The material is published for informational purposes only and does not constitute an investment recommendation. Cryplogger is not responsible for the investment decisions of readers.
The DeFi segment is constantly evolving – new protocols and platforms are emerging, and with them great opportunities for passive income.
Many people are convinced that investing in cryptocurrencies comes with high risks due to volatility, but in recent years, popular services and even ecosystems have emerged, the central elements of which are stablecoins.
In December, the Terra protocol came in second in terms of funds locked up (TVL), behind only Ethereum. This was largely due to the success Anchor — the largest project in the ecosystem, offering 19.47% per annum on deposits in the UST stablecoin.
Terra also has a Mirror Protocol synthetic asset service and many other tools for a variety of investment strategies.
Previously, Cryplogger considered passive income opportunities on the BNB Chain and Fantom networks. In this article we will talk about Terra.
- The Terra ecosystem is growing rapidly thanks to fast and low-cost transactions, as well as the stability of the UST exchange rate.
- The largest project in the ecosystem is the landing service Anchor. With an intuitive interface, it allows you to place a UST stablecoin at ~19.5% per annum in a few clicks.
- The Mirror Protocol platform offers the possibility of trading and passive income on synthetic stocks, including using complex strategies.
Where to begin
Terra ecosystem TVL exceeds $16 billion, according to DeFi Llama. More than half is accounted for by Anchor.
The centerpiece of Anchor is UST’s most popular algorithmic stablecoin. The capitalization of the latter has grown from $400 million to almost $12 billion in just a year.
UST is several lines ahead of Maker’s decentralized stablecoin Dai in the CoinGecko rankings.
The summer of 2021 saw a significant surge in demand for UST as Anchor grew in popularity. This led to an active burning of LUNA and, in turn, an increase in the price of the cryptocurrency.
Another driver of growth in demand for UST was the popularity Degenbox $UST-$MIM strategies on Abracadabra. In addition, many new protocols launched shortly after the update. Columbus 5held at the end of September. Against this background, the price of LUNA has overcome the threshold of $100.
The Terra ecosystem has more than 70 protocols. You need a wallet to work with it Terra Stationavailable as a browser extension or applications for iOS, AndroidWindows and Linux.
Before you start working with the wallet, you will need to write down the secret phrase. Then you need to come up with a login and password to enter, as well as get some UST to pay commissions. You can buy stablecoins, for example, on the Binance exchange, and then transfer them to the Terra Station address.
Using the Add a wallet option, the application allows you to create multiple wallet accounts based on a single seed phrase. The Switch wallet feature allows you to switch between wallets. Using the Add tokens button, you can add various assets to display in Terra Station.
Cross chain bridge Terra Bridge allows you to transfer assets from other blockchains to the Terra ecosystem, including Ethereum, Binance Smart Chain (BSC) and Harmony.
For example, you can withdraw some of the liquidity from the UST-BUSD pool of the PancakeSwap platform, where APR is 8.77%, in order to later deposit stablecoins on the Anchor service with a yield of ~ 19.5% (as of 02/13/2022). There is a Twitter thread that explains the business model of the platform and where such a high profitability comes from.
I’ve written a few guides on how to earn high interest on your stablecoins using #DeFi.
By far, the easiest and most passive (but also high yield) way is @anchor_protocolwhich currently pays out ~19.5% APY in UST.
Let’s see how that works. 🧶 🪡 👇 pic.twitter.com/GnbhvNf4o9
— shivsak.eth (@shivsakhuja) December 25, 2021
On PancakeSwap, funds in pools are allocated in the proportion of 50% to 50%. Therefore, approximately half of the withdrawn amount will be BUSD. This stablecoin can be sold on the same PancakeSwap in UST.
After that you need:
- go to the Terra Bridge website;
- on the left side (From) select BSC, on the right (To) – Terra;
- specify UST in the Asset field, and the amount in the Amount field;
- as Destination Address, you need to specify the wallet address copied from Terra Station;
- click Next.
After confirming a cross-chain transaction, funds are credited quickly – in a matter of minutes.
Anchor
As already mentioned, Anchor is the largest TVL protocol in the Terra network. In addition to high APY (~ 19.5%), one of the advantages is an intuitive interface.
The Earn section looks minimalist – Deposit and Withdraw buttons, an indicator of the current rate of return and a switch showing the expected percentage income for various periods of time (year, month, week, day).
Like any other landing platform, Anchor has the option of borrowing funds secured by cryptoassets. You can use bETH and bLUNA as collateral for the loan.
