Different Ways to Earn on Mirror Protocol V2
Introduction
Mirror is a decentralized finance (DeFi) protocol that enables the creation of synthetic assets. With the release of Mirror V2, there are now three different ways you can earn on Mirror. These strategies can vary in difficulty and this article will break down each of them.
Different Ways to Earn
- Mirror Governance
The first way to earn is through Mirror governance. This is the easiest way to earn as you only need to stake MIR tokens. Currently staking MIR is providing a yield of 48.69%, this yield can fluctuate based on the performance of Mirror.
Mirror V2 also added additional governance incentives for being an active voter. This means you will be rewarded for voting in addition to existing staking rewards. Keep in mind, voting in governance will lock up your staked MIR tokens until the poll ends, otherwise, there is no lock-up period for staking MIR.
2. Long Farm
This method of earning on Mirror is a little more complicated. ‘Long Farming’ at its core is just providing liquidity to ‘liquidity pools’, so if you are unfamiliar with this concept, I would recommend checking out a few resources listed below:
- https://learn.zapper.fi/articles/what-is-a-liquidity-pool
- https://www.youtube.com/watch?v=cizLhxSKrAc
The returns on this method differ between various pools. Generally, if there are more liquidity providers in a pool there will be fewer rewards, if there are less liquidity providers there will be more rewards.
You will notice that mAssets with higher volatility tend to have higher rewards. This is due to the increased risk of ‘impermanent loss’ that comes with volatile assets, which means fewer people are willing to provide liquidity in those pools. Here is a good resource that explains ‘impermanent loss’ in more detail:
To provide liquidity in these various pools you need an equal dollar amount of mAssets and UST. There are two ways you can get mAssets, either by buying or minting.
Buying mAssets can be done so in the ‘Trade’ section of Mirror.
Another way to get mAssets is through minting it. This can be done so in the ‘Borrow’ section. Minting mAssets is also considered borrowing because you put down collateral to borrow mAssets.
Previously in Mirror V1, the only collaterals you could use to mint mAssets are UST and other mAssets. Now in Mirror V2, new collateral options include aUST, LUNA, MIR, and ANC.
Of all the new collateral options, aUST is the most interesting one because it is a yield-bearing asset. This means if you use aUST as collateral to mint mAssets, it essentially becomes a yield-bearing stock.
You can obtain aUST from depositing UST into Anchor Earn. aUST acts as a receipt for your deposited UST in Anchor, and because aUST is yield-bearing you will always get a lower amount of aUST than your deposited UST.
Guide to Anchor Earn: https://medium.com/qi-capital/different-ways-to-earn-on-anchor-protocol-e83592f60307
Minting mAssets is relatively easy. First, choose a collateral asset to use in minting, then set your collateral ratio. Keep in mind, more volatile collateral assets like LUNA, MIR, and ANC have a higher ‘min collateral ratio’ than stable collateral assets like UST and aUST. If your collateral ratio goes below the ‘min collateral ratio’, your position will be liquidated.
For example, if I had 400 UST to put down as collateral, and my collateral ratio is at 200%, I can mint/borrow 200 UST worth of mAssets. But if the mAssets I minted increased in value, my collateral ratio would drop which puts me at closer risk to liquidation. That’s why minting mAssets can also be considered as ‘shorting’.
Keep in mind, you are only able to mint mAssets during market hours. This is because when you mint, you are referring to the oracle price (actual price), and this can only be retrieved when the market is open. But when the market closes, you are still able to buy mAssets instead of minting, although these prices can deviate at a premium or discount to the oracle price.
Now that you have mAssets available, you can provide liquidity to the liquidity pools. This can be found in the ‘Farm’ section of Mirror.
In order to provide liquidity, you need an equal dollar amount of mAssets and UST. Once you have provided liquidity, your LP tokens are automatically staked and you can start receiving rewards.
To withdraw your liquidity from the liquidity pools, you can simply unstake them in the ‘Farming’ tab on the ‘My Page’ section.
To close your collateralized debt position (CDP) of a mAsset, you can go to the ‘Borrowing’ tab where you will find your CDPs to manage. On this page, you can also keep track of the rewards from your various farming strategies.
3. Short Farm
Short farming is a new concept that was introduced in Mirror V2 and was done so to keep the peg of mAssets closer to its oracle price. The yields from ‘short farming’ can vary upon different mAssets.
In general, the greater the price premium of the TerraSwap price (market price) to the oracle price (actual price), the greater the yield.
The process of short farming is similar to minting mAssets. The difference is when you participate in a short farm, the mAssets you mint are immediately sold and the proceeds from selling the mAssets are locked up for 2 weeks. This is to prevent the user from using the proceeds to immediately buy back the mAssets, as this will cancel out the effect of lowering the premium.
To short farm, simply go to the ‘Farm’ page and click on whichever mAssets short farm yield that interest you.
You will see that the short farming process is similar to minting mAssets, in which you need to choose a collateral asset and set a collateral ratio. But because you are minting mAssets, short farming is only available during market hours, while long farming is available any time. This is because when you long farm, you can still get access to mAssets by buying from the market.
You can also notice that short farming does not require UST paired with mAssets, this is because you are not providing liquidity to a pool like long farming. Rather you are just minting the mAssets to be immediately sold off.
To manage your positions in short farming, you can go to ‘My Page’. In this section, you can also keep track of the rewards from your various farming strategies.
Strategies to Earn
Now that you understand the three different ways to earn on Mirror V2, you can see that there are countless strategies you can implement to earn.
One notable strategy that has opened up because of Mirror V2 is the use of aUST. Like I previously mentioned, aUST is obtained by depositing UST into Anchor Earn, and if you are familiar with Anchor, you will know that you are able to earn a yield from borrowing UST.
So in short you can borrow UST from Anchor by depositing bLUNA as collateral, and then use that borrowed UST to deposit into Anchor Earn to obtain aUST. Once you have aUST, you can use it as collateral to mint mAssets, in which you can then use the mAssets to provide liquidity in a long farm.
You can see that in this strategy you are earning from both Anchor and Mirror.
One thing to keep in mind while implementing this strategy is if you are borrowing money from Anchor to obtain aUST, I would recommend not using all of it to mint mAssets. This is so you have a buffer to pay back your loans on Anchor if you are running close to liquidation.
Another tip is when minting mAssets with aUST, I recommend you find less volatile mAssets to the upside. This is because if the mAssets can quickly rise in price, you run at a closer risk to liquidation.
Conclusion
After going through this guide, I hope you now have a good overview of the various ways to earn on Mirror.
- Mirror Governance
- Long Farm
- Short Farm
As you can see with Mirror V2 opening up countless strategies, there is no right one. Choose the strategy that works best for you in terms of risk and reward.
