Terra. Waking up in the matrix.
What is Terra?
Terra is a proof-of-stake blockchain that aims to maximize the potential of cryptocurrency in the financial sector by focusing on a mass payment processing infrastructure and the creation of useful stablecoins. The Terra ecosystem is home to the Luna native network currency. Here, we’ll look at Terra’s and Luna’s future potential, as well as what makes the network truly unique.
Terra was founded in January 2018 by the Korean blockchain startup Terraform Labs. Terra Alliance, a consortium of 15 e-commerce enterprises in Korea and Southeast Asia, fostered it.
Do Kwon, Terra’s Founder, has a Stanford degree in computer science and previously established Anyfi, a wireless mesh network firm that built one of the most complex decentralized apps in real-world use. Do Kwon has worked as a software developer for both Microsoft and Apple. In 2019, he was included to Forbes’ 30 Under 30 list.
His objective was to create a better form of money that people all across the world could hold, save and trade with.
Terra’s Model on Stablecoins
Terra’s stablecoin model is based on an ‘algorithm’, which pegs stablecoins to fiat currencies 1 to 1 in a decentralized manner. Unlike MakerDao’s DAI, Terra’s stablecoin is not collateralized per say. Consider the following comparative models below:
What Backs Terra’s Stablecoins?
In short it’s backed by value of Terra’s Luna ecosystem. Luna is not an asset that collateralizes a stablecoin, it’s simply an asset that ‘absorbs’ the volatility of a stablecoin. The supply and demand economic model is the best way to describe it. When all else is equal, increased supply equals reduced price. A decrease in supply equals a rise in price.
For example, UST stablecoin, which is a US Dollar 1:1 stable digital currency on Luna. When UST is trading above $1, Luna is burnt for UST, thus increasing supply of UST. When UST is trading below $1, UST is burnt for Luna, decreasing supply of UST. In essence, Luna is used to incentivize network users to stabilize the price, by burning the UST or creating more of it to manipulate the value; and the users that help with the network staying stable are incentivized with profits.
Terra ecosystem holds two assets, the native network coin — Luna and Terra’s stablecoins. Any transaction on Terra ecosystem requires Luna. For every transaction of stablecoins whether in UST or any other currency on Terra, a small fee is paid out to Luna’s holders. Today the total transaction fees collected on a network exceed all other blockchains, aside Bitcoin and Ethereum.
Demand for Terra’s Ecosystem
Mirror Protocol — Synthetic Stock Market
The Mirror Protocol, which was released in December 2020, produces digital representations of real-world assets. Mirror is a decentralized system that allows you to buy US equities or European real estate, fractionally, from anywhere in the world. Currently Mirror has over $1.32 Billion locked in value.
Anchor Protocol — Crypto Savings & Borrowings
Anchor launched mid March with over $3.9 Billion value locked in it. It offers a decentralized savings account with no minimum deposit and no lock-in period that pays 20% APY on your deposited stable currency, such as USDC. Based on what banks pay the typical account holder, we have been conditioned to believe that 20% is too good to be true, but this is not the case.
Anchor operates algorithmic money market of lenders and borrowers. To borrow stablecoins, borrower locks up collateral, with 150% loan to value ratio at a variable interest rate (currently 30% APR), with such rate being adjusted based on borrower demand. Anchor has its own parameters to balance out the demand for depositors and borrowers via automated interest rate adjustments based on mathematical algorithms in the event of significant market swings.
Future Potential Of Terra
Most of stablecoins today are pegged to US dollar, neglecting the rest of the world. Terra’s protocol is capable of issuing many stablecoins each pegged to country’s own currency. At any time anyone can propose to mint new stable currencies (through a democratic vote), whether that be stablecoins pegged to Japanese Yen, Indian Rupee or Russian Ruble. Currently, Terra’s stablecoin ecosystem offers US dollar, Korean Yen, Mongolian Tugrik and Euro, with several others, including likes of Japanese Yen, GBP, CHF & Indian Rupee under proposal.
Stablecoins can be sent anywhere instantly, with very low fees and no bank limits. If you a start up in San Francisco and need to work with a business in Korea, you can swap Terra’s UST (Dollar pegged coin) to Terra’s KRT (Korean pegged coin) and instantly send it over Terra’s blockchain with no middle man and no hidden costs.
Every year over $1 Billion dollars is spent using Terra’s KRT buying anything from coffee to furniture. Many Korean retailers have integrated payment applications, that allow payments to be accepted in Terra’s KRT on a blockchain. These include Korea’s Top 14 banks, largest convenience stores, largest game publisher and largest bookstore in the country via CHAI payment app, which has over 2.5 million active users and growing fast.
In Mongolia, over 40,000 people every month using Terra’s MNT (Mongolian tugrik) on the blockchain to buy goods and pay for services via Mimi Pay. Mongolian taxi companies let residents pay for rides using Terra’s blockchain.
We strongly believe that this adoption will grow across the world, because corporations like Visa, MasterCard, and Amex do not operate for nothing. They charge a fee of 2% to 3% from each transaction that the merchant pays to the credit card provider, takings days to settle. According to Business Insider, Walmart alone pays close to $3 billion in credit card fees every year. Terra protocol levies a tiny cost on each transaction that ranges from 0.1 percent to 1%, settled instantly.
As of today Terra’s market cap stands at $17 Billion. We can begin to fathom what can be genuinely achieve with Terra’s ecosystem as more individuals across the globe create fascinating financial products on Terra, and Terra’s stablecoins continue to integrate on all prominent blockchains.
The governance of Terra’s decentralized economy is in the hands of Luna stakeholders. They have direct power over blockchain governance, proposing and voting on changes such as monetary policy and software upgrades. Luna creates a genuinely democratic economy by liberating money for billions of people all over the world.
Family of programmable digital world currencies open with anyone to transact, save or build on top of opens a huge spectrum of opportunities and e-commerce on global scale as we become more digital civilization. We believe that in the next 5 to 10 years, Terra can grow to be worth at least $100 to $250 billion in market cap, or $250 — $500 per Luna.
DISCLAIMER: The information contained in this article is for educational purposes only and does not constitute any form of advice or recommendation by Wheatstones, and is not intended to be relied upon by users in making (or refraining from making) any investment decisions.
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