Sei Network was named after one of the fastest whales in the world. So, it’s logical that the next partnership that will be reviewed — is the partnership with WhiteWhale.

You’ve probably heard about crypto “whales” before. The people who have large amounts of capital, and much more opportunities than you do. One of these opportunities is arbitrage.

Arbitrage is when you profit based on the price differences of an asset. Let’s use an example:

Bob buys 1 ETH on Uniswap for $2750

Bob then turns around and sells that ETH on SushiSwap for $3000

Bob has just made a profit of $250.

Now, normally, the price difference is small, usually just a few pennies or less. But as a whale with a lot of capital, you can still profit off these small margins. Imagine you’re a whale with $1,000,000 to spend on arbitrage. You could make a lot of money, especially if you’re using a bot that can make a new arbitrage trade every single block.

Normal investors like us don’t get the same opportunities as whales, as we can’t profit off of smaller margins, generally due to transaction fees. This is where WhiteWhale comes in.

WhiteWhale is a protocol built on the Terra blockchain, which, for this article, we will assume you understand how to use. If you don’t know what Terra is, I’d highly recommend you do some digging into it, as it is a very intriguing ecosystem.

WhiteWhale arbitrages UST. By pooling user deposits, it can arbitrage UST back to peg, while simultaneously saving on gas fees, and therefore getting a higher margin. WhiteWhale can be thought of as a yield optimizer of sorts, as one of the key components of the protocol is the fact that user deposits are deposited into Anchor protocol when not in use. This means that users who deposit into the protocol get the ~20% APY on Anchor and the profits from arbitrage. As long as UST deviates from its peg, WhiteWhale will always return a higher profit than Anchor.

But how does WhiteWhale perform the arbitrage?

The protocol can profit in two scenarios:

Scenario A: UST goes Above peg

Scenario B: UST goes Below peg

Strategy when UST is above its peg

Let’s say UST is trading Above peg at $1.10, which means that it needs to be arbitraged back to $1 by increasing the supply. To do so, and still make a profit, WhiteWhale buys LUNA, which it can buy more of, due to UST’s higher value. It then uses Terra’s burn mechanism to burn the LUNA for more UST. Let’s use an example:

The protocol has 1000 UST in deposits, which equals $1100 in UST’s current value.

The protocol purchases $1100 in LUNA with only 1000 UST

The protocol burns the LUNA for 1100 UST