How to Earn a High-Yield Return on Your LUNA

Providing liquidity can be pretty lucrative on the Terra blockchain

Ben Kageyama


Photo by Gilly on Unsplash

LUNA’s price movement in the last few weeks has been nothing short of euphoric. As of this writing, the asset has just reached a new all-time high of $32.

Anyone on crypto-twitter can see just how happy early adopters are. From “$1000 LUNA is not a meme” tweets to discussions about generational wealth — people in this ecosystem have made a lot of money from price appreciation alone.

What many don’t know is that there is more than one way to earn on Terra using your LUNA. JC, a dedicated contributor on LOOP, discussed a number of these in his recent piece “Four Strategies for Making Profit on the Terra Blockchain.”

Here’s my quick addition to his list — earning a 30% yield by providing liquidity for the LUNA-bLUNA pool on TerraSwap.

How does it work?

Bonded-LUNA, or bLUNA, is a token that represents LUNA that has been staked. Its use case is to allocate the asset’s staking rewards to Anchor so it can be put to work while serving as collateral for a loan.

You can create bLUNA by surrendering your LUNA on Anchor. This means that every bLUNA can also be burned for an equivalent amount of LUNA, 1 to 1, subject to an unstaking period of twenty-one days.

But sometimes, users don’t want to wait for twenty-one days to convert their bLUNA into LUNA. TerraSwap solves this problem by allowing them to swap their bLUNA for LUNA instantly via a trading pool. A small fee is paid by the user for every swap, accruing to the benefit of liquidity providers.

How profitable are those rewards? It ranges from 120% to 20% APR depending on trading activity and total liquidity available. If I had to give it a ballpark figure, I’d say around 30%. You can check the current seven-day average return for the pair over here.

What are the risks?

What’s great about providing liquidity for the LUNA-bLUNA trading pair is that you aren’t really subjected to impermanent loss. This is because one bLUNA will always be redeemable for one LUNA. It’s similar to how providing liquidity for two different…