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Yield Farming in the Terra Ecosystem: How to Get Started and 10 Strategies for Newbies

Yield farming has become available to users with the advent of Decentralized Finance (DeFi). This allowed crypto holders to get additional profit from their investments in various ways and replaced ineffective methods like bank deposits whose profitability does not even exceed the inflation rate.

We will describe to you how to get started using the Terra platform, and familiarize you with 10 yield farming strategies available even to a beginner.

Briefly about Yield Farming

Yield Farming is a set of tools and strategies with which holders can get additional income from investments in cryptocurrencies. Investors generate income by interacting with DeFi protocols such as Uniswap, PancakeSwap, Maker, Compound, Anchor Protocol and others – a key factor in yield farming. Farming attracts investors by making it possible to earn from 10% to 1000% per annum or more.

There are several ways you can earn income from Yield Farming:

  • Staking – blocking cryptocurrency (or delegating) to generate new coins.
  • Liquidity mining – adding assets to liquidity pools and generating income from cryptocurrency swaps.
  • Lending – borrowing funds directly from a lender using a cryptocurrency as collateral. 
  • Deposits – a method similar to bank deposits, but with a higher yield.
  • Voting: users can vote and participate in the development of the ecosystem, receiving rewards.

The goal of yield farming is to maximize the profit from your crypto investment using different strategies or combinations of them. This became possible due to the absence of intermediaries such as exchanges, brokers, banks, and credit organizations.

Risks of Yield Farming for the Investor

Yield farming can bring high returns, but the risks are comparably higher. We explain what investors who decide to farm cryptocurrencies will have to face.

Fall of the rate 

The first risk is associated with the volatility of crypto assets: when the price of your cryptocurrency falls, the stake in the pool becomes smaller and, accordingly, brings less income.

When an investor takes out a loan secured by a cryptocurrency, then if the rate of the collateral asset falls, the collateral may be liquidated.

Impermanent losses 

Impermanent losses are one of the main risks associated with Yield Farming. This risk arises during times of high asset volatility when arbitrage traders come into play and you provide liquidity (farming crypto).

As a result, the ratio of assets in the pool changes, and the liquidity provider incurs a temporary loss. If at the same time the farmer withdraws assets from the pool, the losses become permanent.

What is the Terra ecosystem?

Terra is an open blockchain platform that creates the basis for the development of a decentralized economy with its CHAI e-wallet numbering more than 2.4 million users. The Terra platform has provided a DeFi ecosystem in which users can reuse their LUNA assets and UST stablecoins across multiple protocols to maximize the ROI.

With Terra products, you can access staking, voting, liquidity mining, lending, and deposits: virtually all Yield Farming tools are collected in one place. Let's take a closer look at the Terra ecosystem and see what its infrastructure consists of.

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Terra Station

Terra Station is the official ecosystem wallet that, in addition to storing and transferring tokens, supports staking, swaps and voting. The crypto wallet is available as an online app, browser extension, desktop utility, and iOS and Android app.

Anchor Protocol (ANC)

Anchor Protocol is a savings protocol on the Terra blockchain that provides users with various income opportunities. The protocol supports UST deposits and lending, ANC token staking and voting, and ANC-UST liquidity mining. The maximum yield can reach 40-80% per annum, and the stable yield on UST savings deposits is nearly 20% per annum.


For more information on Anchor Protocol, see Anchor Protocol: A Savings Protocol Offering Up To 20% APY

Mirror Protocol (MIR)

Mirror Protocol is a DeFi platform powered by smart contracts on the Terra network that allows the creation of synthetic assets (mAssets). Synthetic assets can include tokenized cryptocurrencies, stocks, commodities, fiat currencies, and more. The protocol supports farming: you can add mAssets to the pool and receive income.

As with Anchor Protocol, liquidity providers are rewarded in protocol tokens (MIR).

Pylon Protocol (MINE)

Pylon Protocol is a payment protocol with MINE token staking and MINE-UST liquidity mining. The Pylon Protocol introduces a new paradigm for long-term relationships between liquidity providers and traders based on economic incentives through a simple deposit system.

TerraSwap 

This is a Decentralized Exchange (DEX) that allows traders to exchange assets on the Terra blockchain, and liquidity providers to add assets to liquidity pools and earn income from commissions paid by traders. Like Uniswap, the TerraSwap protocol has Automatic Market Maker (AMM) functionality and runs on smart contracts. 

