CoinEx Institution | A Review of Projects in the Terra Ecosystem
Emerging public chains have continued to crop up in 2021. Last July, Terra also launched a $150 million ecosystem fund to support applications in the Terra ecosystem. In less than a year, growing from a public chain with only a few applications like Anchor and Mirror, Terra has evolved into an ecosystem covering 200 projects, most of which revolve around UST in terms of their operating mechanism and development. As such, they create more scenarios in which UST can be used and ultimately empower UST, LUNA, and the entire Terra ecosystem.
However, Terra is more than a minting or lending protocol. The public chain is building a more wide-ranging financial service system that centers on its underlying currency system. Unlike other public chain ecosystems where all segments thrive at the same time, Terra is headed towards a public chain ecosystem characterized by vertical DeFi. In this process, Terraform Labs plays a key role.
Terraform Labs, the parent of Terra’s UST and many other Terra-powered products, has been crucial to Terra’s launch and growth, as well as its current success. To ensure the prosperity of the entire ecosystem, Terraform Labs has not only provided financial support but also offered the solutions that Terra needed.
Ecosystem empowerment brought sufficient demand to facilitate the fast growth of UST in the early stage. To a large extent, it allowed the stablecoin to quickly get through its infancy and become one of the leading stablecoins in such a competitive category. Daniel Shin, the co-founder of Terra, has compared the public chain to Alipay in many occasions. He believes that Terra could do the same in Asia where, like Alipay, it will try to leverage e-commerce to go beyond payments and into financial services.
Based on the roadmap of Terra, we can also tell that, unlike other public chains, Terra is not limited to DeFi, and its ultimate goal is to achieve real-world applications. Backed by an outstanding founding team and strong business resources in South Korea and Southeast Asia, Terra has built a well-rounded on-chain + off-chain ecosystem.
In the early days, there are three major Terra-based projects, which are called The Three Musketeers on Terra (the algorithmic stablecoin UST and two Terra-funded projects: Anchor and Mirror). Of course, apart from these three, there are also other quality projects on Terra.
Today, we’ll go through these projects one by one.
Anchor is a decentralized savings protocol launched in March 2021. Its most prominent feature is the steady APY of around 20%. As mentioned in its whitepaper, Anchor’s vision can be summed up as follows: “Despite the proliferation of financial products, DeFi has yet to produce a savings product simple and safe enough to gain mass adoption.” To crypto veterans who witnessed the mining boom of DeFi, a 20% APY may not seem so appealing. However, when the figure is compared horizontally in the lending category or shown to users in the legacy financial system, 20% is a fantastic rate. According to the relevant statistics, we can see that Anchor’s deposit rate remains steady at around 19%, which is its most crucial growth enabler. Meanwhile, such a stable interest rate has attracted plenty of users and funds to the Terra ecosystem. Anchor’s TVL now stands at $9.3 billion, ranking 8th among all DeFi protocols.
Anchor lends out deposits to generate revenue, but it only accepts assets with native staking rewards as collateral for borrowing, such as Terra’s governance token LUNA or stETH, a token recently supported by Anchor through a partnership with Lido, a staking service provider. These collaterals bring additional staking rewards to Anchor, allowing it to subsidize depositors. In other words, Anchor’s actual revenue consists of both the borrowing rate and staking rewards from collaterals. Plus, after its launch, the protocol also introduced a 4-year lending-based mining mechanism. What this means is that Anchor will increase the reward for lending-based mining to encourage lending and improve the utilization rate of deposits when the actual return falls below the target deposit rate of 20%. This will push up the deposit rate back to the target range to bring depositors ideal returns.
Mirror is a synthetic asset platform launched in December 2020. As they say, “Mirror is Terra’s answer to Robinhood”. With Mirror, Terra users can trade US stocks, as well as leading global assets like shares of companies such as Apple, Google, and Tesla. Furthermore, it enables users to go long or short on an asset, thus eliminating the threshold of conventional finance.
On Mirror, synthetic assets are all minted through UST as the primary collateral, which functions as the mirror of financial assets like stocks and ETF. Therefore, the demand for investing in any US stock-based synthetic assets on Mirror is ultimately translated to demand for UST, which builds the most immediate application scenario for the stablecoin. Furthermore, this process also creates value for UST and LUNA.
