Spectrum Protocol app review
Blockhain:Terra Classic Terra Classic
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Last updated: Nov 22, 2022
Spectrum Protocol is a yield optimizer platform, through which users can earn compound interest on their crypto assets farming. The platform uses various investment strategies to automatically maximize rewards from various liquidity pools, as well as other yield farming incentives in the Terra ecosystem.
Through the company’s Vaults, clients can utilize the auto-compound investment strategy which increases the deposited token amount by compounding yield farming rewards back to the initially deposited LPs. There is also an auto-stake strategy that automatically stakes rewards to the respective governance stake in order to further increase the amounts of the rewards.
Spectrum Protocol also provides SPEC rewards to its users, which also get automatically staked in the governance of the project, thus increasing the revenue share earned from the platform.
Spectrum Protocol utilizes Vaults to employ one of its two investment strategies, aimed to boost users’ earnings by automatically compounding them with the initial deposit. All vaults auto-compound roughly every hour, once for everyone to optimize fees.
The Auto-compound strategy harvests token rewards and converts them into UST and mAssets, and then reinvests them into the pool again. mAssets are tokens that behave like a “mirror” version of a real asset. The synthetic tokens are developed by Mirror Protocol and require collateral to be minted.
The Auto-stake strategy farms token rewards and automatically stakes them in the governance section of their respective projects. Spectrum Protocol claims this strategy suits better long-term users interested in investing in blockchain platforms. The mechanism doesn’t sell the farmed rewards for UST or mAssets making it healthier to farm token rewards through it.
Depending on the chosen strategy, users earn SPEC token rewards at a fixed rate of 2.5 per block issued to each vault. These rewards will decline over time as the amount of LPs and the number of vaults grows. Clients of the project can also mix the two strategies by allocating different portions of their pool tokens to them.
Spectrum Protocol fees include a 0.1% deposit fee paid to SPEC stakers, which serves as a mechanism to prevent front-running deposits or large liquidity provisions before compounding.
The performance fees include a vault fee totaling 6% on collected rewards, also paid to SPEC stakers. Investors are eligible to earn vault fees as long as they leave their SPEC in the vault, which gets automatically staked to the governance vault. The fee is used to buy back SPEC and distribute it proportionally to the SPEC stakers.
There is also a platform fee of 1% on collected rewards which goes to the platform’s treasury and can be further used for various purposes such as marketing and payments to developers, community engagement, or anything else voted on by the community.
The last fee collected by the platform is called a controller fee. It is 1% on collected rewards and goes towards the auto-compounding controller. The fee is used to cover gas costs for the dynamically optimized auto-compounding and also helps in paying for other underlying services required to run the controller.
Through the project’s website, users can download a portable version of the Spectrum Protocol App and interact with it directly from their own machine, after the setup. Spectrum Protocol wallet integration happens through wallet connect or Terra Station Extension.
SPEC or Spectrum token is the platform’s governance token, which gives access to voting on and proposing solutions regarding the development and current state of the project. Since the company operates as a DAO, the initial governance happened through 9% of the total supply of the coin which is 40,000,000. However, with the growth of the project and its community, the developers will have less proportion of votes to give more power to the hands of the community.
The tokens will be minted over a period of three years with a speed of 2.5 SPEC per block, besides the genesis block equaling 9% of the total supply, 75% of it is planned to be distributed to the community through vault rewards, and 16% are allocated towards a “Warchest” – these funds will be used to cover the operational cost of the platform.
There is a Burn Vault, which takes 1.25 SPEC out of the 2.5 SPEC issued per block, aiming to reduce emissions by 50%. The tokens locked in it stay there for a period of a month, following which they get burned. The short-lived SPEC is staked to a 30-day locked staking pool in order to earn income, which can further be used to buy back more SPEC tokens and burn them as well. Effectively, through this strategy more than 50% of the tokens should get burned, meaning that theoretically the more governance income is created, the more SPEC tokens will be burned.
3.5M of the tokens are given to the developers and will be released at a fixed rate over three years. The developers’ funds are not staked to provide more rewards for users of the platform.
SPEC holders can stake their tokens to the Governance Staking Pools and earn additional income and receive the right to create and vote on governance proposals. There are three types of these pools. The first one is a no-lock pool, funds from which can be unstaked at any time. The next pool is a 30-day locked pool, which requires users’ funds to be locked into it for a period of not less than 30 days, following which they can be withdrawn at any time. And the last option provided to SPEC holders is a 180-day locked pool, which prohibits users from unstaking before 180 days have passed since the initial staking.
Pool revenue from vault fees gets split equally among all staking pools, however, pools with higher locked periods also earn from pools with lower locked periods. Each user can only have one locking period per pool, and if there already is an existing amount locked in a locked pool, the new locking period gets a weighted average between the locked amount and deposited amount.
Spectrum Protocol team is composed of three developers from Thailand keeping their identity private for jurisdiction issues and other work commitments. The team claims they have experience in IT consulting and enterprise application development.
Spectrum Protocol audits can be found in the protocol dashboard on this webpage.
Spectrum Protocol partners with projects from the Terra ecosystem, including Mirror and Anchor, whose governance tokens can be staked and their rewards auto-staked through the platform, while still giving the token holders access to governance features.
The project also collaborates with Pylon protocol and uses their Liquid Pylon pool technology, where investments are tokenized so that users can exit their positions early if they want to. bDP token holders can deposit their assets into the pool, where each hour the Spectrum protocol collects the rewards and uses them to buy more bDP tokens for compounding.
Judging by the current roadmap released by the team in September 2021, there are only three features left to be implemented. These are Short Farming, Borrowed Farming, and Single Asset Farming.
Single Asset Vaults “lend” their deposited assets to LP Vaults to earn interest similar to savings accounts in traditional financial structures, and the surplus asset gets staked in Governance tokens to earn income.
The Borrowed Farm concept includes users providing UST and borrowing another token to farm, the team claims that through this strategy users have low price exposure to the SPEC token. Even though price risk is considered low, governance token LPs provide higher yield, which means that theoretically borrowed farms could produce a high yield with low price risk.
Short Farming is similar to a feature of the same introduced by the Mirror protocol. The strategy works by depositing UST as collateral, to borrow assets from Single Asset vaults and sell them automatically to the market. Once the position is closed, the Short Farming smart contracts will buy the assets back and reconcile the profit.
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