Terra Project Spotlight — Spar Protocol
In our third issue of Terra’s ongoing Project Spotlight Series, we’re pleased to introduce Spar Finance — the decentralized asset management platform powered by Terra and Mirror. Spar follows along with a similar narrative of many projects building on Terra, where improved accessibility and adoption of DeFi applications are primary goals.
Spar Protocol targets several demographics, including passive investors and active pool managers, in a unique pooled asset management model designed to level the investing playing field. Composable on-chain asset management is a massive and lucrative design space, so let’s dive in.
The Team Behind Spar Protocol
Spar’s team got involved with Terra quite early on when the community was still small, allowing them to view exactly how the Terra team executes and what kind of products fit into the ecosystem.
“Our team excels in outside-the-box thinking and building simple solutions to complex problems,” says Patrick Benske, Co-founder of Spar Finance. “Our strength comes from knowing nothing is impossible when you simply spend time to understand it. Since an early age, the founders have been building a variety of products, which exposed them to many different areas of product management that start from an idea, all the way to go to market.”
By managing multiple business areas, the Spar team has an excellent understanding of developing and launching products that scale. Spar Protocol doesn’t like to call itself a crypto project because the team believes that crypto products are starting to surpass the phase of appealing to a crypto-native audience. In their view, developers and product owners should shift their vision to building great products that simply work for a broader user set — finding ways to “dumb it down” by abstracting away the underlying complexity.
Spar strives for this vision by building a user-friendly decentralized asset management platform on Terra that also presents a pathway for other developers to build on top of the Spar SDK.
“The DeFi industry needs to stop thinking about crypto as something very technical and make it easy to use and understand for the masses — this is one of the reasons why the team is heavily involved with Terra because it follows these principles,” continues Benske. “ Spar Protocol is also very lucky to be working with one of the industry-leading Rust developers who wrote two books on the topic.”
At the time of writing, the Spar Protocol is a team of 10 who are actively working towards the future of on-chain asset management. So, what exactly is Spar?
Mapping Out Spar Protocol
At a high level, Spar is a decentralized pool management application on Terra that enables passive management of investor liquidity at promising rates of return and favorable fee models for active pool managers. An intuitive way to think of Spar is a decentralized hedge fund pool, similar to DHedge on Ethereum, where isolated liquidity pools of depositor assets rebalance and adjust based on the pool manager’s specific investment strategy or long-term thesis.
There are primarily 2 participants in Spar Protocol:
- Investors
- Pool Managers
Investors
Spar mainly caters to investors looking for passive investment opportunities with more control or who want exposure to higher rates of return but are unable to trade.
Investors are presented with a user-friendly interface dashboard that allows them to view their overall investment performance, track the leaderboard of pool managers, and select a pool to deposit funds. Investor assets receive the returns generated by the pool’s performance, with their return proportional to the amount invested relative to the overall pool size.
Investors scour through a list of pools on the platform and select one or several with the most attractive risk/returns for their investment appetite.
There are no deposit or withdrawal restrictions for investors, meaning that investors can withdraw their funds from a selected pool at any time — significantly reducing counterparty risk.
Once a user deposits capital into a pool, the manager deploys the capital in the pool supplied from various investors to generate returns based on their strategy — the overall risk/reward for users transparent upfront. Since Terra and Mirror power Spar, investors can gain exposure to various asset classes within specific pools, including equities, commodities, ETFs, and more. Pool managers can even deploy the investor capital as an LP in DeFi protocols — generating passive returns from yield farming strategies.
V1 of Spar will offer mAssets available on Mirror within pools, and future versions will expand to include other assets. Perhaps dynamically rebalancing ETFs from Nebula…?
Blockchain transparency also furnishes a real-time view of pool activity to investors, who can monitor transactions, returns, and other relevant data executed by the pool manager in real-time. User capital is not restricted to single pools, meaning investors can sprinkle funds across pools with different risk/reward profiles and asset classes to divest correlated risk between assets.
For example, Alice could split $10,000 of capital between two pools:
- $5,000 into one pool consisting of only synthetic equity exposure to FAANG stocks.
- $5,000 into a pool that is 50% BTC and 50% yield farming on Anchor via borrowing UST by minting bLUNA and earning ANC rewards.
