Nansen: Terra, not just a stablecoin

Introduction

Original compilation: TechFlow Intern

Introduction

A truly decentralized world needs decentralized currencies.Currently, decentralized finance (DeFi) is underpinned by centralized stablecoins. This is a point of failure that could have knock-on effects across the entire decentralized ecosystem of applications that use DeFi as the backbone of their liquidity.

Terra was created to provide an alternative to centralized stablecoins, and its protocol has grown to become the 2nd largest blockchain by total value locked.

What is Terra?

Terra is a multidimensional protocol. It is not only a stablecoin protocol, but also a layer-1 blockchain on which developers can build decentralized applications.Terra was created by the team at Terraform Labs, founded in 2018 by Do Kwon and Daniel Shin. Do Kwon is the current CEO of Terraform Labs.

Terra protocol

The Terra Protocol is a public blockchain protocol for creating decentralized algorithmic stablecoins. Decentralized algorithmic stablecoins are tokens that are pegged to an asset, in this case a fiat currency. The price peg is maintained by rules set in the code, not backed by the underlying asset. Non-algorithmic stablecoins, such as USDT and USDC, are backed by an equivalent USD or USD-like asset.

key data

Currently, Terra supports the creation of stablecoins in 22 currencies, ranging from major currencies such as USD, GBP, JPY to smaller currencies such as SGD and MNT. Users will be able to exchange LUNA tokens for UST, a stablecoin of equivalent value, and vice versa.Swapping LUNA for stablecoins consumes LUNA, causing a supply squeeze. Similarly, exchanging UST for LUNA will also consume UST.For example, if 1LUNA=50 USD, exchanging 1LUNA will generate 50UST (TerraUSD) and burn 1LUNA.

Whenever UST is de-pegged from USD, it creates an arbitrage opportunity for users. In this case, users are incentivized to swap in the direction of arbitrage in order to maintain the peg.

When 1UST>1USD, the user exchanges LUNA for UST, and then sells UST for USD to earn the difference. In the opposite case (1UST<1USD), the user exchanges UST for LUNA, essentially buying the same amount of LUNA at a price lower than US dollars.

Terra Blockchain

The Terra blockchain is a proof-of-stake layer-1 blockchain built using Cosmos' Software Development Kit (SDK).It uses Tendermint consensus as its consensus mechanism. Once a validator proposes a new block, other validators conduct two rounds of voting to decide whether to accept or reject the proposed block. A two-thirds majority of "yes" is required for a block to be accepted. If it is rejected, another validator is elected as a proposer and the process repeats. Validators are rewarded with transaction fees generated by transactions within the block. Proposers receive larger rewards for their extra effort.

The current mainnet supports up to 130 validators, ranked by the number of LUNA tokens they hold in the validator pool. Therefore, the last validator is the barrier of entry to become a validator in the network. The larger the pool, the more likely it is to be selected as a proposer and the more rewards it will receive. Holders of LUNA are able to delegate their tokens to a pool of their choice and receive rewards proportional to their stake. Staking LUNA allows you to vote or submit your own governance proposals. The mortgaged LUNA has a 21-day release period, and the holder will not receive rewards during this period. The Terra blockchain is open to the public, and other protocols can build on top of it if they so choose. Rust is the coding language used by the Terra ecosystem, similar to Solana's language.

Terra's daily active addresses have been on a gradual upward trend, reaching a peak of 51,000 on March 9, and are currently between 3-35,000. The number of transactions per day has a similar gradual upward trend and reached an all-time high of ~690,000 on March 9.

Advantages of Terra Blockchain (Tx & Gas)

The Terra blockchain has three main advantages:text。

speed and cost

By using the Cosmos Tendermint consensus mechanism, Terra is able to achieve high transactions per second (TPS) while keeping fees relatively low. It is predicted thatIt can handle up to 10,000 TPS, and most transaction fees on the chain are less than $1.Interoperability

Interoperability

As part of the broader Cosmos ecosystem, projects on Terra and Terra itself can interact with other projects within the Cosmos ecosystem through Cosmos' Inter-Blockchain Communication Protocol (IBC). Currently, Terra is capable of directly interacting with popular protocols such as Osmosis, Juno, Secret network, Sifchain, and more. In the future, interoperability will increase and Terra will be able to communicate directly with every protocol in the Cosmos ecosystem.

Outside of the Cosmos ecosystem, Terra also has bridges to Ethereum, Harmony, and Solana.

Note: The screenshots of "Future" are the current look with each chain enabled, and are just illustrative of Terra's increased interoperability in the future.

