Mirror Protocol v2 Detailed Guide
Afraid of the volatility of crypto and prefer the stability of stocks?
Enter Mirror protocol.
Mirror is a synthetic stocks platform where you can buy stocks on the Blockchain that mirrors real-world stock prices closely, reducing your volatility to crypto. The native governance token is $MIR.
The mirror platform uses $UST as its base trading pair, so all assets are traded with $UST, which is the stablecoin of the Terra Network. What’s great about $UST is that, thanks to Anchor protocol a Savings Protocol on Terra Network, your $UST is able to earn a stable 18–20% APY.
Mirror had a successful launch and was even on Bloomberg recently. With greater improvements made, Mirror v2 was launched end-June 2021 and new farming strategies have been developed. We did a quick YouTube tutorial on it when it was in testnet, and now let’s deep dive into it.
First, let’s cover key changes to MIR v2.
Mirror v2 Key Changes
- Incentive to participate in $MIR Governance
Get voting rewards on top of existing $MIR staking rewards when you vote so more reason to vote on proposals.
If you are not sure what to vote for, you can also vote to Abstain from voting and still get rewarded more MIR.
Takeaway: More incentive to keep $MIR and vote instead of just dumping it.
2. Allow voting for and listing of Pre-IPO assets
Once the vote is passed, the pre-IPO asset will be minted and can be traded like any other mAsset and speculated on. This is better than real-world stocks where you have to wait for the IPO to happen before you can buy/sell.
Now you can participate at the same time and price as wallstreet instead of waiting for the opening bell which might be too late by then.
3. New Collaterals for minting (borrowing) — aUST, LUNA, MIR, ANC
Previously only $UST was allowed for minting, now you can use more assets as well, adding more demand to them.
Note: When you use LUNA, MIR, ANC, 33% more collateral is needed due their volatile nature.
aUST is anchor UST, which is what you get when you deposit $UST on Anchor. The aUST increases as time pass to give u the 18–20% a year.
The addition of aUST as collateral created the more incentive for a delta-neutral farming strategy (unaffected by the market going up or down) because you are earning an additional 20% APY while being delta neutral.
4. Incentives for shorting — get rewarded in $MIR
Previously, MIR v1 had the problem where there was no incentive to short as there was no liquidity rewards for shorting and it was not capital efficient (require 200% to collateralise).
Solution: In v2, you get $MIR rewards for shorting as well. This is done in the form of sLP Tokens (short Liquidity Pool).
The $MIR tokens distributed in a farm gets distributed to both LP and sLP providers. The higher the price premium (difference between Terraswap and Oracle price), the higher the rewards to sLP stakers, vice versa.
The purpose of sLP reward is to help peg Terraswap to the Oracle price as you get rewarded for shorting.
sLP token MIR rewards is 0–40% based on 0–6.25% price premium
(Eg. At 2% price premium, you earn 20% of the $MIR rewards)
How Shorting Works?
When you short, what actually happens?
Mint an mAsset @ Oracle Price + Sell @ Terraswap price + get $MIR rewards hourly
Oracle Price = Real-life price (Mirror uses band protocol for price feed)
Terraswap Price = Price on Mirror which can have a premium or discount
Mint = Create using collateral
As the mAssets is sold, by right, you should get some UST back. However, to prevent people from closing the short too quickly, the UST is locked until after 15 days.
You can close your short position anytime by buying back your assets with fresh UST.
There’s a 1.5% protocol fee when you close your short (fee is based on the oracle price not terra price). So if you short, it needs to drop 1.5% to breakeven due to the fees, but the rewards will make up for it over-time.
Mirror v2 User Guide
- Buy mAsset
First thing, buy your mAsset on Trade Page.
2. Yield Farm
The section you have been waiting for!
You can be in Crypto and have no exposure to Crypto’s volatility by farming mAsset-UST and selling the farmed $MIR for ~40% APR, depending on mAsset. In this case, I bought mUSO, so I will be creating mUSO-UST LP.
This assumes the mAsset price doesn’t fall. If it goes up, you earn even more.
It’s also best to diversify across mAssets to reduce volatility.
Eg. 25% in Gold/silver, 30% in Tech Stocks, 20% in Bank, 20% in Oil, 5% in mETH/mBTC.
Bonus: Delta-Neutral Yield Farming Strategy
If you want an even safer strategy or you are uncertain if the stock market will continue to go up, adopt this strategy of half-long and half-short to be unaffected by the market going up or down. The focus is to only earn $MIR rewards to sell and $aUST deposit fees.
Let’s assume we have $10K UST. We need to split our funds evenly into 50% Long ($5K) and 50% Short ($5K)
- Use $2.5K to buy an mAsset that needs 200% collateral (Eg. mUSO)
- Farm $MIR with mUSO-UST LP ($2.5k on each side)
Get paid 40% APY in $MIR.
15 Jul BONUS: Recently, Spectrum Protocol launched, an auto-compouding / auto-staking vault on MIR long farms that also provides you with their governance token $SPEC. By using that, you can boost your long-farm APY to 300% instead of 40%. Note that Spectrum is waiting to be audited and funds may be lost if there are smart contract bugs that can be exploited, so use at your own risk.
- Deposit $5K UST into Anchor and get aUST.
Get paid ~20% APY via this savings protocol.
2. Take the aUST and short $2.5K of mUSO (as 200% collateral required)
The UI will prompt you by turning yellow if it falls <180% as you get liquidated at 150%. Do top-up if it turns yellow!
Important: Shorting can only be done during market hours!
3. Get $MIR rewards for shorting. The short rewards vary depending on current price premium. A 15% APR is likely and can go as high as 80%.
4. 15 days later, ~$2500 UST from selling mUSO is unlocked. Claim it. Take the UST and deposit into Anchor. Get paid 20% APY.
Optional: Instead of depositing all the UST into anchor, you can repeat the above steps instead.
6. Sell all claimed $MIR rewards and put that into Anchor, or repeat the steps above to compound your efforts.
Total Rewards after 1-year (assuming rates don’t change) = ~40%
Notice with this strategy, you get 62% more on top of your capital, boosting returns to 40%.
Note: In Anchor, the deposits seem to disappear when you use the aUST for shorting. Don’t worry! As it’s still compounding, you just don’t see it!
How to Close Off Shorts
If you want to close off your shorts, here’s how.
Note that closing can only be done during market hours.
- Use Mirror to trade synthetic stocks if you are afraid of the volatility of Crypto as certain stocks can be a lot more stable.
- Use Mirror long and short farm delta neutral strategy to earn high yields without being exposed to volatility by integrating Anchor protocol.
Links to Find out More
There is a lot to explain, here are good links if you want to deep-dive: https://docs.mirror.finance/whats-new-for-mirror-v2
Anchor Protocol — Medium