Astroport: The Liquidity Hub of Terra
Astroport is building a catch-all AMM in the Terra Ecosystem
In this post, we will discuss:
Astroport Protocol and what it is
Astro Generators and why it matters
ASTRO native token and utility/tokenomics
Asset exchanges are one of the most important aspects of building a well functioning trading system. In the world of traditional finance, market makers use an order book where liquidity is provided based on the maker’s views of various trading pairs.
In blockchain, Automated Market Makers (AMMs) have emerged as the decentralized alternative. AMMs, however, have inherent flaws in their design, particularly when it comes to price discovery. Liquidity providers in AMMs are constrained by the algorithm, and cannot properly express their views on how assets should be priced.
One solution is to create various pool types that follow their own algorithm. On Ethereum, for example, this is how most AMMs operate today. However, this also means increased network fragmentation and the need for AMM aggregators who can run as a tertiary layer on top.
The Astroport Protocol
By integrating all the different assets on top of Terra under one AMM, Astroport is bringing liquidity across various new trading pairs in the ecosystem. The protocol is permission-less, meaning that new tokens and assets can easily list on to Astroport and take advantage of the platform’s functionality.
To facilitate proper price discovery and market efficiency, Astroport’s plan is to build separate pool types that can run on their own algorithm. At the same time, the protocol continues to be decentralized by allowing users to list their own pool types with very little change to the code.
Similar to other AMMs, Astroport will have its own native governance token called ASTRO.
Since liquidity providers receive rewards in both ASTRO and other community token pools, LPs are faced with a dilemma of where to focus their mining efforts. To align everyone together with the same incentives, the Astroport Protocol has included a dual farming system called ASTRO Generators.
Through proxy contracts, Astroport is able to forward LP tokens into relevant third party staking contracts. This way, LPs are able to earn rewards in both ASTRO tokens and the protocol token of their choice.
This dual distribution model is also advantageous to new tokens that want to list on the Astroport AMM. Third party protocols can easily integrate into the Astroport ecosystem with minimal operational work.
Utility and Tokenomics of ASTRO
The $ASTRO native token allows holders to benefit from the accrual of trading fees on the Astroport AMM. As always, the steps here are a little funky, but bear with me as I walk you through them.
In order to get started with earning yield with this token, you need to stake ASTRO in exchange for xASTRO. Owning the xASTRO tokens provides governance votes on the protocol, meaning that you can have a say in what the future of Astroport should look like. At this point, you can already start earning some nice APRs on your token.
If your goal is to boost these yields up even more, you can go ahead and stake your xASTRO tokens in exchange for vxASTRO. Along with the boost, you will also receive more governance rights and voting power.
The ASTRO token also has solid tokenomics with a total supply cap of 1,000,000,000. 49% of the token distribution is reserved for LPs, with another 10% for the Astroport DAO. Given the current outlook, it is very likely that Astroport can become the Terra ecosystem’s parallel of Uniswap and Curve on Ethereum.
In the near future, I wouldn’t be surprised if stablecoin providers started to accumulate the ASTRO token as a way to gain voting governance rights on the platform. Most stablecoins want liquidity to be directed towards their pair, and this would be the perfect way for them to achieve it. This dynamic has already played out in Curve and Convex Finance, and could potentially mean massive price appreciation for the ASTRO token.
Stablecoins can also provide additional incentives for ASTRO holders through bribes - a web3 mechanic that involves incentivizing governance votes in exchange for rewards. If you are interested in how this works, I would recommend checking out this previous post that delves into the details of how Platypus and Echidna Finance could benefit from something similar on the Avalanche ecosystem.
In my view, Astroport will play a key part in bringing new liquidity and projects to Terra. I was already bullish on Terra before, and the inception of Astroport only makes me more excited to see what is in store for the future.
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