Most of the public-facing publications authored by the Terra team have revolved around thought leadership on the unique stability mechanism underpinning the Terra Protocol while information about Terra’s business operations have relied on third party media coverage on a case-by-case basis. This post hopes to rectify this state of affairs, and provide the community with a more granular look at the thought processes powering Terra’s business development operations while serving as a source of the most up-to-date information regarding our efforts thus far.
As a stablecoin that is designed as a transactional currency focused on usability and decentralization, Terra’s business success will be determined as a function of the transaction volume it processes. Our thesis is that by capturing the eCommerce payments vertical and providing a key piece of infrastructure for the cryptocurrency space, Terra will be able to position itself as a major contender to legacy payments giants such as Alipay and PayPal. In the long-run, there is infinite design space for a stablecoin that reaches a critical mass of users and market cap, with multiple applications to potentially reshape the financial sector.
So this post is our opportunity to conduct a reality check. Are we on track to fulfill our mission? Is the State of the Terra Alliance strong?
Capturing eCommerce
The explosive growth of payments giants Alipay and Paypal was catalyzed by piggybacking on the success of Taobao and e-bay — key players in the e-commerce space. In creating a new payments network, e-commerce has several characteristics — most notably scale, digital, and growth potential — that make integrations in this market the logical first step.
The problem, however, is to craft an incentive structure that jumpstarts the adoption process both from the perspective of e-commerce platforms and their customers. As a blockchain protocol that adjusts money supply to ensure price stability of its digital currency, this is where Terra has a comparative advantage over other payment service contenders.
As the transaction volume captured by Terra increases, inflation in its internal cryptoeconomics leads to the issuance of new money supply to stabilize prices. How this new money supply is spent can be programmatically determined by the Terra Protocol, and in the beginning phases of adoption, the majority of seigniorage will be used to fund steep discounts for customers using Terra to pay for goods and services on our e-commerce partner platforms.
Due to the incentive mechanisms powered by seigniorage discounts outlined above, Terra has already onboarded multiple strategic e-commerce partners in Korea and the Southeast Asian region with a combined Gross Merchandise Value (GMV) of $25 billion and a customer base of 45 million users.
But sheer transaction volume alone does not guarantee fertile grounds for the growth of a next generation payments network. That’s why Terra has made it a point to develop business relationships with key players in each specific industry vertical within eCommerce and O2O such as general commerce, food delivery, and fashion. By further pushing this thesis, Terra’s goal is to cover all verticals in a customer’s spending cycle in any given day to truly become a transactional currency.
Platforms such as TMON, Yanolja, Megabox, Musinsa — each leaders in their respective general commerce, leisure, entertainment, and fashion verticals — have joined the Terra Alliance with the goal of reforming the payments business through the blockchain, and we remain grateful for their trust in us. I would also like to call out to any other platform players who are interested in joining us in our journey to power the innovation of money.
Capturing Crypto
As a cryptocurrency project, Terra seeks to capture the cryptocurrency vertical in tandem with efforts to integrate Terra as the payment method of choice in the e-commerce space. The use-cases for a stablecoin in the space are manifold, leading enthusiasts to dub the stablecoin concept the “holy grail” of cryptocurrencies. Rather than relying on the logic that something useful will get used, we delineate some of the methods by which we are structuring cooperative frameworks with crypto projects.
Despite the market size of cryptocurrencies, various obstacles such as low transactions per second (TPS), high platform service costs, and price volatility serve as limiting factors in providing enterprise-grade services — hindering blockchain technology’s potential to innovate business processes. These limitations have led existing cryptocurrencies mostly useful solely as speculative instruments.
By solving the problem of price volatility in particular, we believe that Terra can facilitate the creation of dApp services on multiple platforms that are more suitable for mass adoption. The decentralized economy, in essence, is a marketplace where willing participants provide various forms of resources — creative content (Steem), computing power (Golem), storage space (Storj/Filecoin), etc. — in return for payments in the form of utility tokens. Yet, in order for this marketplace to function, price stability is key.
Let’s consider a simple hypothetical music player dApp where Jane is a contributor and John is a consumer.
- Jane is a musician who posts her original songs on the dApp where she receives 10 tokens per download.
- John likes Jane’s music and pays 10 tokens to download her content.
If the prices of the tokens were stable, this would be the end of the transaction.
