Welcome to this post, where we are going to see how spectrum protocol works, a platform that will allow you to optimize your earnings in the Terra network.
Spectrum started as an optimizer in the Mirror Protocol LP Tokens and has been expanding to the different platforms most used in the Terra network such as Astroport, Nexus Protocol, Mirror, Anchor pylon, starterra and many more.
As you can see, most of the most used platforms on terra, you can find the option to optimize your profitability by using spectrum, and let’s see how. In addition to what aspects to consider, how the whole process of using spectrum works and the basics you should know before using this platform.
What is Spectrum Protocol
Spectrum is an innovative, decentralized yield optimization platform that allows users to earn compound interest on their cryptoasset farms.
With various investment strategies secured and governed by smart contracts, Spectrum Protocol automatically maximizes the rewards of various liquidity pools (LPs) and other yield farming products in the Terra ecosystem.
The main product offered by Spectrum Protocol are Vaults where you can provide liquidity or staking of your cryptocurrency tokens (SPEC, MIR, ANC, mAssets, etc.). Users can choose the auto-stacked investment strategy, so that the vault will automatically increase the amount of tokens deposited by capitalizing the farm rewards back to their initially deposited LPs, or the auto-staking strategy, so that the vault will automatically staking the rewards to the respective governance stake to further increase the amount of rewards.
Spectrum is a farm optimizer with its vaults, similar to Nexus Protocol but with more options with LP Tokens and different strategies from different platforms. If you don’t know how a farm optimizer works, you can see it here.
But mainly it uses the rewards received to reinvest them and thus increase the annual % you get, thanks to compound interest with the rewards you get by providing liquidity on a platform such as Astroport. Since the platforms are usually not very efficient in this aspect, and do not optimize the farming or the staking to compose the rewards of the users automatically.
In addition, platforms often have no interest in doing so, by giving as a reward the token of their platform, and this strategy is to sell the rewards for the token or tokens that you are farming or staking, adding selling pressure to your token.
The main and most relevant part of the whole platform is found in Vaults. Here, you can see above relevant information such as the total locked inside the platform in LTV, the spec price or the total value you have deposited among other things.
I recommend you to use the filters to find the vault you are interested in using spectrum. If you are still not sure, you can also filter by protocols in active farms and see what options there are in each of them.
Currently you can find very interesting options such as nluna and neth, which is the staking of Nexus Protocol, all Mirror LPs, and Astroport with many LPs that can also be very interesting. There are more platforms, but these are the main and most used in Terra.
To see how it works, we will use the bluna-luna vault as an example. What we will see works in the same way or very similar, so you can apply what you will see to the vault you are interested in using.
First of all, once our wallet is connected, we will click on that vault. Here you will see the following panel, which may seem a bit confusing as there are many tabs, but let’s see what each of them is.
The first thing we must do is to deposit our LP, or in the case of a single token, deposit the token. An advantage of spectrum is that, if you do not have the token, you can directly deposit UST and the platform itself will buy the token without you having to leave its own platform. A very useful option, especially for people with little experience creating an LP.
In the case of bluna-luna, in deposit we see 3 options. The first one, where we can deposit the same amount of bluna and luna and the platform will create the LP in astroport. The second one, if we have already created the LP in astroport and we have it in our wallet. Finally, UST, where we can deposit UST to buy bluna-luna and create the LP for us. This already depends on each situation. If you do not have the token, using UST is the most convenient.
With the indicated amount, before depositing, we must choose one of the 3 options. Auto stake, auto compound and Mixed. Each one will have a different annual %, although similar, since they are different strategies. Let’s see what each one of them is.
Auto Stake: With auto stake, the rewards will be placed inside the platform in stake to maximize the rewards, staking with them. In the case of Astroport, staking will be done with Astro. And the same in every platform, such as Nexus, Anchor and any other that has staking of its native token for governance, which is most or all of them.
Auto Compound: Spectrum will sell the rewards you receive, in our example Astro, which is the token you receive when staking with LP in astroport, and will exchange the rewards for more LP Tokens or the token you have placed in the vault. In our case, it will sell Astro for bluna and luna, and so our LP will increase in size.
Mixed: Here, you can simply choose via the bar what % you want me to use in auto stake and auto compound. Whether you want 50%-50% or whatever % you want of each strategy, which allows you to further customize your farming strategy.
Once you have selected the strategy, click on deposit, confirm in your wallet and that’s it. You will start getting the rewards. In withdraw you can withdraw the tokens you have placed in the vault at any time, and in claim you can claim the rewards generated by the vault, both spec, the platform token, and the tokens you have deposited.
Which strategy is better?
After seeing the different 3 strategies, well actually 2, you may be wondering which one you should choose. And this depends on several factors, but mainly, the token you receive and use for staking (with auto stake) and the LP or token you have placed in the vault.
A very common mistake is to choose the one with the best annual %. But many times it is not the best option. You should think about which token may have more value in the future. And even if you don’t get such a high annual %, in absolute terms you will earn more. To understand it better, we will use the example of the bluna-luna vault with $1,000 of that LP after one year, where the annual % is maintained during all this year.
If we do the first auto stake strategy, I will be getting a higher annual % (25.11%), but this annual % will be all on the Astro token. Since by providing liquidity I receive the Astro token, and the auto stake strategy, it takes the astro and puts it in staking to generate more Astro. 251,1$ in Astro.
With auto compound, I will be getting a lower annual % (19.54%), but I will be accumulating more bluna-luna. So, if the Luna token is worth more in a year, even if I get a lower annual %, I will be earning more. $195.54 in bMoon-Moon.
If the Astro token has fallen in price by 20% over the whole year, we will actually have $200.88 in Astro. And if the price of Luna has skyrocketed by 50%, we will actually have $293.31. So at the end of the year, we would earn more with the auto compound strategy.
So always look at which cryptocurrency you think has more potential to go up or have a higher price than the other to maximize the profitability you can get with your strategy.
If on the other hand you want to decrease the risk that one of the two tokens could affect you with a strong fall, the option of mixed with 50% in auto stake and 50% in auto compound is a very good option as well.
Although the platform has other aspects such as trade or gov, we have focused on the most used and that you probably want to use and may have more doubts.
I hope it has helped you to know how you can use spectrum protocol to optimize your rewards in the terra ecosystem. Remember that if you don’t have an account with binance, you can create one just below.