With composability, the limit to pool composition is creativity. The Spar SDK will allow developers to build on top of Spar and inducing a design space that permits pools to draw from cross-chain assets and deploy capital in yield farming opportunities not limited to Terra’s DeFi ecosystem.
To recap, the overall advantages for investors on Spar include:
- Variable pool returns based on investor risk appetite.
- Access to professional pool funds previously relegated to institutions and wealthy clients in TradFi.
- Complete control over funds.
- Payless entry into pools.
- Simple exposure to a variety of asset classes.
- Access to professional manager strategies and seasoned funds only offered to professionals and institutional clients in TradFi.
Pool Managers
Pool managers oversee the capital deployment of deposited investor funds, earning configurable fees from the onset of the pool based on the pool’s performance. Strategies can vary from simple to more complex, such as pools confined to passive US tech equity exposure vs. a hybrid pool deploying capital across multiple yield farming opportunities and dynamically adjusting ETFs.
Spar enables emerging managers to run pools and businesses more effectively and with reduced barriers to entry. For example, if a talented financial professional is precluded from launching a fund in TradFi or the administrative process is too cumbersome, Spar provides a simple pathway for them to establish a pool in a few minutes. The manager can build a reputation among prospective investors and climb up the leaderboard with fund performance transparent to all users on the platform.
Managers can also configure pools to include parameters for qualifications that investors need to meet, such as minimum capital requirements and quantifiable risk scores for investor volatility appetite. Pools can be kept private or opened to the public, with expanding access to the pool opening up the possibility of generating higher returns for sound portfolio performance.
Trading fees are also low for managers, with a cap of $1.40 per trade implemented in the protocol.
To recap, the advantages of Spar Protocol for pool managers include:
- Launching a pool only takes a few minutes at a cost-effective rate (e.g., gas/transaction fees), significantly reducing the fees and administrative costs to do so in TradFi.
- All assets are separated by investors and can be undelegated at any time.
- Pool performance is transparently tracked on the blockchain.
- Pool parameters are configurable to create qualification metrics for investors.
- Access to a broad spectrum of asset classes and liquidity providers.
- Promising returns (via fees) for large, successful pool performance.
What’s Next? Simplicity, Composability & More
Spar’s design enables managers to spin up DeFi-native hedge funds that cover a spectrum of both DeFi and TradFi asset classes since it is powered by Terra and Mirror — with more composability and features to come in future versions. For investors, Spar provides a premier, accessible, and passive vehicle for tailored risk/return profiles of individuals looking to gain exposure to DeFi or a blend of uncorrelated TradFi and DeFi strategies.
Spar is working on making the platform as retail-friendly as possible by integrating sufficient on/off-ramps. Users won’t need to interact with too many different applications simultaneously and can instead do everything from one application.
The protocol is simple, elegant, accessible, and tailored to mass adoption — congruent with the Terra ecosystem’s broader vision.
Moving forward, the Spar team is working hard to bring a public testnet on the market for users to play around with the protocol using the Terra Faucet. The goal for the mainnet is to have it fully functional by September. With that in mind, you can expect a testnet before that date.
Spar’s plans for the rest of 2021 include:
- Launch private testnet
- Launch public testnet
- Launch beta mainnet
- Integration such as Anchor, AMM, Yield farming
- UX improvements
- Updated governance module
In 2022, a big part of the team’s development will focus on implementing new features for managers that make running and managing a fund more efficient. This roadmap will be based on the feedback collected throughout 2021.
Finally, the SPAR token, which has not been released yet, will function as Spar’s community governance, liquidity, and staking token. In the future, token holders can be the regulators of SPAR — making sure the pools are run without any malicious activity and be rewarded for maintaining the protocol. You can expect an airdrop for the SPAR token to LUNA stakers based on a historical snapshot once Spar Protocol goes live.
For more information about Spar, check out the product demo and socials of the project below!
Product Demo — https://www.youtube.com/watch?v=_jDDV1iXo70
Website — https://spar.finance/
Twitter — https://twitter.com/spar_protocol
Medium — https://sparfinance.medium.com/
Telegram — https://t.me/spar_protocol
GitHub — https://github.com/Spar-Protoco
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Application form to build on Terra:
Terraform Capital application form:
Terra community pool + Agora research forum:
Mirror community pool + community forum:
https://forum.mirror.finance/latest?order=activity
Anchor community pool + community forum:
