Project Review: Astroport (ASTRO) — a next generation AMM on Terra ecosystem
This will be part of a series of project reviews that AuraStake team will undertake in order to share the latest and most interesting projects within TeFi and also the broader cryptoverse with our fellow AuraStakers!
What Is Astroport
Astroport is a next generation Automated Market Maker (AMM) built on Terra and in their own words, they aim to “become the liquidity hub for the Terra DeFi ecosystem, with the built-in flexibility necessary to support all the asset types of Terra.”
Astroport is positioning itself to replace Terraswap as the most popular AMM on Terra, by offering additional features not currently available to the incumbent which will be covered briefly below:
- Different swap pool variants for different types of tokens
- Astroport DAO in the form of Astral Assembly
- Use of TWAP Price Accumulators as Price Oracles
Swap Pool Variants
In contrast with Terraswap which currently only supports the constant product pool variant, Astroport supports 3 pool type variants, namely
- Constant Product pool
- Stableswap Invariant pool
- Liquidity Bootstrapping (LBP) pool
Constant Product Pools
Traditional AMMs including TerraSwap uses the most popular method of Constant Product pool whereby
X * Y = constant k, where X and Y each represents the amount of token supply
The implied price of any given token could be derived based on the chart below. Advantages of this variant is that it is extremely easy to understand and to implement, and ensures that liquidity and pricing is always available at all token supply points.
Source: DeFi’s “Zero to One” Innovation — Constant Function Market Makers, Bollinger Investment Group (2020)
Stableswap Invariant Pools
Stableswap invariant pools, on the other and, are more suited for tokens that are designed with a pegged value in mind e.g., in a stablecoin swap pool such as UST/USDC, or in the case of synthetic token pools such as LUNA/bLUNA.
The stableswap invariant effectively achieves a middle-ground between both the constant product and constant sum formulas to achieve the outcome represented by the blue line (see diagram below). This allows the 1:1 exchange rate to be maintained across a wider range of token supply.
Source: Curve Whitepaper, Curve (2019)
Liquidity Bootstrapping pools (LBPs)
Finally, LBPs are most suitable for new tokens that are still in a price-discovery phase by introducing a dynamic ratio feature between the token supply over a fixed period of time. Perpetual Protocol, during their own token launch, applied this by using a dynamic ratio that reduces the supply ratio of PERPs relative to the stablecoin over a 72-hour period (see diagram below)
This method of pricing dis-incentivises front-running by bots and other market manipulators as the implied price, in the absence of any buying, is gradually lowered, thereby spreading the price discovery process over a longer period.
Source: Why We Chose to Distribute PERP Using a Balancer Liquidity Bootstrapping Pool, Perpetual Protocol (2020)
For their next innovative feature, Astroport introduced the concept of a DAO in the form of an Astral Assembly. The main goal of the Astral Assembly is to manage and grow Astroport as a user-governed DeFi commons. xASTRO token is introduced for this, and holders of xASTRO will have the power to propose and make binding votes on key decisions including smart contract parameter changes, smart contract upgrades and treasury disbursements.
Use of TWAP Price Accumulators as Price Oracles
As a price oracle source, AMMs are a fairly popular source due to its general ease of access. However, as price information may be obtained by simply calculating the amount of reserves present for each token, traditional AMM prices are also susceptible to manipulation, especially as targets for smart contract exploits.
To combat these exploits, as their third innovative feature in this version, Astroport uses time-weighted average prices (TWAPs) which provide close to real-time price information, while making manipulation far more expensive for potential exploiters. Third parties may construct Oracle contracts that create price feeds by filtering data about Astroport pools with customized TWAP lengths or windowing mechanisms.
Tokenomics of ASTRO
The tokenomics for ASTRO is slightly more complex than other Terra projects as there are a number of different token concepts to consider, which we will cover further below.
- ASTRO — mainly to facilitate the purchase and/or sale of ASTRO tokens
- xASTRO — mainly to facilitate the accrual of Astroport LP fees and to participate in governance decisions around Astroport
- vxASTRO — mainly to facilitate the accrual of additional Astroport LP fees and to have greater governance rights when participating in governance decisions around Astroport
Economic & Governance Rights
ASTRO token stakers enjoy a share of trading fees from every trade on the LP. The distribution of such fees will also include ASTRO Treasury and Community groups in the future which will continue to represent benefits to all ASTRO token holders.
In order to maximise benefits accruing to ASTRO tokens, holders are encouraged to first stake ASTRO in xASTRO pool to receive xASTRO tokens. They can then stake xASTRO in vxASTRO pools to enjoy additional governance responsibility and economic rights over Astroport.
Source: Astroport Litepaper (2021)
There will be a maximum supply of 1 billion ASTRO created to be allocated across the following groups:
- 49% to liquidity providers (LPs) via Astroport Generator emissions
- 10% to the Astroport DAO Pool, to be used for the benefit of the Astroport ecosystem
- 7.5% to Terraswap LPs who migrate their LP tokens to Astroport
- 2.5% to miscellaneous Terra ecosystem participants
- 1% to ASTRO-UST LBP to act as a price discovery phase for ASTRO tokens
- 30% to the initial builders, subject to restrictions for up to three years on its transferability
Source: Astroport Litepaper (2021)
Partnerships and Investors
Astroport has been developed through a joint venture of builders made up of Delphi Labs, We3 , Attic Lab and Terraform Labs (TFL). These are strong partners with a solid track record, with the backing from TFL alone representing a strong chance that this project will thrive within the Terra ecosystem.
There are a number of AMMs that exist on Terra ecosystem today, namely Terraswap, Loop and TerraFlokiDex. As a joint venture project with consultation received from TFL, Astroport looks to be positioned as the AMM to replace Terraswap which was built when Terra blockchain was first launched, and therefore lacked the more innovative features found in Astroport today.
In addition to all the innovations that Astroport will bring to the AMM space within Terra, the team is also exploring additional features that they may onboard in future
- More pool variants: Innovative pool variants such as Uniswap V3’s concentrated liquidity design may also be integrated into future versions of Astroport.
- Cross-chain: Users operating on other chains may in future seamlessly interact with Astroport via certain bridges such as Wormhole, which enables arbitrary messaging between smart contracts on different chains and could, in theory, allow for transactions over Astroport LPs without needing to move assets into Terra.
- Governance: Astroport may benefit from a system in future where token holders have the ability to delegate powers to specialised groups to enable more efficient decision making within a fast-moving DeFi space.
Conclusion — Future is Bright
We believe that the Astroport project is positioned to perform quite well, noting some additional factors that are positive for the longer term prospects of this project:
- With the collaboration support received from TFL, Astroport has the endorsement from a team that will remain central to the future direction of the Terra ecosystem.
- New AMM model variations in future mean that it could support a wider variety of Terra assets.
- A future upgrade to enable non-Terra based transactions could massively expand the coverage of Astroport across various blockchains.
Just as UST is fast becoming the stablecoin of choice across various blockchains, Astroport may well too become the AMM hub of choice in the multichain future.