Astroport is the next generation automated market maker (AMM) for Terra. It is a decentralised, non-custodial protocol built to improve pricing and trade efficiency by providing multiple pool types on one single platform. This will likely replace Terraswap as the most used swapping platform on Terra chain. Astroport’s Phase 0 airdrop and Phase 1 lockdrop have already completed. We are now on day 2 of Phase 2 (which started on December 21st 2021) at the time of writing. There are still 3 days left to participate in Phase 2 and it is still not too late! In this article, I’ll break down how you can participate in Phase 2 and what is the potential reward and risk. I’ll also make the connection between the launch of Astroport and the recent rising LUNA price and explain the correlation behind.
Just as Uniswap has become a pillar of the Ethereum ecosystem, the leading Terra DEX will likely do the same. — Astroport
How to participate?
Phase 0 — the airdrop of the Astroport launch gives out 12.5 million ASTRO to LUNA stakers & bLUNA depositors on Anchor and also 12.5 million ASTRO to liquidity providers (LPs) on Terraswap. To qualify for the airdrop, you have to be a participant of the above two before September 9th 2021. You can still claim the airdrop by checking your eligibility here.
Phase 1 — the lockdrop started on December 14th 2021 and ended on December 20th 2021. In this phase participants get rewarded by migrating liquidity from Terraswap to Astroport. A total of 75 million ASTRO are distributed as rewards to those who migrate. The reward distribution for each LP pool is different, with LUNA-UST pool giving out the highest reward.
Phase 2 of the Astroport launch is an ASTRO-UST Bootstrapping Liquidity Pool. Participants who got ASTRO from Phase 0 and 1 can use it to participate in Phase 2 ASTRO-UST LP pool to earn more ASTRO rewards. A total of 10 million ASTRO tokens will be distributed to LPs who commit ASTRO-UST to the pool. It is important to note that ASTRO is currently not traded, so the only way to obtain ASTRO right now is through the Phase 0 and Phase 1 drop. So does it mean you can’t participate in Phase 2 if you are not qualified for the these drops? The answer is No!
You can commit ASTRO or UST to the Phase 2 bootstrapping pool in any configuration i.e. only UST or only ASTRO is also allowed! So if you only have UST but no ASTRO, you can simply provide 100% liquidity to UST and leave out ASTRO as shown below. The current reward for providing 100 UST liquidity in the pool is 31.66 ASTRO, which is slightly lower than the reward of 42.31 ASTRO from providing the same amount of liquidity of 100 ASTRO, but it is still a good 42% return in terms of UST at the current exchange rate of ASTRO/UST.
How much return to earn?
In the simplest case where you don’t have any ASTRO and only put in 100 UST in the Phase 2 bootstrapping pool, you’ll get 42.53 UST back based on the information currently on Astroport. So how is this calculated?
First, the current ratio (or exchange rate) between ASTRO and UST is purely based on the amount of ASTRO and UST supplied to the pool. So the ratio of 1.34 is from 15.8 million total UST divided by 11.7 million total ASTRO. The return of 42.53% is the amount of reward ASTRO you get per 100 ASTRO deposited, which is also approximately the same as the amount of reward ASTRO you get per 100 UST deposited times the exchange rate — 31.57 * 1.34.
The period from December 21st to 25th is when you can deposit or withdraw UST freely without any constraints. On December 26th, you can only withdraw 50% of the UST whereas on the final day of Phase 2 — December 27th, the maximum amount you can withdraw decreases linearly from 50% to 0% until the end of the day. At the end of Phase 2, your ASTRO reward allocation will be calculated based on the snapshot taken at the end of Phase 2 as a total percentage of the pool. After that, the liquidity provided to the pool will be constrained to a 3-month lock-in period where you keep receiving ongoing ASTRO rewards and fees during the lock but your ASTRO-UST deposit will only be unlocked linearly over the 3 months until the lock period ends on March 28th 2022.
What are the risks?
Now suppose you receive ASTRO rewards at the end of Phase 2, you can choose to hold it or use it to participate in other ongoing dual rewards in ASTRO + project tokens when they become available (i.e. MIR, ANC, MINE, etc.); or you can simply sell it and convert it immediately to UST when Astroporto is launched. But there are potential risks in both options:
- The exchange rate of ASTRO/UST could fluctuate once ASTRO becomes tradable in the market. If you choose to sell all the ASTRO rewards after the launch, the value could be worth less than what it is shown on the date when the allocation snapshot is taken at the end of Phase 2. This might not be a problem for some participants because all the reward ASTROs available to trade (not locked in the LP pool) after the launch are offered for free as rewards. But looking at it from an opportunity cost perspective, as all investors should do, if you expect a 42% return when you participate and now the value of ASTRO drops significantly and the return becomes much lower, you might consider your options very differently even though the reward ASTRO tokens are offered to you for free.
- Another risk is the impermanent loss incurred during the 3-month lock period. Any significant movements in ASTRO-UST exchange rate in any direction will cause increases in impermanent loss (similar to a short gamma position) in your LP position because you are unable to dynamically LP due to the 3-month lock-up.
LUNA price correlation
It is not surprising to see LUNA’s price moves up very closely along the key dates when Astroport Phase 1 launch starts. This is because the launch offers incentives for participants to earn rewards by locking up UST in Astroport. The increase in demand for UST means more UST needs to be minted and correspondingly more LUNA needs to be burnt. The increase in UST demand reduces the LUNA supply in the ecosystem; and when supply is reduced, LUNA becomes more scarce thus the price goes up.
Summary Note
Astroport is a glimpse of how the future innovative AMM will look like. With the ability to provide multiple pool types (i.e. Constant Product pools, Stableswap Invariant pools) in one single platform and the improved pricing and trade efficiency, Astroport could become the key driver of adoption and integration with other protocols. There is still time to participate in the launch Phase 2 and benefit as one of the early users of Astroport. It will be interesting to see how ASTRO price trades in the open market after the three phases are all completed when Astroport launches next year.]
Update on December 23rd 2021
A quick update on December 23rd 2021: the reward has gone down from 42% yesterday to 28% because 1 ASTRO is worth 1.79 UST now compared to 1.34 UST when the article was initially written on December 22nd. As shown in the example of depositing 550 UST, the expected reward in UST on December 22nd is 1.34*173.67 = 232 UST; whereas on December 23rd is 1.79*85.95 = 153 UST. The total expected reward in UST has gone down by 51%!
