Terra Ecosystem Overview: A Guide for Newcomers
To provide investors with the means to hedge crypto assets, blockchain developers have created stablecoins. These are digital tokens, the rate of which is pegged to the corresponding fiat currencies, for example, Tether (USDT), Binance USD (BUSD), USD Coin (USDC), and others. This allowed investors to minimize risks and quickly transfer their digital assets to stablecoins on decentralized exchanges (DEXes) in order to insure their portfolios against the strong volatility of cryptocurrencies.
One of the main problems with existing stablecoins is centralization. Smart contracts only supply tokens, but custody services are responsible for storing the currency that stablecoins are pegged against. That is the problem the Terra blockchain seeks to solve. In this article you will learn more about Terra, how it works, what role LUNA tokens play, what projects stand behind the Terra ecosystem growth, and how to make a profit with Terra.
What is Terra and what makes it unique?
Terra is a decentralized blockchain platform founded in 2018 by co-founders Do Kwon and Daniel Shin from Terraform Labs, which brought several unique concepts and ideas to the crypto market. The uniqueness of the platform is in its fully-fledged ecosystem that provides a mechanism for securing the price-stability of stablecoins, blockchain oracles and smart contracts that automatically process transactions on the platform. Terra is supported by the Terra Alliance, a large group of 15 e-commerce companies from Korea and Southeast Asia.
Terra's main goal is to create a global and efficient payment system based on decentralized technologies to enable fast and cheap transactions, including cross-border payments. It is fundamentally different from other platforms offering stablecoins in terms of compatibility. The platform operates on several blockchains, which provides a higher degree of decentralization. To achieve this, Terra uses the Cosmos SDK and Inter Blockchain Communication (IBC) technology. For more details on what Cosmos IBC is, read our article Overview of the Cosmos Stargate Upgrade: What's New.
Terra operates on a Proof of Stake (PoS) consensus mechanism. At the time of writing, the network is supported by a group of 100 validators that have the largest amount of LUNA tokens, which we will discuss in more detail below. In the future, it is planned to increase the number of validators to 130. Validators receive rewards for providing their operations, in particular from compute and transaction fees, and also seigniorage rewards. Terra is capable of processing hundreds of transactions per second, and it takes approximately six seconds to confirm transactions. The average cost of a completed transaction is only a few cents.
The Terra ecosystem already includes 15 stablecoins, such as TerraUSD (UST), TerraKRW (KRT), TerraMNT (MNT), and others. If necessary, users can initiate the creation of new stablecoins pegged to other fiat currencies. Let’s take a closer look at the UST stablecoin which is pegged to the US dollar.
Stablecoin TerraUSD (UST)
In September 2020, together with the Bittrex Global crypto exchange, Terra introduced the stablecoin TerraUSD (UST) which developers described as an interblockchain stablecoin. The plan is to make UST available on every major blockchain platform, including Ethereum, Solana, Polkadot, Algorand, and Binance Smart Chain (BSC). The UST stablecoin is currently available on platforms such as Uniswap (V2), 1inch Exchange, Sushiswap, Terraswap, and Pancake Swap. You can transfer assets between Terra, Ethereum or Binance Smart Chain blockchains by using Terra Bridge.
Unlike most other stablecoins, TerraUSD is highly scalable, more decentralized and transferable between blockchains thanks to Terra's interoperability. This eliminates many other problems that arise from a lack of scalability. Let us recall the situation with the Maker platform, on which, due to the dramatically increased demand for the DAI stablecoin, its rate was more than 10% higher than the dollar rate. This situation led to a massive withdrawal of funds from the platform. For a while, the Maker platform was even excluded from the list of the monitoring service DeFi Pulse.
LUNA is the native staking token of the Terra protocol and foundational asset for the entire ecosystem. LUNA has two core functions which are:
- ensuring the price stability of Terra stablecoins through its role in collateralizing the mechanisms;
- providing incentives for the platform’s validators that ensure the security of the blockchain.
LUNA tokens are used for staking and mining stablecoins by burning, depending on the current rate of the cryptocurrency. Terra uses seigniorage, described by Robert Sams in his article in 2014, which provides flexibility thanks to algorithms. Stablecoins in Terra are not backed by anything and are produced only when the equivalent amount of LUNA is burnt. This allows not only creating stablecoins, but also hedging assets. For example, if the LUNA rate grows by 50% against the dollar, then 1.5 times more TerraUSD coins will be issued. Likewise, if the LUNA rate drops by 25%, then you can redeem more coins for UST.
What projects are helping the development of Terra?
One of the key drivers of Terra's growth is the use of CHAI, MemePay applications and the launch of innovative blockchain protocols such as Mirror and Anchor, which are driving the growing applicability of the TerraKRW (KRT), TerraMNT (MNT), and TerraUSD (UST) stablecoins.
The Terra ecosystem includes several payment solutions and platforms:
- CHAI is an e-wallet for fast and cheap mobile payments in Korea, which has become one of the main growth drivers of the Terra ecosystem. According to CHAISCAN, the wallet already has over 2.4 million users with $1.2 billion in payments per year. Users receive discounts for paying in KRT tokens. The CHAI solution was integrated by leading e-commerce companies.
- MemePay is an electronic wallet in Mongolia that uses MNT for payments.
- Anchor is a savings protocol for deposits in UST stablecoins offering low-volatile 20% yields, which significantly exceeds the yield from lending on other platforms. Unlike other platforms, Anchor accumulates rewards from staking thanks to the Proof-of-Stake mechanism to generate income. This eliminates the possibility of a situation where yields fall due to lower demand for ETH, as it happens in lending markets such as USDC and DAI.
