Rise of the Terra Ecosystem
Yield farming took the crypto world by storm in mid 2020, with the births of DeFi protocols such as Compound, Synthetix, Yearn Finance, and more, leading to “DeFi summer 2020” euphoria. Everyday during the period, yield farms offered eye-popping Annual Percentage Yield (APY). However, the yield plummeted as more capital entered these farming protocols.
Initially concentrated on Ethereum, most of the yield farms have been expanding or building natively on other Ethereum Virtual Machine (EVM) chains, led by Binance Smart Chain (BSC) and Polygon. However, farms on other layer-1 blockchains have been few and far between, but that’s due to change.
Introducing Terra, a decentralized payment network that aims to rebuild the traditional payment system on the blockchain. Founded by Terraform Labs back in 2018, the Terra Blockchain is part of the Cosmos ecosystem and has since made inroads into the traditional payments space as well as crypto. Since its inception, the network has introduced three native stablecoins:
- TerraKRW (KRT) (Korean Won on Terra)
- TerraMNT (Mongolian Tögrög on Terra)
- TerraUST (UST) (USD on Terra).
One of its most popular products include Chai, a mobile payment app in South Korea. Terra has also partnered with the Mongolian government to accept TerraMNT for payment of utilities. Currently, there are over 2.7 million accounts on the Terra blockchain, with more being added everyday.
Source: CoinGecko Q1 2021 Report
Recently, the Terra ecosystem has been expanding rapidly with more projects building on it and has recently breached $3.7 billion in total value locked (TVL) on 1st August 2021. That said, more projects equal more farming opportunities. But before we get into yield farming on Terra, let’s set up Terra Station, the gateway into using Terra products.
This article will introduce you to two parts. The first part is to set up an account on Terra, and in the later part, you will learn where you can farm on Terra, including Terra Station, Mirror, Anchor, and Pylon.
Part 1: Setting up a wallet and funding on Terra
Setting up Terra Station
To get started with yield farming on Terra, you will first need to download Terra Station. It will allow you to interact with the Terra blockchain, where you can manage your funds and swap between tokens.
So, head over to Terra.money and download the latest version of Terra Station. It is currently available on Windows and macOS, while some have successfully downloaded it on Linux through WINE.
Once it’s downloaded, launch the application and follow the instructions on-screen to create a new wallet. This will give you a 24-word mnemonic phrase that you MUST store safely to gain access to your wallet in the unfortunate case your device is damaged or Terra Station is uninstalled. It is also recommended to install the Chrome extension, which will allow you to interact with Terra protocols. It works in a similar manner to Metamask. Now that you have Terra Station installed, you can go ahead and fund your wallet.
Funding Your Wallet
To start yield farming, you will need some funds on Terra, and the bridge is here to help with that. The Terra Bridge is the easiest way to move between Ethereum, Binance Smart Chain, and Harmony to Terra, and vice versa. Here, we’ll be taking a look at moving some UST over to Terra from Ethereum.
Step 2: Head to Terra Station and copy your address from the top.
Step 3: Go to the Terra Bridge site and select Ethereum to Terra. Select the asset as UST, key in the amount, and also paste your Terra wallet address.
Step 4: Hit next, and a confirmation screen will popup. Click on confirm to proceed.
Step 5: There will now be a Metamask popup which you will have to click on to confirm the transaction. This will send your UST on Ethereum to be burned, and UST on Terra will be minted instead.
Step 6: After a couple of minutes (depending on how much you paid for gas), the Bridge will inform you of a successful transaction.
Step 7: Check your Terra Station wallet for the funds. You are now ready to yield farm!
Alternatively, it is possible to send funds from a number of centralized exchanges directly to your Terra Station wallet. At the time of writing, Kucoin, Bittrex, and Gate.io support UST on Terra. However, always be sure to double-check the chain before sending funds to or from your Terra Station wallet.
Terraswap is the first automated market maker (AMM) exchange on Terra, and most trades on Terra take place here. Developed by Delight Labs, it is used as the underlying exchange for Mirror as well as Pylon. If you are trading on Mirror or Pylon, you are indirectly trading on Terraswap. Terra Station makes use of Terraswap as well as its native swap to give users arbitraging options.
Like other AMMs such as Uniswap and SushiSwap, users can provide liquidity to trading pairs on Terraswap in return for liquidity provider (LP) tokens. These will then accrue fees from traders and are used to reward LP token holders.
Part 2: Yield Farms on Terra
Now that we’ve covered the basics of Terra, it’s time to put those assets to good use! Let’s take a look at some of the protocols on which you can earn an honest living from.
The easiest way to get started yield farming on Terra would be via staking Terra (LUNA) on Terra Station. The Terra Network operates on a Proof of Stake (PoS) consensus mechanism and is supported by a group of 100 validators. This group holds a large LUNA amount (37% as of 2nd August 2021) and is responsible for processing transactions and keeping the network secure. In return, transaction fees are paid out to them. The staking ratio can be seen on the Terra Station dashboard.
As a user, you can delegate your LUNA to these validators in return for a part of the fees they receive. This can be done via the Staking tab in Terra Station, and you are allowed to split your LUNA holdings among different validators. However, be wary of which validator you choose, as some offer better rewards than others, and some may not be as reliable. The less reliable the validator is, the less rewards you’ll receive.
Note there is a 21-day unstaking period. This means that if you were to unstake your LUNA, you’ll have to wait for 21-days before being able to move them. If you wanted to delegate your LUNA to a different validator, then the unstaking period doesn’t apply.
Terra is also rewarding LUNA stakers with airdrops of future projects, so you’ll be earning both from fees, as well as potential airdrops.
