Swaps are expensive, use exchanges instead

Oracles and Swaps
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Introduction

Contrary to common assumption, the swap functionality inside Terra Station has no direct impact on the Luna price at all. Tokens that go into the swap are getting burned and tokens that come out of it are minted by the protocol, causing Luna inflation. There is no real market.

The supply of Luna has since the release of Columbus-3 increased from lows of around 993,400,000 Luna to now around 994,640,000 Luna. 1,240,000 new Luna have been minted in the 3 months since from Terra swaps into Luna.

So what?

While this is how the system works, it should be in every stakers/delegators interest to convert their KRT into Luna through an exchange rather than use the on-chain swap feature, and here is why:

  1. Assuming everyone acts like this, the effective staking yield is reduced by 1% from the current 13% to 11.6% according to our calculations (see second tab for comparison).
  2. On-chain swaps are expensive, in addition to ~2% swap fees, there is also the tobin tax of around 0.25%. In aggregate, you lose around ~2.25% on every swap.
  3. There is constant sell pressure on the exchanges from vesting investors that could be reduced massively if we get the majority of stakeholders to turn their Luna purchases into real exchange buy pressure.

Call to Action

While there are no direct KRT/LUNA exchange pairs available now, we have negotiated a deal with Altonomy to facilitate these Luna purchases across exchanges for only 1% commission. In addition, there is currently a spread of around 0.7% between KRT and KRW (which is a necessary currency to buy Luna due to missing exchange pairs). The total fees for this are therefore cheaper than using Terra Station Swap and we expect them to improve even further once a direct KRT/LUNA pair is added to exchanges.

The minimum amount that you can exchange this way is 1,000,000 KRT (1 million KRT) for economical reasons.

You can email Altonomy here to get set up (you will need to KYC): [email protected]

Disclaimer: 1kx does not get a commission for any of this. The purpose is to educate token holders, especially while prices have bottomed recently.

4 Likes
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Great callout @HeyChristopher, fully aligned on this. Swaps were never intended to facilitate trading, quite the opposite – the high fees are intended to be a disincentive. The only purpose of Terra/Luna swaps is to facilitate on-chain expansion/contraction of Terra supply when its price drifts from peg. Insofar as Terra trades at the peg there is no good reason to do Terra/Luna swaps. Buying Luna on exchanges is far more efficient, and as you point out relieves sell pressure as opposed to minting new Luna which is the case when buying using swaps!

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1MM KRT takes a while to accumulate OR you have a lot of LUNA staking.
Plus while you wait to reach the threshold you are missing out on compounding rewards from just eating the fee and staking your newly acquired Luna.

Seems like the ideal solution is to have KRT/LUNA exchange pairs available. When will this happen, @dokwon?

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Who knows!