- Mirror is a synthetic asset protocol that tracks the price of real assets such as, for example, traditional stocks of Amazon (AMZN), Google (GOOGL), Tesla (TSLA), and others. Investors can invest in tokenized stocks, trade synthetic assets, and also add them to liquidity pools. Mirror introduces a new term of cryptoassets called mAssets.
According to the Terra Community Console, more than 2.6 million accounts have been created on the Terra platform. Within one year the number of accounts increased 4 times. Every day users created on an average 4 thousand new accounts and the average number of active accounts per day reached 64 thousand.
The average number of daily UST transactions during the year was about 157 thousand. The amount of swaps between LUNA tokens and UST stablecoins was $1.57 billion in a year. For each transaction, validators and their delegators received rewards. According to the statistics, Terra’s average staking reward is 10% per year.
How to make money with Terra: where to start
LUNA staking is the easiest way to make money for those who want to invest in tokens.
Since LUNA is the stability mechanism for Terra’s stablecoins, the platform’s validators and their delegators are entitled to earn rewards for providing the network security. In order to receive rewards you do not need to become a validator yourself. Instead, you can delegate tokens to any active validator in the Terra network by paying a small commission.
Everstake is one of the validators on the Terra network which you can choose for the LUNA delegation. We are a reliable staking provider trusted by a large community, and we support the largest PoS platforms carefully selecting only promising projects such as Ethereum, Cosmos, Cardano, Tezos and many others.
Reasons to trust Everstake:
- 100% uptime (several servers, back-up nodes, dedicated DevOps for every chain)
- Sustainable payouts to almost 300,000 delegators
- Vast portfolio: reliable validator for 45 blockchains
- Over $4 billion in digital assets staked for 4 years at the market
- 24/7 network monitoring and support
It is important to choose only reliable validators since for downtime and attempts to interfere with the work of the Terra blockchain, validators can get a penalty which will negatively affect the profitability of their delegators. For example, if the validator's uptime for 10,000 blocks is less than 95%, or it does not participate in the oracle process, its total share is reduced by 0.01%. It can also lead to their exclusion for 10 minutes, which will reduce the amount of rewards. The slash for double signing will be even more severe of 5%.
Good to know
The annual return on staking is approximately 10-11%. Terra rewards consist of a mixture of LUNA and various stablecoins. Stakers will also receive free ANC, MIR, and genesis airdrops from future protocols of which at least 15 are already known. There is no minimum or maximum staking amount, so you can stake any amount of LUNA to receive rewards.
Delegation doesn’t mean sending LUNA tokens to another address. They just get bonded by the network and cannot be used for any other purpose, except staking that delegators will be getting rewards for. The unbonding period lasts 21 days and after that the tokens can again be used in the wallet for exchange, transfers and staking. Rewards are distributed every 100,000 blocks, and users can withdraw them at any time, for example, to reinvest and increase staking profitability.
Investing in MIR
MIR is a token that runs on the Mirror synthetic asset platform. The Mirror platform solves the problem of accessing the trading markets. Protocol users have access to tokenized assets, for example, shares which rate is tied to the value of real-world assets. They can be traded from anywhere in the world due to the absence of restrictions from regulators.
Right now, users on the Mirror platform have access to tokenized shares of Tesla, Apple, Amazon, Ali Baba, as well as tokenized BTC, ETH coins, and other assets. In the image below, you can see the TOP 10 synthetic assets in terms of trading volumes at the time of writing this article.
MIR token holders can stake them and receive rewards. They can also vote and participate in decision-making for the development of the platform as well as add MIR tokens to liquidity pools along with other tokenized assets for higher returns.
Note: the percentages indicated in the picture above are relevant at the time of writing this article and may change
The Mirror platform functions can be accessed by using the Terra Station web plugin. The main thing to be aware of while using the protocol is that collateral is required for minting synthetic assets. It must be at least 150% of the amount of issued mAssets. If the price of the secured assets falls, the collateral may be liquidated.
ANC token is another advanced way to make money with Terra
Anchor protocol allows UST holders to earn up to 20% yields on their assets. This is possible by lending stablecoins to other users looking to borrow UST on stakeable assets known as bAssets. So far, only one bAsset – bLUNA – is available. Using bLUNA as collateral borrowers can take out loans in stablecoins. It is worth noting that both lenders and borrowers earn. How is this possible?
The protocol developers have created a native ANC governance token. 40% all ANC tokens will be distributed among the borrowers over a period of 4 years. Thus, users can use bLUNA as collateral for borrowing UST, receive ANC as borrower incentives, and then earn a further 20% yield by depositing back into the protocol their borrowed UST.
Anchor protocol is not the first decentralized lending platform, but it is leading in terms of profitability, providing UST token holders with the opportunity to receive high income on deposits. ANC holders can stake tokens receiving staking rewards, participate in the protocol’s governance, or add them to the liquidity pool together with UST earning even higher rewards.
Note: the percentages indicated in the picture above are relevant at the time of writing this article and may change
The main risk in using Anchor is the possibility of collateral liquidation. This is due to the volatility of LUNA tokens. When LUNA’s price drops sharply, the creditworthiness of the outstanding debt decreases, which leads to the liquidation of collateral in order to repay the loan.
Terra is an ambitious project for fast, secure and cheap payments, deposits and investments, giving users confidence in the stability of digital financial transactions.
The Terra ecosystem continues to grow at a robust pace. More retailers are joining it to get access to cheap transactions for selling their products and services, and users get attractive discounts for paying in Terra stablecoins. Developers are actively working on a range of new protocols and applications for the Terra ecosystem that will further scale it up and reach even more users.
If you want to start making money with Terra, start staking by delegating to Everstake. This is the easiest way to make money for beginners.
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