Not "handling" dividends creates arbitrage opportunity?

Premises:

  • Mirrored assets do not give dividends, neither account for dividends in its price tracking. (It only tracks the “live” price of the stock)
  • Stocks drop on ex-dividend day by the amount of the dividend payed

This generates the following market-neutral arbitrage opportunity:

  • Long real stock before ex-dividend
  • Short mStock
  • Then, after ex-dividend date, you’ll have the right to the dividend payment and can close the long/short position. On the long bet, you’ll lose the the amount payed by the stock, but that’ll be offset by the profit on the short bet.

Your profit will then be the dividend - taxes - transaction fees.

Am I wrong in this assessment?

It sounds correct but the practice may not be profitable as expected. Because the variation in the difference (premium) between the oracle price and the Terraswap price could be much larger than the quarterly dividend of the underlying assets. And then you also need to pay 1.5% fee for closing the short position.

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I already thought about this too, but unless paid out dividends are 4% which is rare + most stocks on mirror are techstocks with no dividend at all, it doesn’t seem to be worth it.

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I genuinely believe that until arbitrage opportunities like this are viable with Mirror, it will always underperform it’s potential. Arbitraging against the peg is what makes the LUNA/UST ecosystem as robust as it is, and that’s what’s missing from Mirror.

I’ve seriously considered starting a new synthetics protocol based around the use of arbitrage to maintain the peg and I’m confident that it would eat Mirror’s lunch if Mirror can’t support similar use cases.