For more information on the Terra ecosystem, see Terra Ecosystem Overview: A Guide for Newcomers

How to start using the Terra ecosystem 

 

For beginners at first glance, Terra products may seem complicated, but they will become clearer and simpler as you study them. It's like learning how to ride a bike: at first, you can't keep your balance and it seems impossible, but once you master the skill, you can ride without thinking.

 

We have prepared a guide that will introduce you to working on Terra platforms. After reading the article, you will be able to use these products yourself and earn income from Yield Farming.

 

To interact with the protocols included in the Terra ecosystem, you will need to download and install the Terra Station wallet. You can download the distribution kit on the main page of the Terra.money website, use the web wallet or download applications for your device using direct links:

 


We will describe the process of creating a wallet using the Terra Station extension as an example. The plugin is available in any browser that supports installing apps from the Google Chrome store. The reasoning here is that a web wallet is easiest to connect to the Terra ecosystem protocols: Anchor, Mirror, and others. You can also use the plugin to connect to the Terra Station web wallet.

Installing and creating a wallet


Go to the Chrome store and install Terra Station in your browser by clicking Add to Chrome.

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In the pop-up window, confirm the installation by clicking Install App. After the application is installed, launch it and choose the way you want to create a wallet.

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1) If you have not created a Terra wallet before and you do not have a private key, select New Wallet. In this tutorial, we'll walk through creating a wallet from scratch and generating a new private key.

 

2) If you already have a Terra wallet, you can restore it in three ways:

 

  • By connecting the Ledger wallet (Access with Ledger);
  • By restoring it from the backup phrase (Recover existing wallet);
  • Or by importing the private key (Import private key).

Creating a new wallet

Open the plugin and click New wallet.

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Come up with a name for your wallet and set a complex password of at least 12 characters, containing upper and lower case letters, numbers, and special characters.

 

Then write down the seed phrase in any suitable offline medium, keeping the sequence of words intact. Then check the box confirming that you saved the mnemonic phrase and click Next.

 

Note: saving the seed phrase is the most important step when creating a wallet. If you lose your seed phrase, you will not be able to restore access to assets in the event of a wallet loss. If you find that your seed phrase is missing, create another wallet with a new backup phrase and transfer all funds to it.

 

Helpful hints for the safe storage of backup phrases you will find in this article:

 

Crypto Security Guide: How Not To Lose Your Funds When Using Cryptocurrency

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Confirm the spelling of the seed phrase, and then click Create a wallet.

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The wallet has been successfully created. Now, for you to use the products of the Terra ecosystem, you need to add funds.

Adding funds to the wallet

Simply copy the address of the wallet by clicking on the corresponding icon, or scan the QR-code. Then send tokens to this address or withdraw them from the exchange.

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After the wallet is replenished, you can connect to any protocol in the Terra ecosystem and start making money on yield farming.

How to connect a wallet

Open any application available in the Terra ecosystem, for example, Anchor Protocol. In the upper right corner there is a button called Connect wallet – click on it.

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Click Terra Station (extension). If you are using a mobile wallet, you can connect to the protocol via Wallet Connect (Terra Station (mobile)).

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In the pop-up window, click Allow to connect to the platform.

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You have connected the wallet and now you have access to Terra's lucrative products. In the next section of the article, we will look at the Yield Farming strategies that you can use to receive income from LUNA and UST tokens.

10 yield farming Strategies: From Easy to More Complex

 

We have compiled 10 Yield Farming strategies that even beginners can use, divided into two categories: passive and active. Strategies will differ not only in the level of complexity but also in the ratio of risk to reward: the greater the potential profit of the strategy, the higher the risk, respectively.

 

Warning: Crypto investments carry high risks. Current profitability does not guarantee future profitability: invest at your own risk. Invest only those funds that you are ready to lose. This guide is not a call to action or investment recommendation and is for informational purposes only.


Note: the profitability of strategies is relevant at the time of publication of the guide and can change.

Passive strategies

Strategy # 1: UST deposit on the Anchor Protocol platform

Difficulty: low

Profitability: medium 

Risk: very low

Platform: Anchor Protocol

 

The essence of the strategy: deposit UST stablecoins to receive interest on the deposit. The profitability of the method is up to 20% per annum.

