What is Terraswap? A Super Simple Guide to the Terra DEX

Terraswap is a decentralized exchange platform that allows users to swap or exchange tokens on the Terra network. It is one of the leading decentralized exchanges on Terra and you’ve probably come across it if you use Terra.

In this detailed, yet easy-to-understand guide on Terraswap, we probe deeper and find out how the platform works. We will cover the following Terraswap topics:

What is Terraswap?

– Terraswap Home

Making its debut in November 2020, Terraswap is one of the most used decentralized protocols to facilitate the exchange of crypto tokens directly on the Terra blockchain network. The platform supports Terra’s native coin, LUNA, stablecoins built on the Terra network (such as UST, KRT amongst others), and user-defined CW20 tokens.

If you own a particular type of cryptocurrency and would like to exchange some or all of it for another type of cryptocurrency, you can do that on Terraswap. Remember, these must be crypto tokens that the platform supports.

Additionally, Terraswap makes it possible for users to earn rewards by depositing assets to its pools. We’ll cover this in the next heading detailing what you can do on Terraswap. 

What can I do on Terraswap?

There are two types of users that can use Terraswap. You can choose to become a liquidity provider or/and a trader. Let’s understand these two categories better. 

A trader in this context is simply one who exchanges their token for another one. Liquidity providers, on the other hand, deposit not just one token but a pair of compatible tokens, equally into liquidity pools. 

Liquidity pools in Terraswap are automated markets created by the platform for pairs of tokens (such as Terra stablecoins and LUNA) to be deposited into. It is a major vault-like mechanism of the platform that enables users to exchange one token for the other directly on the Terra blockchain with the aid of deposited assets.

Let’s make it simple.

LUNA and UST are a pair of compatible cryptocurrencies on Terraswap. By this, we mean that traders can swap LUNA with UST and the other way round, hence a LUNA-UST pool can be created. If you own these two assets, then you can choose to become a liquidity provider by depositing them in equal amounts in liquidity pools.

By equal amounts, we mean that you must deposit 50% of LUNA as well as 50% of UST. 

Your deposit will make it possible for traders who want to swap their LUNA coins with UST tokens or vice versa to do so.

But then, what will you gain?

Terraswap charges traders a Liquidity Pool (LP) commission on each swap transaction traders make. This fee returns to the pool and accumulates there to serve as a reward for liquidity providers. To claim their share of the rewards from the pool, liquidity providers will have to burn their LP tokens.

Note that adding equal value of two assets to the pools increases liquidity for the corresponding pair market and also helps to balance the pool price.

From the details above, we can deduce that Terraswap focuses on two major things, swapping and providing liquidity. Let us now consider the steps to follow to swap, provide liquidity and withdraw liquidity tokens on Terraswap.

How to use Terraswap

First, you need to create a wallet address on Terra Station to be able to use Terraswap. Once you’ve installed this on your web browser or mobile device, complete the following steps:

How to swap on Terraswap

Step one: Open Terraswap’s official website and click on the icon labeled “WEBAPP”.  On the next page, click the “Connect Wallet” option and choose Terra Station. Next, click on the menu bar in the top right corner of the page and select “swap.”

Step two: Appropriately fill in the gaps by inputting the cryptocurrency you want to spend and the cryptocurrency you want to receive in exchange. By clicking on the tiny arrow in the space, you can search and select your choice among the crypto tokens available in Terraswap.

Step three: Once you have successfully selected the two tokens, the next thing is to indicate their amount. On the page, you will be able to see information such as the price of the coin you want to get, the minimum amount of it that you are going to receive when you make the swap, and the commission you are going to pay for making the swap.

Terraswap charges a fee of 0.3% for every trade on the platform. You can choose which token you want to use to pay the swap fee. By default, it comes with UST, but you can select other assets like LUNA or other stablecoins for it.

Step four: Connect your Terra Station wallet to Terraswap by clicking on the “connect” icon and then the “allow” icon. After which you click on the “swap” icon, confirm in your wallet, and voila! you will have already swapped tokens in terraswap.

How to provide liquidity on Terraswap

Step one: open Terraswap’s official website and click on the icon labeled “webapp”, click on the menu bar at the top right of the page and select “swap.” When a new page pops up, click on “provide.” The page has a similar interface and information as that of “swap.” All you need to do is to appropriately fill in the gaps.

Step two: Under “provide,” you can deposit liquidity of a pair of tokens in exchange for receiving a part of the commissions paid, every time someone swaps the pair you provided. You can provide commonly used Liquidity Pool (LP) tokens such as LUNA-UST, LUNA-BLUNA, ANC-UST among several others.

As noted earlier, you can only contribute equal amounts, that is, 50%-50% of each token, which is equivalent in dollar value. For instance, let’s say you want to create a LUNA-UST pool, you must deposit $100 of LUNA as well as 100 UST. (You can deposit less or more than $100, this is just an example.)

Step three: if you would like to withdraw your LP Tokens and have them back in your wallet, you can do so by clicking on “withdraw.” Using the search engine provided, select the amount of tokens you want to withdraw. Click withdraw, confirm in your wallet and you will have your tokens back.

Who is Behind Terraswap?

Terraswap was created and is run by Delight Labs, a Korean technology company. The team is made up of enterprise software engineers.

Terraswap vs Astroport

Like Terraswap, Astroport is yet another leading decentralized exchange that is built on the Terra network. Astroport enables decentralized, non-custodial liquidity and price discovery for any asset, Astroport was developed by a joint venture of several reputable companies including fintech giant Terraform Labs and leading crypto research firm Delphi Digital amongst others.

Notably, there is serious competition between these two DEXs presently, with several debates about which is better off than the other. Let’s just make a fair comparison between Terraswap and Astroport by considering only two out of several other things that make them different from each other at the moment.

Terraswap or Astroport?

One edge Astroport has over Terraswap is that its users get to receive double rewards for staking their tokens. The extra fold of reward is in the form of the $ASTRO token, Astroport’s native token. Unlike Terraswap, which doesn’t yet have a native token, those who deserve rewards on Astroport are gifted a portion of the ASTRO native token as additional rewards.

However, Terraswap seems to be having an edge over Astroport in the area of total value locked (TVL) in the respective protocols. As of press time, Terraswap had $35 billion worth of assets locked in the protocol while Astroport had $1.74 billion TVL. Significantly, this is a massive difference in figures.

It is expected that more potential for both DEXs will be released as time goes on. By that time, it may become fully clear which is more advantageous than the other. Until then, we can only make do with what we have.

Other Terraswap competitors

Outside the Terra blockchain, the following decentralized exchanges are Terraswap competitors:

Frequently Asked Questions About Terraswap

Does Terraswap have a token?

No. Terraswap has not released any token(s) nor has it presented any information about releasing one very soon or in the future. This means that it may happen and it may also not happen. 

Will there be a Terraswap Airdrop?

There will be a Terraswap airdrop if the development team chooses to do so as part of a future token launch. If previous airdrop models are anything to go buy, then a Terraswap airdrop might reward early users of the protocol with new tokens. Remember, though, the development team is the only one that can inform the public about an airdrop. As stated above, there are currently no plans for a Terraswap airdrop and any such promotions are apparently scams.