Terra Ecosystem

Terra's ecosystem is growing rapidly, with more than 100 projects expected to launch in 2022. The term: TeFi (Terra Finance) was born due to the high level of interest in DeFi applications. As of this writing, Terra is in second place with a total value locked of $22.48 billion, up 54% over the past month. UST's market capitalization sits at around $14 billion and has grown by around 25% over the past month. Unlike EVM-compatible chains that attract existing protocols on Ethereum to integrate onto their blockchains, the vast majority of protocols launched on Terra are native protocols on the blockchain. The number of Terra-native projects being built and the ability to attract significant capital at this early stage is a testament to the quality of its ecosystem.

Calculated by the number of users and the number of transactions, the top three most active protocols are Anchor Protocol, Astroport, and TerraSwap. The following briefly introduces their respective functions.

Anchor protocol:Aims to be a benchmark for stablecoin yields, analogous to a traditional bank deposit account, but with a much higher annual interest rate. APR hovers at 19-20% UST.

Astroport：It aims to become the core DEX/AMM of the Terra ecosystem, facilitating the exchange of all assets on Terra, analogous to the combination of Uniswap and Curve.

TerraSwap：The first AMM on Terra, similar to Uniswap. The core difference is that TerraSwap does not allow users to freely list tokens or create pools.

Terra's focus is to make blockchain technology accessible to the masses, even if they don't realize it. Payment apps such as Chai (Asia), Kash (Europe) and Alice (US) aim to fill the space occupied by current digital payment solutions such as Cash App and PayPal. These protocols have a similar front-end user experience to traditional digital wallets, but are powered by the Terra blockchain on the back end, and users are often unaware they are using a blockchain-based system. Chai is the most mature of the three, having processed more than $6 billion in transactions for more than 2,200 merchants.

Outside of DeFi, Terra also has an emerging NFT and gaming ecosystem being built. Second only to Mirror Finance in terms of number of transactions, RandomEarth is Terra's primary NFT marketplace. Galactic Punks is the largest collection on Terra and probably the most common profile picture in LUNAtics (fans of Terra).

Gamevil, a game publisher best known for Summoner Wars, has partnered with TerraForm Labs to build a game and NFT ecosystem.

Every blockchain must have a good wallet to allow users to interact with the application and self-custody its tokens. In Terra's ecosystem, they have established their own wallet and a dashboard called Terra Station for users to interact with the core functions of the protocol. The dashboard provides insights into key metrics for the LUNA token and various stablecoins, such as staking yield and on-chain transaction volume.

What is the future of Terra?

There will be a spillover effect on Terra due to the growth and improvement of interoperability within the Cosmos ecosystem. As more and more protocols are built using the Cosmos SDK and leverage IBC for interoperability, the number of protocols that Terra will be able to interact with will increase. Cross-chain bridging to other blockchains through protocols like Wormhole will continue to add support for more chains and allow for interaction between supported chains.

An increase in overall liquidity and potential user base will be of great benefit to Terra. Not only will applications on Terra be used more frequently, but Terra stablecoins, such as UST, will also be used more frequently. Every chain and exchange that adds support for UST brings UST one step closer to becoming a decentralized medium of exchange for cryptocurrencies.

The TeFi ecosystem will continue to expand, with more applications launching in the coming months and years. More and more high-quality applications increase the liquidity of the ecosystem and enhance the overall strength of TeFi.

Apps are created to fill gaps or solve problems that exist in other apps. This leads to a more holistic DeFi experience as an end user and increases confidence in the broader Terra ecosystem. Examples of this include WhiteWhale, a protocol that enables retail investors to help UST maintain its currency peg; and insurance protocols such as Nexus Mutual, which provides deposit insurance for depositors on the Anchor Protocol. Terra's payment protocols, such as Chai, will continue to drive real-world adoption and usage of the Terra blockchain and various stablecoins.

Summarize

Summarize

Terra was built with the ambitious goal of transforming money to empower the decentralized economy. Its dApp ecosystem and LUNA token present an interesting opportunity for investors to invest in the growth of emerging layer-1 blockchains and decentralized stablecoins.

The growth rate of dApps on Terra and the fundamental need for decentralized currencies has made UST the leader in the decentralized stablecoin sector among cryptocurrencies.The strong focus on DeFi, interoperability, and its payment applications creates a strong foundation for future growth from cryptocurrency natives and the general public. It is expected that more than 100 new applications will be launched in 2022. It can be said that we are only at the beginning of TeFi, and Terra is a protocol worthy of attention.