You can convert ETH to bETH (Bonded ETH) using converter on the Lido project website. bLUNA can be purchased with UST at TerraSwap. Anchor also has the ability to translate LUNA to bLUNA.
On the right side of the screenshot above, you can see the parameters of secured loans:
- Borrow APR – 13.01% (interest rate on the loan);
- Distribution APR – 11.06% (rate of return at which native ANC tokens are credited to borrowers);
- Net APR – -1.95% (difference between the first two parameters).
Sometimes the Distribution APR is higher than the Borrow APR. During such periods, the service, in fact, pays extra to borrowers.
In the Govern tab, you can stake accrued or purchased ANC tokens, or farm them in a pool with UST stablecoin.
In the first case, the APR is 21.55%, in the second – 61.72% (as of February 14, 2022).
Almost double the yield for the ANC-UST pair in the corresponding Vault on the Apollo DAO service.
Mirror Protocol
The service is designed for issuing and trading synthetic assets. Featured on Mirror Protocol financial instruments use oracles to track the value of popular stocks, ETFs, as well as bitcoin and Ethereum.
In the Trade section, synthetic assets can be bought and sold, including using limit orders. They can also be farmed in UST pools by choosing to go long or short. The rates of return for long and short are usually significantly different.
The screenshot below shows open long positions on instruments based on ARKK and SPY. The annual yield of the first position is 13.69%, the second one is 11.42%.
The Total Value at the top left shows the total value of assets, collateral, liquidity available for withdrawal, rewards, and those involved in staking MIR and UST.
How to make more money by “friends” Anchor and Mirror Protocol
DeFi Expert Nicknamed Route 2 FI proposed a strategy for maximizing the return on invested UST using the Terra protocols discussed above.
According to him, it is possible to increase APY from the “standard” 19.5% to 50-140%. The approach is relatively risky because it involves the use of borrowed funds. Periodic monitoring of the Loan-to-Value Ratio (LTV) is also required.
“This is an active strategy, which means you have to monitor it daily,” Route 2 FI writes. “You should always monitor higher risk strategies.”
The author recommends testing his approach with small amounts. Therefore, let’s take 1000 UST for our example, which corresponds to ~838 aUST.
At the first step, we deposit funds on Anchor. Then we go to the section Borrow Mirror Protocol service and choose aUST as collateral and mKO as a loan asset.
Enter the maximum value in the Choose a Collateral Asset field (in our case it is 838.947914 aUST). The author of the strategy suggests setting the Collateral Ratio parameter at 130%. However, for security reasons, we will choose 160%, since the position is liquidated when the parameter falls below 110%.
Such a conservative setup gives the opportunity to take just over 10 mKO. After pressing Borrow, the Terra Station window appears. It states that the transaction fee is 0.15 UST.
After clicking Post and sending the transaction, you need to go to TerraSwap and exchange 10.36 mKO for 593.78 UST.
The screenshot shows that the commission will be 0.3 UST, and the spread will be 0.32%. According to Route 2 FI calculations, a spread of more than 0.6% is unacceptable.
As a result of the transaction, the commission turned out to be lower than predicted by the service – only 0.6 UST:
Next, deposit the received 593.78 UST back to Anchor. Then we repeat the steps above.
With each repetition of this cycle, there is a total increase in aUST, the value of which grows by about 19.5% per year.
The essence and features of aUST are described in the video below.
https://www.youtube.com/watch?v=oPT87ub1U2Q
The following screenshot shows that as a result of operations on Anchor and Mirror Protocol, the total value of funds in collateral began to exceed the size of the initial deposit of ~1000 UST.
If several such cycles are repeated, the number of aUSTs collateralized in mKOs and their value in USTs will rise even more.
To close positions on the Mirror, simply buy the appropriate amount of mKO shares and click Close (Manage-Close). You can do this during trading session on the Nasdaq.
The protocol fee for such transactions is 1.5% – this is also important to consider. In addition, the share price of The Coca-Cola Company may rise and, accordingly, you will have to pay more.
After the position is closed, the aUST collateral will be released. Their value in UST will be slightly higher than the original value as the price of aUST gradually rises.
conclusions
The multitude of ecosystems and DeFi protocols gives rise to an abundance of all kinds of strategies for maximizing profitability, including those with leverage. However, do not forget that the use of borrowed funds is usually associated with increased risks. Complex strategies often require periodic user participation and payment of multiple fees.
You should not use most of the funds in complex and sometimes obscure schemes. We should not forget about the principle of risk diversification. It means that it is impossible to concentrate all assets in one pool, strategy, protocol and ecosystem, even despite the high income expected in the future.
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