 

Steps:

1) Open the tab Earn on the Anchor Protocol platform.

2) Deposit UST tokens. This can be done in two ways:

  • Deposit from the Terra Station wallet (the button Deposit).
  • Buy UST on a crypto exchange and withdraw tokens into the Anchor Protocol (button Buy UST).

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3) After making a deposit, UST tokens will automatically start generating income. You will be able to withdraw tokens at any time without a blocking period.

Strategy # 2: Buying synthetic assets on the Mirror Protocol and adding them to liquidity pools

Difficulty: low

Profitability: medium-high 

Risk: medium

Platform: Mirror Protocol

 

The essence of the strategy: you buy tokenized cryptocurrencies, stocks, or exchange commodities on the Mirror platform and add LP tokens to a pool of liquidity.

 

Note: the Mirror protocol runs on two blockchains: Terra and Ethereum, so you can buy synthetic assets (mAssets) not only for LUNA and UST but also for ETH, as well as ERC-20 tokens.

 

Steps:

1) Buy any synthetic asset, for example, mAAPL, for UST stablecoins. Go to the Mirror Finance application website, open the tab Trade, select the asset you are interested in, and then click on it.

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The swap page will open. Enter the purchase amount and click on the button BUY. You can place a limit order (Limit) to buy an asset at the price you specify.

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2) Go to the tab Farm, select the mAsset to add to the liquidity pool (farm), and click on it. On this page, you can compare the profitability of farming crypto assets available on the Mirror platform.

 

Note # 1: to add assets to the pool, you need a pair [mAsset]-UST in a 50:50 ratio. Let's say you bought mAPPL for $1000; then you must have an equivalent amount of UST tokens in your wallet.


Note # 2: you can farm both long (Long Farm) and short (Short Farm). In the second case, the value of your assets will increase when the mAPPL share falls.

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Hint: You can hedge your positions while adding assets in equal proportions to Long Farm and Short Farm. In this case, if the share of the first pool decreases, the share of the second will increase, compensating for the losses from the first pool. At the same time, you will constantly receive income from farming. This method is suitable for experienced investors and does not exclude the risk of losses.


Enter the mAPPL or UST amount to add to the pool. The value in the second field will be pulled up automatically. Then click FARM.

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After that, your assets will begin to generate an income equal to the value specified in the tab Farm. Please note that the yield can change over time. APR (Annual Return) is calculated based on the ratio of the number of assets in the pool and the trading volume of this pair.

Strategy # 3: Staking in the Terra Station wallet

Difficulty: low

Profitability: low-medium 

Risk: medium

Platform: Terra Station

 

The essence of the strategy: LUNA staking by delegating tokens to Terra network validators.

 

Note: Staking is not available in the Terra Station extension. You can only stake tokens in the desktop, browser, and mobile versions of the crypto wallet. You can only connect to a web wallet through a Ledger device or a desktop wallet.

 

Steps:

1) Open the Terra Station web wallet or the wallet installed on your device and go to the tab Staking.

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2) Select the validator to whom you will delegate LUNA tokens and click on it.

 

Note: to stake assets, you either need to run your validator node, which requires technical knowledge and skills, or delegate assets to active validators. Regular users do not need to run a validator: you can simply delegate tokens by paying a small fee to the validators. 

 

Choosing a validator is an important step. Not only your income depends on it, but also the safety of your assets. Therefore, choose only reliable validators. 

Everstake is one of the largest validators in terms of the number of staked assets and delegators. It is also one of the most reliable validators with an uptime of up to 100%.

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3) Stake LUNA. To do this, click on the button Delegate, specify the number of tokens and confirm the transaction. After that, you will start receiving rewards. 

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We described the LUNA staking process in detail in another guide. We suggest you familiarize yourself with it:

 

How to Stake Terra (LUNA) Using Ledger Hardware Wallet and Terra Station Wallet

Strategy # 4: Governance staking

Difficulty: low

Profitability: medium 

Risk: very low

Platform: Anchor Protocol, Mirror Protocol

The essence of the strategy: ANC/MIR tokens staking, which are used to vote for platform improvements.

