A deep dive into staking and providing liquidity using LUNA

Introduction

Wondering what to do with your LUNA if you are new to the Terra ecosystem? You’ve come to the right place! There are actually quite a number of things that you can use your LUNA to earn you yield while your HODL it to the moon. Most of us would be familiar with Anchor protocol where we can earn a sweet 19.5% yield just by depositing UST. However, it is also the protocol where you can bond assets (bLUNA and bETH) by depositing them and subsequently borrow against it. But this comes with the risk of being liquidated in times of a market crash just like the one back in May. Of course, this is an issue that Neptune and Nexus protocol seeks to address. But that is beyond the scope of this opinion. Fortunately, there are 2 other strategies you can employ which are very straightforward! In this article, we’ll look at the pros and cons of staking LUNA vs providing liquidity.

Staking:

Firstly, you can consider staking. Staking simply means committing your crypto to support the blockchain network through validating transactions. In the case of Terra, staking your LUNA currently gives you a return of around 3% at the time of writing. But this is expected to increase to around 10% or higher as more projects (40+~) go live on the Terra ecosystem in the coming months. In addition to the 3% return that you will earn in LUNA, you will be able to get airdrops on a weekly basis. For now, there are 3 weekly airdrops: mirror, anchor, and pylon. However, if you were to stake with certain validators, you will be able to get a genesis (first) airdrop of their own token and that is usually the most worthwhile drop as it is the largest in quantity.

To stake your LUNA, simply download the Terra wallet. You can do that via a chrome extension. Once you are on Terra Station, go to Staking and choose which validator to stake with.

(An overview of how the Terra Station looks like)

Pros:

1. Get genesis airdrops from new projects

Some of the new protocols promising genesis airdrops include:

• Talis protocol - no other requirement apart from the promise that "those who delegated to Talis' Validator will be offered a significant bonus amount."
• Nebula protocol - staking with any validators outside of the top 5, in terms of voting power, will land you the airdrop

• Neptune protocol - the earlier and longer you stake with them the larger the airdrops

2. Higher staking rewards

You may think that the staking reward is rather low right now and it is. However, that is because most major CEXs have halted deposits and withdrawals to Terra due to the recent Columbus 5 upgrade. That means that there has been very minimal network activity since 30th September. Although this will take some time, staking rewards have been anticipated to be around the 10% range once everything goes back to normal.

Cons:

1. No exact date for snapshots

The problem with airdrops is that you will never get a clear idea of when the snapshot will be taken and for obvious reasons. A recent one that probably concluded is Orion.Finance (early Oct). Hence, if you are going for the genesis airdrops of new projects, you have to be on a constant lookout by following their socials and what not and it can be quite time consuming.

2. Minimum amount to make weekly airdrops worthwhile

Also, one thing I would like to highlight is that while https://www.terradrops.io/ allows you to claim all the different airdrops with a single click, it doesn’t mean that you get to save on fees. The fees stack proportionately to the number of airdrops you are claiming. What does this mean? There are 3 weekly airdrops for now and assuming fees are 0.3 UST each, if I were to claim all 3 airdrops together it will be 0.9 UST and not 0.3 UST. While there is no minimum amount to stake, you definitely want to think of a worthwhile amount to stake so that the fees don't eat into your airdrops. Check out this website for some useful numbers.

3. 21-day un-staking period

In the event you want to withdraw your staked LUNA, do take note that there is a 21-day un-staking period. During these 3 weeks, you will not earn any rewards and if there is massive price movement, you will not be able to take advantage of it.

But what if I got the genesis airdrop from a certain validator and I want to redelegate my LUNA to another validator? Fortunately, we can just do so by using the 'Redelegate' option. This is instant and there is no 21-day lock-up period.

Providing liquidity

Next, another option to consider is providing liquidity. By providing liquidity, you will earn fees whenever someone uses the pool to swap coins among other things. You can do so here by first converting half of your LUNA to bLUNA and then using the ‘Provide’ function. You will earn in kind. To check the rates, you can visit this website.

Pros:

1. Earn in-kind

Earn LUNA while providing liquidity for this pair. This pair is essentially a stable pool that allows you to earn in kind and not some farm token that is susceptible to inflation or rug pull. Furthermore, there is negligible impermanence loss since bLUNA and LUNA is supposed to be 1:1 although it deviates slightly from time to time.

2. Option to convert to LUNA immediately

You will have the choice to withdraw liquidity immediately although that means you would have to pay a penalty fee. But at least you get a choice as oppose to un-staking LUNA where you definitely have to wait for 21 days.

(Do take note of the penalty fee highlighted in red when opting for 'Instant Burn')

Cons:

1. Declining APY

The rates for the LUNA-bLUNA pair have been steadily decreasing. This could be a result of more people providing liquidity into this pool. There is no clarity if the recent upgrade will do anything to boost this rate. Hence, this is something worth considering.

2. Miss out on airdrops

This might be a major disadvantage if you have a large amount of luna to stake. I hear that genesis airdrops are quite substantial but to be honest, I'm still waiting for my first genesis drop. Hopefully, it'll be like what they said!

Summary

At the end of the day, it is up to you to weigh the pros and cons of each strategy as you would know best what fits your investing horizon etc. I hope this opinion piece has been useful. I’m curious to know how you will earn on LUNA. Do let me know in the comments below! If you have any questions or thoughts, feel free to leave a comment below or connect with me on Linkedin! #LUNAtics

Additional links: (all figures in USD)

Celsius: Deposit $400 worth of applicable crypto and receive $50 in BTC

Blockfi: Deposit $100 worth of applicable crypto and receive $10 in BTC

Nexo: Deposit $100 worth of applicable crypto and receive $10 in BTC

Cake: Get $30 worth of DFI when you sign up and make a deposit of $50 or more

Coinbase: Make an initial trade of at least $100 and receive $10 in BTC

Gemini: Trade $100 worth of applicable crypto and receive $10 in BTC