POL)
All of its assets’ Arb Vaults’ profits
Withdrawl fees (0.1%) from single asset Arb Vaults
Those who decide to stake their $WHALE in the war chest would be entitled to share profits that the War Chest obtains, as well as voting power. The voting power is directly correlated to the amount of $WHALE in participation. The proposals that users get to vote on range from trading strategies, trading parameters as well as withdrawing money from the chest to develop other areas if deemed appropriate.
Community members vote on how to best use money in this fund for development purposes. Though not specified, it is reasonable to assume that money most in this fund would come from the withdrawals from War Chest as well as initial token allocations.
The partners/backers of White Whale are simply star bright, ranging from founder of Terra Ecosystem - Do Kwon to famous VCs such as GT Capital and PetRock Capital.
There’s no doubt that the professionals in this field recognize the value of White Whale.
However, the team is relatively less known to the general public, and there’s only a limited amount of information about them:
I dug through the entire internet but only found this Reddit post about CEO “Sebastian”.
It would be interesting to know whether the team has any intentions of revealing their true identities in the future.
Needless to say, how important Whitewhale is to the entire Terra ecosystem, they are mutually benefiting and depending on each other. I can’t find a reason why Terra would support the growth of this protocol fully.
The protocol offers an attractive yield without any noticeable risks except the inherent protocol risks that any smart contract would also face. On top of that, the tokenomics was well-designed, there exists a clear usage and incentive for $WHALE, and this alone puts itself way ahead of many other protocols whose tokens are useless beside governance/voting purposes. It might surprise you further that the team is so creative that they came up with their own IDO method --- Bootswap which helped the protocol leap into Defi 2.0 from a very early stage, with protocol-owned liquidity that generates gigantic fees. These fees alone stand at 13.5% APY roughly, not to mention this is only one of the ways that the protocol could make sustainable profits. You might be surprised to find out that this was not done by a famous lab such as Delphi Labs, which just adds more excitement to the future developments of this protocol.
However, it is worth noting that there’s very limited information about the team, and the proposed Roadmap in Litepaper which states that testnet would go live between “Nov-Dec 2021” is not delivered yet, neither was the “live arb testing”. The protocol is currently going through Certik Audit and it’s 70% complete, I expect the entire development timeline to be delayed for about 1-2 months.
In terms of valuation, as Terra expands organically, I expect the protocol to play an important role in stabilizing the system, hence the protocol should also grow organically at the very least. If the team does manage to expand multi-chain through IBC Interoperability, then the tokens are ridiculously cheap at the current price. It is hard to give a target price, as there are no direct competitors who offer the same service within or even outside of the Terra Landscape, White Whale is free to grow depending on how fast they could develop the product.
If you are a conservative investor, have a look at Pylon Gateway, it allows you to accumulate $WHALE without any risks, you are paying at most the “opportunity cost”.
If you are an alpha chaser, then, buy the dip, then HODL.