Mirror Protocol (MIR) is a DeFi protocol on the Terra network that allows the creation of synthetic assets such as stocks. These are called Mirrored Assets (mAssets), and they reflect the price of real-world assets. For example, an Apple mirrored asset (mAAPL), will mirror the price of AAPL, which is listed on the Nasdaq exchange.
mAssets can be created via collateralized debt positions (CDP), using one of the many assets available on Terra, including UST, MIR, ANC, and other mirrored assets. Opening a CDP is essentially a short position against the mirrored asset. The collateral ratio varies, depending on which mAsset you mint. Keeping check of the collateral ratio is paramount as going below the required amount will cause your position to be liquidated. However, the amount lost in the event of liquidation will be the amount needed to maintain the collateral ratio.
To yield farm on Mirror, you could either Long or Short. As previously mentioned, a Short position is opening a CDP position in which you must provide collateral. Meanwhile, to Long you’ll need to purchase equal amounts of the mAsset and UST, and add to the farm. For example, if you had $10,000 and wanted to long mAPPL, you’ll need to purchase $5,000 mAAPL and $5,000 of UST. This will need to be then staked in the farm, and rewards will be paid out in Mirror (MIR), the governance token of the protocol.
Anchor Protocol (ANC) is a savings and lending protocol on Terra that allows users to deposit stablecoins to earn yield. The project aims to provide a stable and reliable interest rate to lenders. To start, one simply deposits UST into Anchor, and yield will start accruing to the principal in the form of UST.
Where does the yield come from?
The yield is extracted from bonded assets (only LUNA at the moment) used as collateral to borrow UST. While borrowers must pay interest on the UST borrowed, Anchor currently incentivizes this with a “distribution” reward. This distribution’s Annual Percentage Rate (APR) is higher than the borrowing rate, so essentially, you are being rewarded for borrowing. You can know more about Anchor in our Unearthing the Biggest Algorithmic Stablecoin: UST by Terra article.
Pylon Protocol (MINE) is building a suite of yield-based products, along with a launchpad for future Terra projects. At the time of writing, only Pylon staking is live, where users can stake MINE tokens, the governance token of Pylon, for different lockup periods to earn yields in the form of MINE.
The protocol is set to launch Pylon Gateway, allowing users to participate in token sales of forthcoming projects in the Terra ecosystem. At start, new projects will be able to create pools whereby investors will be able to deposit UST and receive tokens with a designated vesting period from new projects. The projects can customize the vesting periods for the tokens. Further down the line, other Terra-based currencies will be able to be used for the farming of new projects.
While there aren’t many projects which are live on the Terra network at the moment (at least compared to the likes of Ethereum), a number are expected to go live this year. Here are some of them:
- Apollo is an upcoming yield optimiser on Terra, and it is set to be cross-chain. Apart from that, it will be exploring NFT gamification, and wrapped savings products.
- Spar Finance is a decentralized asset management platform which will allow users to form their own funds which other users may invest in.
- Mars Protocol is a decentralized lending platform which aims to provide its services to both DeFi users as well as other DeFi protocols.
- Ozone Insurance is set to be the first decentralized insurance protocol on Terra with coverage for risks in the ecosystem.
Every farmer needs tools to ease their workload, and it’s no different for yield farming. Here are some tools which should be able to simplify the process of yield farming on Terra.
If you have multiple positions open in various farms on Terra, then you may make use of Apeboard. It makes tracking easy by aggregating your positions and displaying them on a simple dashboard. It supports all the yield farms we’ve covered above and even supports multiple chains. Currently, Apeboard covers Terra, Ethereum, Binance Smart Chain, Polygon, Binance Chain and Solana.
On top of that, if you receive any airdrops from newly launched projects on Terra, Apeboard will display these airdrops - saving you the hassle of manually checking each wallet. However, it is not possible at the moment to claim these airdrops directly from Apeboard itself. Clicking on the claim button displayed to an airdrop will instead bring you to the protocol/project to claim.
The Anchor Simulator allows you to calculate potential earnings from different strategies on Anchor, Mirror, and Terra Station. It includes various parameters such as price changes, APR, APY, fees, impermanent loss on an LP position, and more.
Strategies that are covered at the moment are:
- Earn (Anchor)
- ANC staking (Anchor)
- Borrow (Anchor)
- Borrow + Earn (Anchor)
- Borrow + Liquidity Pool (Anchor)
- ANC-UST liquidity pool (Anchor)
- MIR staking (Mirror)
- LUNA staking (Terra Station)
While calculations are rather straightforward for Earn, the earnings for the other strategies may vary as they are subject to price changes of the underlying tokens. If you are in one of the LP strategies, then your earnings may be impacted by any impermanent loss suffered. However, it is possible to tweak the future prices of the assets, in order to show your simulated yields. Of course, unless you are an oracle, the predicted pricing you key in may not be accurate.
We have seen that the Terra ecosystem is very much alive and is set to grow at a rapid pace as more projects launch on the network. There isn’t much of a barrier of entry when it comes to yield farming on Terra, especially since fees are extremely low on the network, and the applications are easy to use.
However, with every financial product, comes great responsibility. As traction picks up, malicious actors undoubtedly will enter the fray to prey on unsuspecting users. With that being said, always do your due diligence before taking up a position, and only invest what you can afford to lose. We hope this guide has been able to help you get started yield farming on Terra, and stay safe out there!
Shaun is a Research Associate at CoinGecko with a fondness for memes and farming on the blockchain. Follow the author on Twitter @ShaunPaulLee