(This should not be taken as financial advice, cryptocurrencies can be incredibly risky. Consult a financial advisor before making any investment decision. For full transparency, I personally own ASTRO tokens.)
Describing itself as the “central space station of the Terra solar system,” Astroport is a premiere AMM built on the Terra blockchain. Having just launched in December of 2021, Astroport has very quickly become the primary trading platform for users on the network, and continues to show a lot of promise. Here we will explore Astroport’s differentiators, the value accrual of the ASTRO token, the AMM’s performance to-date, and assess its overall potential as a DeFi project.
How is Astroport different from other AMMs?
While Astroport carries out the primary goal of an AMM, which is to provide users the ability to trustlessly trade assets and provide liquidity, there are many aspects in which Astroport stands out amongst its peers.
Support for multiple pool types
Astroport will have two separate pool types to better enhance capital efficiency for traders, and one pool type to help new projects launch their token. The first type is a constant product pool, which uses the same model as almost all other AMMs, which was previously pioneered by Uniswap and Bancor. This is where most pairs will lie, given the simplicity and the ability for assets to enter price discovery based on direct balances within the pools.
The second type is a stableswap pool, which is designed to reduce the slippage for assets that should constantly have a direct 1:1 relationship in some fashion. An example of this for Terra would be the bLUNA-LUNA pool, where bLUNA represents Lido’s bonded staking derivative of LUNA. These should follow each other in price, given that bLUNA is a derivative of LUNA, and therefore slippage for trading on these pairs should be minimized to keep that 1:1 relationship in-tact.
Finally, there is the introduction of liquidity bootstrapping pools (LBPs). This is a form of token launch pioneered by Bancor that tries to address a lot of problems that result from directly launching a token with constant liquidity pools, such as bot behavior and misevaluations. LBPs are weighted to allow for a higher initial price than expected which decreases over time. This disincentives bots to buy right away, and buyers will only start pushing up price when they believe the price has reached a fair enough valuation. Many protocols have already used LBPs with success, including Angel Protocol and White Whale.
For a much more detailed look behind the mathematics of each pool, refer to Astroport’s litepaper, section “Pool Types (link).
Advanced charting and analytics for liquidity providers and traders
While not live yet, Astroport has plans to provide advanced charting so users can better assess their performance using the platform. They want to make the experience for LPs and traders is as smooth and informative as possible. Below is a demo on how the interface will look when analytics are implemented. You will be able to track APYs, gains and losses, and much more all within the same interface.
Dual token rewards for liquidity providers
While most AMMs only give rewards out in the platform’s governance token, ASTRO is able to also direct liquidity incentives from projects themselves to their own pools. This means the user can earn rewards both in ASTRO and potentially the token of choice, which results in a higher APY. For example, Nexus Protocol emits Psi tokens to incentivize liquidity for their token, and so a user who provides liquidity for the Psi-UST pair receives both ASTRO emissions and Psi emissions, resulting in over 100% APY at the moment.
Astroport, being the primary AMM of Terra, also puts itself in the absolute perfect position to take advantage of cross-chain infrastructure. Terra is the primary smart contract platform built on the Cosmos SDK, which aims to be the “internet of blockchains”. This means that Astroport is able to set up IBC capabilities and easily swap assets native to other Cosmos chains, such as RUNE (Thorchain), SCRT (Secret Network), OSMO (Osmosis), and many others. In addition, Terra is a primary blockchain in Wormhole’s network. Wormhole currently bridges assets from many of the top blockchains, including Ethereum, Solana, Avalanche, and Polygon. Astroport has already begun listing Wormhole assets onto its platform, including wETH, wSOL, wAVAX, and wMATIC. No other chain has such easy access to bridge itself to other chains, and as Astroport continues development it could be a potential one-stop-shop for interchain spot trading.
Shared fee structure for liquidity provider and stakers and governance tiers (xASTRO and vxASTRO)
Astroport splits all fees up between liquidity providers stakers, and this split depends on the pool type. For more information on the breakdowns you can refer to their docs.
We will explore ASTRO’s tokenomics in more detail in the next section, including the governance tiers brought about by xASTRO and vxASTRO, but by allocating some revenue to stakers this brings more value accrual to the ASTRO token.
