Welcome to this post, where we are going to see how Mirror protocol works and everything you should know before using it.
Mirror is a DeFi protocol powered by smart contracts on the Terra network that allows the creation of synthetic assets called Mirrored Assets (mAssets). mAssets mimic the pricing behavior of real-world assets and offer traders anywhere in the world open access to price exposure without the burdens of owning or transacting in real assets.
What is Mirror Protocol?
The minting of mAssets is decentralized and is performed by users across the network by opening a position and posting collateral. Mirror ensures that there is always enough collateral within the protocol to cover the mAssets, and also manages the markets for the mAssets by quoting on Terraswap against UST.
Currently we find mainly shares in massets format such as Facebook, Apple, Tesla and they are adding cryptocurrencies such as Bitcoin. The main advantage of mirror is that you can invest in shares in a decentralized way, and receive rewards for it. Unlike using a broker or normal platform to buy stocks, where the platform can actually put limits on you and there are countries that don’t have access to buy certain stocks. With mirror protocol, anyone can anonymously buy shares, without limitations and get a return on your shares, which we will now see.
Mirror protocol is found on the terra and ethereum network, but we will focus on the terra network, as it is the network that most people use this protocol.
Mirror Protocol Commissions
Before we start looking at each part, let me remind you that you will need a wallet, in this case terra station to use mirror protocol on the terra network. If you are new to DEFI or the terra network, in the description or in my channel you can find tutorials on how to get started and create your wallet.
It is also important to know that when you want to buy, sell or borrow any stock, it has to be within the opening hours of the exchanges, otherwise you will not be able to trade. You will see a red text indicating that the exchanges of those stocks are not open at that time.
With that said, let’s get started. The first thing we are going to see is the trade or swap. In mirror protocol the commissions are paid with UST, so I recommend you to have a certain amount of UST to be able to use the protocol without problems.
The trade works like a cryptocurrency swap, but instead of buying cryptocurrencies, you can buy massets. You can view the list and see which stock you are interested in buying. Before clicking on any stock or asset, there is something you should look at, what is the Premium. This is the difference between the actual market price and the price you are going to get, as it is currently not possible for it to be 100% accurate. Although the Premium is usually less than 1% and sometimes even negative, it is important to look at it before buying to see that you are not overpaying too much. If you see that the Premium is too high, I recommend you come back another time or another day to buy that asset, which probably has a lower Premium.
With this clarified, we click on the asset that interests us, in my case Facebook shares. Here, above you will see UST and below the asset you have selected. Currently you can only buy massets with UST, and you can buy at market with the current price, or if you click above on limit order, indicate an amount, and if the asset reaches that value, the order is executed. A very useful option if you want to invest at a lower price and not have to be aware of the price of that asset. If you want to buy at the current market price, enter the amount of UST, click on buy and confirm in your wallet. Be careful not to indicate all your UST or you will run out of UST to pay for commissions, either to sell your asset, or to put it in staking.
Let’s go now with borrow. Borrow allows you to borrow any asset from the list. The important thing here is to see the minimum collateral ratio. This percentage, which is usually 150%, indicates the % where our collateral would be liquidated if the asset falls in price and we have 150% exposure. Let’s click on an asset to see how the mirror loan works. The first thing we must select is the type of cryptocurrency that we will put as collateral. Unlike trade, here we can put different cryptocurrencies as collateral, although my recommendation is to use UST or some stablecoin to make it more difficult to be liquidated by price fluctuations.
A very interesting aspect in mirror lending, is that we can place our Aust, which are the tokens that we will receive in anchor protocol, for depositing our USTs in earn and receive 19%. In addition to the 19% per annum that is currently there, you can use the Aust as collateral to borrow in mirror protocol.
With your cryptocurrency as collateral selected, it remains to indicate what collateral ratio we want. Keeping in mind, that if the bar reaches 150%, our position will be liquidated. The most common is to indicate 200%, so we will receive half of what we have as collateral. If we indicate 100 UST or another cryptocurrency worth $100, we will receive the equivalent of 50% of the asset we want to borrow. You can also change the type of asset you want to borrow from here.
With the amount indicated, the collateral ratio and the asset you want, just click on borrow and confirm in your wallet.
Farming of mAssets Shares
Let’s go to Farms. Here, is where you can deposit your shares, whether you have bought them, or borrowed them, in exchange for an annual % in mirror that you will receive, although for this, you will also have to deposit the equivalent amount in UST of the current value that the shares have as an LP Token. Keep in mind that these % vary a lot depending on the supply and demand. In long you will be able to deposit the shares that you have bought or borrowed in borrow, and receive the % that it indicates, although remember that every day this % varies. In short, if we click, you will see that you can also short the shares, but using collateral. In the same way that we have seen that you can borrow shares, you can also use the collateral to go short of a share. The operation is the same as we have seen above, but you borrow to go short.
Usually you will see that in farms, the short gives a higher annual %. This is because there are usually more people going long or long, and like any market, mirror needs to have a balance between short and long positions.
If you want to deposit your shares that you have bought or borrowed long, click on the asset. Here you should indicate your shares, and the same amount in the current value of UST, as it is an LP TOKEN. So keep in mind, that you will have to indicate half of the value of the shares, in UST to be able to do farming and receive the % indicated in mirror tokens.
My Page and Govern
Finally, in my page you will see the information about the tokens you have to claim, the total value you have in the protocol, and what you have bought and borrowed. From here you can manage your loans, and your assets within the platform.
Also in govern, you can find all the new proposals of the protocol, make staking of the token of the mirror platform, and vote if you have tokens of mirror protocol.
Before finishing, I would like to remind you to learn more about how mirror protocol works and the possible risks you have before placing money inside the platform.
I hope this video has helped you to learn how mirror protocol works and get the most out of your stock investments. Remember that if you do not have an account with binance, you can create one below.