Steps:

We described governance staking on Anchor Protocol in this article, so let's illustrate how this strategy works using the example of the Mirror Protocol.

1) Buy MIR tokens for UST in the Trade tab.

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2) Go to the Govern tab on the Mirror Protocol platform and click Manage Stake.

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3) Stake MIR by clicking Stake. Then the tokens will start generating income. The process is similar on the Anchor Protocol platform. 

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Active strategies

Strategy # 5: Borrow and Deposit UST

Difficulty: Medium

Profitability: High 

Risk: Medium

Platform: Anchor Protocol

 

Note: Users who borrow UST tokens pay interest but receive rewards in ANC tokens, which not only cover the interest paid but also bring additional income.

 

The essence of the strategy: you borrow UST tokens by providing bLUNA or bETH as collateral, and then deposit UST, receiving income. In this article, we will consider a strategy with bLUNA.

 

Steps:


1) Bond LUNA tokens to get bLUNA. Go to the Bond tab on the Anchor platform, enter the token amount, and click Mint.

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2) Go to the tab Borrow and submit the bLUNA tokens as collateral in the section Collateral List.

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3) Then click on the button Borrow to get a loan in UST tokens.

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4) Go to the tab Earn and deposit UST (Deposit button).

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As mentioned earlier, a distinctive feature of the Anchor Protocol is that Net APR the ratio between the annual return on lending (Distrubution APR) and borrowing (Borrow APR) is positive. This means that the ANC token rewards received by the borrowers exceed the interest they pay on the loan. At the time of writing this article, Net APR is around 15%. When you deposit the UST, you will begin to receive a stable income of about 20% per annum.

 

You will additionally receive profit if the LUNA token grows. Therefore, in total, your income will add up from the accrual of rewards for taking a loan, a deposit, and an increase in the price of the collateral token. At the same time, in the event of a drop in the LUNA rate, your bLUNA can be liquidated. We wrote about this in detail in this article.

Strategy # 6: Borrow UST and provide liquidity on Anchor Protocol

Difficulty: medium

Profitability: high

Risk: high

Platform: Anchor Protocol

 

The essence of the strategy: borrow UST providing bLUNA as collateral to buy ANC, get LP tokens and add assets to the liquidity pool.

 

Steps:

 

1) Bond LUNA and get bLUNA tokens. Provide bLUNA as collateral and borrow UST. The how-to was described in the previous strategy.


2) Buy ANC tokens for half of the borrowed UST. For example, if you received 1000 UST, you need to buy ANC tokens for $500 so that the ratio of assets in currency is 50:50. You can exchange UST to ANC in the tab Govern by clicking Trade ANC.

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3) Enter the ANC purchase amount and click Proceed.

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4) Go back to the tab Govern and click ANC-UST LP.

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5) Enter the ANC or UST amount and then click Add Liquidity. You will receive LP tokens that you need to stake in order to receive income.

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6) Switch to the tab Stake, enter the amount of LP and click Stake.

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Done! You have added ANC-UST to the liquidity pool and will receive income from this pair's swaps. The current yield is about 43% per annum.

 

The profitability will be higher if the rate of the LUNA tokens that you have bonded increases. But if their price drops significantly, then your collateral may be liquidated. In addition, liquidity providers are at risk of impermanent losses.

Strategy # 7: Borrow UST on Anchor and provide liquidity on Mirror Protocol

Difficulty: medium

Profitability: high 

Risk: medium-high

Platform: Anchor Protocol, Mirror Protocol 

 

The essence of the strategy: borrow UST on the Anchor platform, transfer assets to Mirror Protocol, buy MIR tokens, get LP, and stake them in the liquidity pool.

 

Steps:

 

1) Bond LUNA tokens to get bLUNA and then borrow  UST on the Anchor platform. We described this process in the fifth strategy (Borrow and Deposit UST). Tokens will go to the Terra Station wallet.

 

2) Connect your wallet to the Mirror Protocol so you can spend UST.


3) Go to the tab Trade and select MIR tokens.

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Exchange UST for MIR so that the ratio is 50:50.

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4) Go to the tab Farm and click on the button Long Farm.

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Enter the number of MIR tokens and click Farm.

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After that, you will immediately start earning income. LP tokens are staked automatically, unlike ANC-UST LP, which were discussed in the previous strategy. 

