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Terra Project Spotlight — Loop Finance

Preview of Loop Markets AMM interface

In our inaugural Terra Project Spotlight issue, we highlighted Kash, a front-end application integrating Anchor, Mirror, and UST for users in financially dislocated regions (e.g., prone to hyperinflation) of the world to source financial primitives from Terra’s DeFi ecosystem. The Kash team shares many of the same goals for inducing mass adoption of crypto as the Terra community, especially the focus on via user-friendly apps, stablecoins, and DeFi’s composability as vehicles for mainstream adoption.

In a similar light, we are pleased to introduce another promising project building on the Terra network that shares similar ambitions — Loop Finance. Loop is building an AMM DEX on Terra that will be integrated into a beta-stage, non-custodial crypto wallet (Loop Wallet) primarily built for shopping in a way advantageous to small businesses and mainstream consumers.

So what exactly is Loop, and why are we so excited to have them building the next AMM on Terra? Welcome to Terra’s 2nd issue of Project Spotlight.

What is Loop?

Loop’s team is made up of a diverse group of entrepreneurs, with a wide range of experience in both software and blockchain development as well as more traditional businesses.

In building Loop, their team had two main motivations:

  1. Help to bring cryptocurrencies to the masses
  2. Help small businesses survive in today’s software-driven world where platforms such as Ubereats, Amazon, and Facebook are rapidly eating up their profit margins.

Loop is a Terraform Capital project offering a two-fold product to the Terra ecosystem and beyond.

First Loop Markets is an AMM DEX built on Terra deploying the Automated Market Maker (AMM) model of “lazy capital” pooled together to enable a passive income for liquidity providers (LPs) and rapid swaps across a spectrum of Terra assets (e.g., MIR, ANC, UST, etc.) for traders.

Second, Loop Wallet is a mobile, non-custodial wallet for shopping and merchant payments that will integrate Loop AMM, sourcing liquidity for payments via native swaps of Terra assets and stablecoins from the Loop DEX.

Loop AMM

AMMs ballooned in popularity during the Summer of particularly with Uniswap eventually dominating trading of ERC-20 assets on Ethereum and sparking an influx of capital into token pools that helped bootstrap liquidity for nascent project’s tokens. Since then, AMMs have become a lynchpin of DeFi liquidity, with Uniswap’s current TVL over $7 billion and competitors like SushiSwap, Bancor, and Balancer iterating and tinkering with AMM design to appeal to various user types.

Uniswap analogs have also emerged on other chains, like Binance Smart Chain’s Pancake AMM, which has absorbed close to $8 billion in TVL in a short span. On Terra, TFL’s implementation of an AMM DEX, TerraSwap, is the primary means for swapping between native Terra assets such as MIR, ANC, UST, and other stablecoins — integrated directly into Terra Station Wallet.

Although similar to TerraSwap’s AMM design, Loop will list ERC-20 and SPL (Solana) tokens alongside Terra native assets once the Wormhole Solana-ETH POA bridge officially goes live. Using the LOOP governance token, which also accrues shared trading fees, pools for tokens that currently do not exist on Terra will be incentivized with POOL token rewards to help bootstrap liquidity, including ETH, WBTC, UNI, SUSHI, LINK, BNB, CAKE, SOL, SRM, FTT, and more.

With Terra Bridge now live, whose Shuttle bridge will eventually be replaced by Wormhole, users on Ethereum, BSC, and Solana can easily port assets to Loop’s AMM on Terra and swap assets from different chains on a single AMM venue. Notably, LOOP farming will also be primarily incentivized on only one side of the swap pair to discourage the dumping of LOOP tokens on the open market and bootstrap liquidity of specific pairs.

The current timeline for the MVP of Loop AMM on Terra is 4- 6 weeks. Be on the lookout for more updates!

Loop Wallet

Loop is also far more than just an AMM, however, and is conducive to the shared ethos of mass adoption of Terra by fusing a front-end shopping payments application with the AMM — Loop Wallet. Loop Wallet will actually be a shopping app, where people can make purchases from local businesses (in-store, pickup, or delivery through Loop’s partnership with Doordash), as well as from international businesses through postal delivery.

The app is currently in the beta testing phase, and Loop will be onboarding many new merchants in the coming months.

“Our plan all along has been to build a non-custodial crypto wallet into the app, allowing users to spend their cryptocurrencies directly with merchants,” says Tom Norwood, CEO of Loop. “One of the main reasons we chose Terra is because most merchants don’t want to accept volatile currencies, and therefore Terra’s suite of local currency stablecoins works perfectly for us.”

Loop’s primary reasoning for building the AMM DEX, apart from bringing more value to the Terra ecosystem, is so that they can create an instant swap mechanism inside of the Loop Wallet app that will allow users to pay with any Terra currency (eg. UST, LUNA, MIR, LOOP, other fiat-pegged stablecoins, etc.) and have it swapped automatically for the merchant’s preferred stablecoin before being deposited into the merchant’s wallet.

Not only does this remove the price-volatility risk for accepting crypto payments that preclude many merchants from adopting crypto-oriented apps, but LOOP rewards are given to customers as a part of a cash-back incentive program.

What’s interesting about this design is that sourcing payments liquidity from an AMM DEX, where pool liquidity often grows rapidly for popular trading pairs, is that fees can be significantly reduced for both consumers and merchants. This is markedly different from many current front-end fiat on-ramps that connect merchants and users for crypto payments, where sourcing liquidity from third-party venues is expensive, with additional costs passed onto the users as higher fees.