Terra Station is Terra’s official digital wallet. Through Terra Station, you can convert your LUNA tokens into Terra stablecoins like UST. It is also the gateway for LUNA holders to participate in on-chain governance. As its name suggests, Terra Station is a site that connects individual users with the entire Terra ecosystem.
Although it has not launched any product, Prism is considered the most innovative product from Terraform Labs. The Prism protocol enables users to split their digital assets into yield and principal components. For example, LUNA can be split into pLUNA (principal) and yLUNA (return).
This new concept of asset splitting has created new forms of market liquidity. For example, someone in need of liquidity could sell the future yield of their asset, or yLuna. Equally, someone could decide if he or she wants a yield-generating asset with no underlying risk of liquidation, and purchase pLuna. In effect, Prism creates tooling for interest rate swaps.
Ozone is a decentralized insurance protocol in the Terra ecosystem.
Ozone is designed to provide compensation for technical failures in the Terra DeFi ecosystem, covering various risks on Terra. In other words, if for whatever reason an error occurs so that a user could not access their Luna or UST, Ozone would compensate for potential losses. Currently being audited by Oak Security and Certik, two auditing firms, Ozone is preparing to go live.
Ozone has brought more diversity to the Terra ecosystem. With this protocol, your assets would be secured in the event of an accident. This means that there is almost no risk involved in trying new Terra-powered protocols, which improves user engagement. For developers, Ozone allows their products to get through their infancy in a shorter period.
Mars Protocol, a financial service on Terra, will operate as an “interchain lending platform”. On the one hand, Mars will offer collateralized and uncollateralized assets for borrowers; on the other hand, it will create new ways for lenders to receive interest on the staked funds. One of the Mars teams’ major innovations is the introduction of reactive interest rates, meaning that yields will respond to market conditions.
Mars, the first universal lending platform in the Terra ecosystem, allows leveraged long-term liquidity providers to profit through collateralization, thereby bringing leveraged liquidity to the ecosystem while creating high-return staking opportunities. Mars aims to grow into a fully functioning decentralized bank over the long run.
In June 2019, Terra launched a real-world payment app called CHAI. In terms of compliance, CHAI is equipped with a fiat payment gateway regulated by the South Korean government, meaning that users could connect to around 16 large banks and pay partner vendors in the Terra Payment Alliance through CHAI.
Businesses could use the product’s API to seamlessly accept remuneration across 20 different options, including local payment gateway, digital wallets, telegraphic transfers, direct carrier billing, PayPal, debit cards, credit cards, and PayPal. For its corporate clients, CHAI saves plenty of time and network engineering costs. Meanwhile, CHAI only charges a fee of about 0.5%, which is much lower than the 2–3% transaction fee charged by other credit institutions in South Korea. The extremely fast transaction process is also one of its advantages. CHAI also provides digital wallet and debit card services for consumers. For users, paying partner vendors through CHAI App or CHAI debit card is not much different from using other bank cards. Moreover, in comparison, they could also get discounts or cashback opportunities from using CHAI Pay. For instance, when paying with Terra, users can enjoy discounts of up to 10%.
CHAI is a perfect showcase of its core vision: complexity abstracted into simplicity. CHAI first accepts any legal currency at the front end, then converts the payment into a Terra stablecoin like UST in the back end, and finally transfers the payment to the target corporate account in the local currency.
What’s so striking about CHAI is its ability to make people interact with the Web3.0 economy without them knowing it. Most of the target users of a public chain are crypto natives or those interested in investing in crypto assets. Despite this, Terra has brought non-crypto users into its ecosystem. Moreover, on CHAI, users do not need to deal with any blockchain or crypto technology during the entire process. As such, for most CHAI users, CHAI is not much different from other South Korean Web2.0 payment platforms, such as Kakao Pay and Naver Pay. In comparison, it is even more convenient to use.
Additionally, Terra has also introduced MemePay, a payment application targeting the Mongolian market. However, compared with that of CHAI, its user base is much smaller. The introduction of CHAI and MemePay enables the closed-loop growth of blockchain finance in the Terra ecosystem, which has truly achieved the real-world application of crypto assets.