While ASTRO emissions are given out to those provide liquidity, the Astroport team has designed clever tokenomics that take a lot of inspiration from successful token models in the past, and make ASTRO’s value accrual more impactful than most other AMMs whose tokens have primarily farm and dump mechanics.
ASTRO is the governance token for Astroport, and whose emissions are given to those who provide liquidity on the platform. The total supply of ASTRO is 1 billion, and here is a breakdown of the distribution.
It’s important to note that the LPs will be paid out over 69 years, and the builder lockup ends after 3 years. So, a majority of the total supply has a long time before circulating.
xASTRO and vxASTRO and the role of “Meta-Governance”
As discussed earlier, there will be two derivative tokens of ASTRO, xASTRO and vxASTRO, which provide governance tiers as part of what they refer to as the “Astral Assembly.” ASTRO holders are able to stake their ASTRO in the xASTRO pool to receive xASTRO tokens, which:
- activate governance power
- accrue a share of trading fees
Once you have xASTRO, holders are able to lock their xASTRO in the vxASTRO pool to:
- receive vxASTRO points
- amplify governance power
- receive an additional share of trading fees
- access other benefits such as boosted liquidity mining rewards
based on the amount of time locked. It’s also important to note that these fees are shared by buying back ASTRO from the market and pairing it with the respective derivative, which pushes up the derivative’s relative price. For more information on the conversions from xASTRO to vxASTRO, have a look at their docs.
The vxASTRO derivative is where Astroport closely resembles Curve and the veCRV model. Many have seen how the introduction of Curve Wars effected CRV’s valuation over time, heading from around $100 million in market cap at the start of 2021 to around $2.5 billion in January of this year (Coingecko). With the ability to lock xASTRO and boost governance power and boosted LP rewards, this opens up the door for users and protocols to begin locking ASTRO to receive increased rewards and vote for the pools they want to see most incentivized.
There are already a few protocols who have announced their goal of building on and acquiring vxASTRO, in a form of what I refer to as “meta-governance”. Apollo DAO is a yield aggregator built on Terra, which takes advantage of yields on Astroport. Apollo has already began the process of buying ASTRO as part of its “warchest” treasury, with around 1.2 million ASTRO at the moment, and plans on accruing more in the future to be locked. Reactor has also recently announced its plans to create a yield optimizer for both Astroport and Anchor, and plans on buying and locking ASTRO tokens to relay their boosts. Retrograde is also a very interesting protocol being designed to supercharge governance and organize yield in a similar fashion to Convex who will also be locking ASTRO and providing their own sets of derivatives.
Therefore, with the examples above and with more to come, there will be many DAOs who will be constantly allocating a portion of their revenue to buy and lock ASTRO tokens.
In the case of Curve, there are multiple DAOs constantly fighting for their allocation of veCRV. Here is a look at the total veCRV owned by DAO.
However, only Convex has been able to capture significant marketshare, and the other DAOs have stopped accumulating in large sums. Due to the fact that there will be many parties all competing for their share, this should bring a lot of buying pressure and value towards the ASTRO token at a higher proportion as seen through Curve and veCRV.
You can also imagine a future scenario in which new projects that want to incentivize liquidity for their token, rather than diluting their token through their own emissions, they can attempt to “bribe” or influence governance votes and direct ASTRO emissions to their pair, similar to how the Curve wars currently operate. This will likely happen on separate platforms such as Retrograde, but the ability to influence governance like this brings even more value to ASTRO.
As of writing this, the contracts for xASTRO and vxASTRO have not gone live yet. Until they go live, all accruing fees that should be going to stakers in the form of buy-backs are currently sitting in the designated Maker contract. Once the contracts do go live a buy-back will need to be initiated using the funds in the Maker contract, whether all at once or over a period of time. You can take a look here to see the amount of value in that contract. If things remain completely static, we can use the following equation to roughly estimate a change in Astro’s price after a buy-back is initiated:
Where UST is the amount of UST in the ASTRO-UST pool, ASTRO is the amount of ASTRO in the ASTRO-UST pool, and INPUT is the amount in UST that will be bought back from the market. Assuming a $2.00 ASTRO price, the pool being filled with $100 million in total liquidity, and the Maker wallet containing $12 million in assets, the price would move to roughly $3.08 after a buy-back, a 54% increase.