“What excites us the most about the future of Loop is the opportunity to start bringing DeFi products to the mainstream as well,” continues Norwood. “Protocols such as Anchor, for example, could be easily integrated into our wallet to allow users to earn a high-interest rate on their funds stored in the wallet. Terra is the perfect platform for this, as many interesting products are already being built on it that are designed for mainstream audiences and not just crypto degens!”

Why Loop Finance?

When examining the “why” of Loop Finance it’s important to view the Loop AMM DEX as a foundation from which the Loop Wallet app can source advantages uncommon in the traditional mobile e-commerce market and use it as a vehicle for onboarding mainstream users to DeFi.

Many of the zero-to-one moments in DeFi adoption should be conducted by masking away the complexity of the underlying financial ecosystem rather than encouraging mainstream users to blindly jump into DeFi’s entangled morass of yield farming, degen memes, and general complexity.

That’s what Loop Finance is doing, and the dual-product design offers some distinct advantages to both small businesses and regular e-commerce consumers.

Giving Small Business The Upper-Hand

Small businesses all over the world are negatively impacted by large platforms such as Ubereats, Amazon, Facebook, and Google.

For example, Ubereats takes a 30–40% commission from restaurants for every food order that they deliver. The average profit margin for a restaurant is very low, making Ubereats almost unprofitable for them. They are now taking over a significant share of the hospitality market too.

Amazon, while helping some small businesses, has also hurt many others. For example, Amazon is notorious for releasing competing products when one of its independent sellers is doing particularly well, without notifying the seller and rapidly usurping a sizable portion of their market share by undercutting their prices. Amazon takes the sales data from all independent sellers and uses it to decide which of their own products they should release that would be more appealing to customers.

Facebook, while initially helping small businesses to reach their audiences, now charges high fees for advertising — raising the difficulty of achieving a promising ROI on marketing spend.

With zero commissions for businesses and a monthly low fee with Loop, businesses can take back control of their audiences and their own sales channels.

Adding cryptocurrency payments (and later on — other DeFi services like Anchor savings) to Loop, source the advantages of an entirely new market to businesses that use Loop as well as allowing them to save money on transaction fees. Imagine a shopping and DeFi wallet app for consumers and businesses that offers rapid, low-cost settlement in stablecoins and crypto-assets sourced from an AMM DEX alongside high-yield savings. Incumbents and big tech firms will have a difficult time matching that value proposition to the end-user unless they begin integrating DeFi-native features themselves — something unlikely to occur in the short term.

For cryptocurrency enthusiasts, having a way to directly spend their cryptocurrencies with local or international businesses in a non-custodial manner will bring the dream of financial freedom one step closer to reality. Currently, DeFi-based products are largely limited to DeFi-native users and degens in an endless feedback loop that only benefits the existing crypto user base instead of expanding the user set.

With Loop, the underlying DeFi mechanics (e.g., the AMM, stablecoins, etc.) are abstracted away. Users (both consumers and merchants) can benefit from better payments, settlement, savings, and rewards in an application market, mobile e-commerce, that accounts for roughly 45% of the total US e-commerce market already — a trend that is poised to accelerate.

All of this can occur without users needing to be intimately familiar with what DeFi is or how it works.

What’s Next?

Loop’s MVP for the AMM DEX is expected in the next 4–6 weeks and the Loop Wallet is currently in its Beta testing phase with the initial rollout anticipated to go live in Australia. Loop Markets will provide a locus of liquidity for cross-chain assets on Terra via its support for ERC-20 tokens and SPL tokens once the Wormhole bridge goes live.

Since crypto payments via Loop Wallet are sourced from Loop’s AMM and users earn a small percentage of the transaction value back in LOOP tokens (~1.5%), the uptake of users in Loop Wallet should translate to more swap fees on Loop AMM since each purchase via Loop Wallet creates an instant swap in the Loop AMM DEX — from crypto → stablecoins.

Paired with instant swaps via Loop AMM directly embedded within the Loop Wallet app, Loop can absorb mainstream traction and liquidity for the DEX underscoring Loop Wallet rapidly, benefiting LOOP holders and the Terra ecosystem at large by elevating adoption of its stablecoins. Moving forward, Loop will also integrate MoonPay as a fiat on/off ramp for its users.

We’re thrilled about Loop’s vision of onboarding more mainstream users to DeFi. The design of originating advantages from DeFi and presenting them to the mainstream via user-friendly applications within competitive e-commerce markets is characteristic of many projects building on top of Terra — including Loop. The goal? Mainstream adoption.

— — —

Application form to build on Terra:

https://docs.google.com/forms/d/1kz8-1vDebV7DHkvaE26JAM0nrnhZgmpYKvMBYqN_NTw/viewform?edit_requested=true

Terraform Capital application form:

https://docs.google.com/forms/d/e/1FAIpQLSdNJTUb3hfCwhTzmvTkkt-wNVuLdc-I2ygCgG0Pbg7DxGeqtw/viewform?pli=1

Terra community pool + Agora research forum:

https://agora.terra.money/

Mirror community pool + community forum:

https://forum.mirror.finance/latest?order=activity

Anchor community pool + community forum:

https://forum.anchorprotocol.com/

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