If the MIR rate rises, the income will be higher but do not forget about the risks associated with token volatility and possible losses.

Strategy # 8: Borrow UST on Anchor Protocol and buy/provide liquidity for mAssets

Difficulty: Medium

Profitability: Medium-high

Risk: Medium

Platform: Anchor Protocol, Mirror Protocol

 

The essence of the strategy: borrow UST on the Anchor platform, buy mAssets on Mirror Protocol, and then hold or provide liquidity.

 

Steps:

 

1) Bond LUNA tokens to get bLUNA and then borrow UST on the Anchor platform. We described this process in the fifth strategy (Borrow and Deposit UST). Tokens will go to the Terra Station wallet.

 

2) Connect your wallet to the Mirror Protocol so you can spend UST.

 

3) Go to the tab Trade and select any mAsset, for example, mAAPL.

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Buy mAAPL so that the ratio between UST and the asset is 50:50.

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4) Next, you can simply hold mAssets or add the asset to the liquidity pool to increase your income. Let’s look at the farming of mAsset-UST. Go to the tab Farm and click on the button Long Farm (or Short Farm if you want to short the asset).

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Enter the amount of mAAPL and click Farm.

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LP tokens will be added to the pool automatically. Bear in mind the risk of a fall in mAAPL and LUNA tokens that were provided as collateral, as well as impermanent losses.

Strategy # 9: Borrow UST and stake LUNA

Difficulty: high

Profitability: medium-high 

Risk: high

Platform: Terra Station, Anchor Protocol

 

The essence of the strategy: borrow UST, buy LUNA in the Terra Station wallet, and then stake LUNA.

 

Steps:

 

1) Bond LUNA tokens to get bLUNA and then borrow UST on the Anchor platform. We described this process in the fifth strategy (Borrow and Deposit UST). Tokens will go to the Terra Station wallet.


2) Buy LUNA tokens in the section Swap of the Terra Station wallet. Select the tokens to buy and click Next to complete the exchange.

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If you are using a web wallet you need to connect via Ledger or install a desktop wallet.

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3) Go to the tab Staking and select the validator.

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Then click Delegate, enter the amount, and stake the LUNA.

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This strategy implies a high risk because in the event of a fall in the LUNA rate, your collateral can be liquidated, and the amount of borrowed tokens in currency equivalent will also decrease. But in addition to staking income, you will receive ANC rewards for borrowing UST.

Strategy # 10: LUNA arbitrage bLUNA

Difficulty: high

Profitability: very high 

Risk: low-medium

Platform: Anchor Protocol

 

The essence of the strategy: although the asset ratio should be 1 to 1 during bonding, due to the volatility of crypto assets, arbitrage windows periodically open and the difference in the exchange rate can reach 10% or more. 

 

How income is generated: when the LUNA price rises, the bLUNA token becomes cheaper and vice versa, when the LUNA price falls, the bLUNA price rises, which opens up opportunities for arbitrage.

 

Steps:

 

Let's consider two possible scenarios.

 

1) The LUNA token grows by 10%, while the bLUNA price remains the same. Then you exchange LUNA for bLUNA at TerraSwap or bond LUNA on the Anchor Protocol platform (both options are suitable).

 

As soon as the price of bLUNA and LUNA equalizes, you sell bLUNA or burn them if you bonded them in the Anchor protocol, and get 10% profit.

 

2) The LUNA token drops by 10%, while the bLUNA price remains the same. In this case, you convert bLUNA to LUNA and wait for their prices to become approximately equal. Then you exchange LUNA back for bLUNA.

 

The difficulty associated with this strategy is that you need to constantly monitor the market for the presence of arbitrage opportunities, but the risks remain low, since the rate will sooner or later be leveled. In addition, thanks to this strategy, you will be able to reduce losses from the fall in the LUNA rate.

Conclusion

 

The Terra ecosystem provides many options and strategies for generating income: both simple and low-risk, which are best suited for beginners or passive investors with large capital, and more complex ones with increased risk and return. In the future, the platform infrastructure will evolve to provide more options.

Subscribe to updates by Everstake on social media where you will find up-to-date information on PoS projects and useful staking guides! We wish you profitable staking with Everstake!

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