Thread by @AgilePatryk

After my guest appearance at @Shigeo808's Twitter space, one of you has asked me:

"How do I use LP IL to my advantage on downswing?"

Well, here is how.

/1

You have 100 $LUNA and will follow @Shigeo808’s strategy. You:

1) Provide 100 $bLUNA as collateral to Anchor (1 LUNA=$70 currently), =$7000 of collateral

2) You take a loan at 25% LTV and get $7000 x 25% = 1750 UST. You swap them to 25 LUNA immediately

/2

3) You increase your LTV to 45% and get another 20% x $7000 = 1400 $UST.
4) You pair 20 $LUNA and 1400 $UST (each is worth $1400) into $LUNA - $UST LP and keep 5 $LUNA in your wallet.

Your total borrowed amount is $1750 + $1400 = $3150 right now.

/3

When $LUNA drops to $63:
* Collateral value = 100 x $63 = $6300
* LTV = $3150 / $6300 = 50%

That’s the moment when you need to “manage” (=decrease) your LTV by paying down a portion of your loan.

Let’s look at what happened with $LUNA - $UST LP in that move $70->$63.

/4

Composition of your LP:
Price $70: 20 $LUNA + 1400 $UST
Price $63: 21.08 $LUNA + 1328.15 $UST

So you have 1.08 $LUNA more and 71.85 $UST less.

In other words your LP has "bought" 1.08 $LUNA at an average price of 66.42 $UST.

/5

To manage you LTV, you need to withdraw liquidity from LP (LUNA-UST LP -> $LUNA + $UST) and use $UST to pay down the loan.

You will stay with 1.08 $LUNA more though, so when the price goes back up to $70 you can benefit more (because you have more $LUNA now).

/6-end