In addition to this, any unclaimed ASTRO airdrops will be automatically given the the Astral Assembly, and the period for initial airdrops has ended this past weekend. The two wallets that contain these airdrops currently total to just over 8 million ASTRO (1, 2). Assuming a $2.00 price of ASTRO, and $12 million in buy-backs mentioned previously, this means that 14 million ASTRO will be ready to enter into the contract. If you choose to stake your ASTRO into xASTRO when the contracts launch, you could be entitled to some of this ASTRO depending on the proportion of 126 million circulating ASTRO that gets staked alongside you. Here is the potential ROI for each percentage staked assuming 14 million ASTRO are ready.
This is based on speculation on how the contracts will be released, letting users stake before the ASTRO is applied to the contracts, but could easily prove to be false given further announcements from the team.
After the launch of these contracts, we can speculate based on $12 million in fees accrued over roughly 90 days. If we extrapolate this over a whole year, we can expect the following potential APR, and this is without potential growth of revenue over time.
Given all of these developments, Astroport has quickly become the primary AMM on Terra, surpassing TerraSwap in many metrics. I assessed its performance a month after launch in a previous article, but we can quickly assess here how well it has performed in only about 3 months of usage.
Daily Active Users
Astroport has seen consistent growth in daily active users, often reaching 6,000 on any given day. This is far outpacing its competitor TerraSwap, and we can expect this number to continue growing as more users enter Terra.
Looking at the LUNA-UST as a proxy, here we can see the change in TVL over time.
Since the lockdrop in December, Astroport has clearly gained the lion’s share of TVL, especially for the LUNA-UST pool. This has also directly corresponded with LUNA’s recent price rise, which left TerraSwap unaffected. This shows that Astroport is becoming the primary AMM for liquidity providers, even without the introduction of boosted rewards through vxASTRO.
Here we can see a comparison in fees for the LUNA-UST pair for both Astroport and TerraSwap, showing rewards accrued just to LPs and in total.
Astroport has clearly amassed much more revenue than its competitors. Even rewards going to LPs, despite being split between stakers, is much higher than TerraSwap.
Astroport’s total volume has a DEX has also been completely off the charts. There have been many days where Astroport’s total volume has reached #2 of all AMMs of any blockchain, only behind Uniswap.
We can also see that a lot of the revenue was directly tied to the price of LUNA. Therefore, we can expect that as the value of LUNA and the tokens of the ecosystem go up over time, this will increase the amount of volume and therefore total revenue for Astroport. So while the AMM has already performed extremely well on a relative basis, it will likely do even better as the ecosystem grows.
Here are the main takeaways from my exploration of Astroport and how it will maximize value capture going forward:
- Astroport has performed extremely well to-date, already achieving the second most daily trading volume for AMMs on many occasions despite being less than three months old, and out-competing its largest competitor by many metrics.
- Terra is perfectly situated for cross-chain swaps, and Astroport can take complete advantage of this. IBC allows the direct access to all connected Cosmos tokens, and Wormhole directly bridges assets across the largest chains.
- Many DAOs will be competing for their share of ASTRO tokens to lock and share rewards with their users, which similar to veCRV should bring a lot of value to the ASTRO token.
- The amount of volume, and therefore revenue, should increase alongside the Terra economy and the LUNA price. Therefore, if you are a believer in the growth of the ecosystem ASTRO becomes a very good proxy.
However, ASTRO is still fairly young, and much of the promised features including analytics and staked ASTRO derivatives have yet to launch, so there is a lot that is just speculation. And while a lot of DAOs will be buying ASTRO for their reserves, the amount they buy will need to outpace new emissions. There has also been some discussion about Terra’s solvency lately, and if UST were to collapse this would also heavily affect ASTRO. However, I personally believe that Astroport has an insane amount of potential, and has shown great promise so far, and I’m excited to see where things are headed.
If you enjoyed the content, consider following my Twitter @WestieCapital, and if you have any questions my DM’s are always open. Cheers.