Jane would be free to use the tokens in any way that she wanted. She could hold onto them for further use on the platform, change them at bulk for fiat currency at the end of the month to pay her bills, or send them to a friend who wants to buy a song on the platform.
John would finish the transaction satisfied that he paid a fair price for the song without having to worry about the possibility of the “song” being worth thousands of dollars in the future.
However, because the tokens powering the dApp is not price-stable, Jane and John are faced with issues that severely degrade service usability.
The Actual Story of Jane and John
Musician Jane wants a steady revenue stream by creating musical content on our hypothetical dApp. She is paid in the platform’s native tokens, which means she has to make a decision to either hold the tokens that she received as compensation for a while, or to liquidate them immediately.
- Jane decides to hold onto her tokens: If the price of the tokens rise, it’s great for Jane. However, if the prices drop due to exogenous factors, there is no way that the platform can offer her an income floor, greatly constraining her complete shift over to this music platform as a means of making a living or her ability to expect a steady income stream.
- Jane decides to sell immediately: To go through this step, she must find an exchange that provides the exchange pairs for the token and the fiat of her choice with sufficient liquidity → try to trade at the most favorable rate for fiat (fees incurred) → withdraw into her bank account (fees incurred again). Or in the more likely scenario that the token is not offered in a fiat pair of her choice (listed on a crypto-crypto exchange), she would need to change the tokens she has earned to a major cryptocurrency that fiat exchanges deal in (e.g. BTC or ETH) → move that to a crypto/fiat exchange (fees incurred) → exchange to fiat (fees incurred again) → and then withdraw that into her bank account (fees incurred yet again)
Music app user John onboarded to the music platform by buying 10 tokens, let’s say at an exchange rate of $1 for 1 token. He expects to be able to buy a song for a $10 equivalent amount in tokens (10 tokens at the time that he bought the tokens).
- If the price of the tokens drop: John can no longer buy the song with the tokens that he owns
- If the price of the tokens increase: John can buy the song with the tokens that he owns, but Jane receives less tokens than she was expecting. The currency risk is passed onto Jane, who must go through the decision process outlined above all over again.
From the perspective of a dApp hoping to increase usage, curbing the price volatility of its native tokens is critical in improving user experience. For enterprise-grade projects looking to tokenize portions of their business model, price stability is an imperative — not a choice.
Many platform and dApp partners have already shared our vision that stability is a necessity for the provision of a blockchain service suitable for mass adoption. We have focused in particular on creating a structure wherein we can deploy a white label stablecoin for blockchain platforms such as KLAYTN by Ground X, Aergo, and Ontology so that dApps being built on top can benefit from our stability mechanism.
On the application layer, we’ve expanded our footprint to cover players focused on the payments and commerce vertical for maximum synergy with our eCommerce business line.
Conclusion
The simultaneous integration of Terra into both the e-commerce and cryptocurrency domain gives rise to interesting implications as a next-generation currency. As a transactional currency in commerce, Terra will allow its users to reap the benefits of a cheaper, more efficient method of value transfer in return for goods and services.
As it relates to the cryptocurrency ecosystem, it can serve as a “gateway” token, allowing users easy access to the decentralized economy as service providers continue to build and launch increasingly useful services.
The vision of Terra is that of a universal currency — a medium of exchange that enables value transfer across borders and jurisdictions, bridges the boundaries between online and offline commerce, and crosses the chasm separating traditional and decentralized economies. By capturing the two verticals mentioned in the sections above, Terra will kickstart growth in service of attaining this vision.
As use-cases for Terra expand, it will decrease churn rates and encapsulate increasing amounts of value within its network of stakeholders. Once sufficient value has been captured, Terra can redesign the entire digital finance space, free from the regulatory fragmentation that has inhibited fintech innovations from scaling. Global remittance, insurance, P2P payments, lending, and supply chain finance are just some of the potential use-cases for Terra — a project that seeks to power the innovation of money itself.
So what is the State of the Terra Alliance?
Given the scale and scope of our ambitions, we still have a long way to go. But we’ve been lucky enough to find inspired and intrepid partners that have been willing to take a bet on the future of money.
To that end, I would dare say that the State of our Alliance is strong.
Join the Terra community:
- Website: https://terra.money/
- Telegram: https://t.me/terra_announcements
- Twitter: https://twitter.com/terra_money
- YouTube: https://goo.gl/3G4T1z
- Read Terra’s white paper: https://terra.money/static/Terra_White_Paper.pdf