Hey guys :) I’m back with another comprehensive Q&A piece, this time for a decentralized blockchain protocol powering the innovation of money – Terra (LUNA).
Terra is an innovative blockchain protocol powering stable programmable money and payments in both fiat and blockchain economies.
The protocol is backed by its native cryptocurrency, $LUNA which algorithmically expands and contracts the supply of Terra Stablecoins (TerraSDRs) to incentivize arbitrage and maintain their fiat-pegs.
Now, before we dive in, the following piece is similar to my latest articles on Alpha Finance (ALPHA), Perpetual Protocol (PERP), and 1inch (1INCH), so if you haven’t already seen those, be sure to check them out as well.
Hope you enjoy!
The list of Q&A is kind of long so first comes the list of questions that I have prepared the answers to:
- What is Terra?
- Who and When Created Terra?
- What is $LUNA Token Used For?
- What is TerraUSD ($UST)?
- What are some working products atop of Terra?
- Where to Store $LUNA & TerraUSD?
- Where to Buy & Sell $LUNA & TerraUSD?
1. What is Terra?
Terra website homepage
Simply put, Terra is a decentralized blockchain protocol powering programmable and stable money for the internet. It’s building the foundation for a new digital economy with its stablecoin protocol, oracle system, smart contracts, and plan for mass-user adoption.
Terra operates on the Ethereum and Solana blockchains with more blockchains coming soon and is supported by a basket of stablecoins (TerraSDRs) pegged to fiat currencies commonly used in e-commerce.
Unlike centralized stablecoins backed 1:1 with the US Dollar like USDC and GUSD, Terra’s stablecoins are algorithmically stabilized and backed by Terra’s native cryptoasset, $LUNA which benefits from staking rewards to boost network effects (more on this later).
Terra achieves price-stability in its TerraSDRs by algorithmically adjusting their supply according to fluctuations in demand. A far more detailed and complex explanation of how this works can be found here.
Besides Terra’s innovation in stablecoins, the team behind it understands that if its protocol and stablecoins are to succeed in making a global economic impact, it needs to maximize its adoption and network effects.
That’s why Terra has a clear plan for the adoption of its stablecoins through global payment channels for both merchants and consumers. Stablecoin payments powered by Terra replaces the complicated payments value chain made up of banks, credit card networks, and payment gateways with a single blockchain layer.
Terra stablecoin payments offer instant settlements, low fees, and seamless cross-border exchange and their mass adoption is being bolstered through multiple partners and a growing ecosystem of products utilizing Terra’s blockchain infrastructure:
e-commerce payment applications using Terra
Terra boosts its network effects and further facilitates its adoption through its seigniorage share style stablecoins and staking rewards for $LUNA token holders.
Let me explain:
Merchants integrating Terra for payments receive payments in 6 seconds and pay a 0.6% fee. In comparison, merchants accepting credit cards have a 7-day settlement period and pay a 2.8 %+ credit card fee.
In November 2020, Terra processed $330m of payments volume which netted them approximately $3.3m revenue. To put this in perspective, this made Terra the 3rd most revenue-generating blockchain after BTC and ETH at the time.
Layer-1 30-Day Blockchain Revenue (fees paid) (Source)
Now here’s where things get interesting.
The $LUNA token acts as dividend-yielding equity because token holders who stake their $LUNA receive 100% of the transaction fees generated by stablecoin payments. This function helps to boost Terra’s network effects and increases its stablecoin adoption.
All in all, Terra is building something revolutionary here by offering competitive programmable payments, logistics, and infrastructure coupled with a lucrative business model and tokenomics.
2. Who and When Created Terra?
Terra founders Daniel Shin and Do Kwon
Shin and Kwon shared a vision of facilitating the mass adoption of cryptocurrencies by creating digitally native assets with a focus on price stability and usability. They envisioned a massive payment network with adoption, user engagement, and powerful products and use cases powered by its blockchain infrastructure.
To help facilitate this vision, they bootstrapped their cryptocurrency and blockchain payments network with the support of the Terra Alliance – consisting of 15 large e-commerce companies in Asia that collectively process $25 billion USD in annualized transaction volume from 45 million users.
In addition to co-founding Terra, Daniel Shin is the founder and CEO of Chai Corporation, one of the biggest e-commerce platforms in Asia with 2m+ users making payments powered by Terra.
Additionally, he’s also the founder of The Encore Company – a startup studio that builds market disruptive businesses, Ticket Monster (TMON) – a major South Korean e-commerce platform, and Fast Track Asia – a startup incubator working with entrepreneurs to build fully functional companies.
As for Terra’s other founder Do Kwon, prior to Terra, he was the founder and CEO of Anyfi Inc, a peer-to-peer telecommunications company making P2P connectivity solutions using mesh network technology to make telecommunications more scalable, accessible, and secure.
All in all, Terra has powerhouse founders with a clear and concise vision of facilitating the mass adoption of cryptocurrencies and blockchain technology with Terra.
3. What is $LUNA Token Used For?
Terra’s $LUNA token logo
The native cryptocurrency of the Terra protocol is $LUNA and it’s used to collateralize the mechanisms that secure the price-stability of Terra stablecoins, modulate the incentives of validators, and serve as voting power for network governance.
All of these functions are accomplished by locking value within the Terra ecosystem and this is accomplished via staking $LUNA. With that, $LUNA serves as a foundational asset for the entire Terra network and ecosystem.
$LUNA Staking - Its Primary Function
$LUNA serves as a collateral asset that’s staked to protect the integrity of Terra mechanisms, thus providing network security.
Large and dedicated $LUNA token holders can stake their tokens to become a Terra network validator and smaller $LUNA token holders can delegate their stake to validators. In doing this, $LUNA stakers are exposed to the risks of maintaining a long-term position on a fluctuating asset.
Therefore, staking rewards provide incentives to maintain a long-term interest in holding and staking $LUNA to secure the network.
Terra Station Staking Tab (Source)
Staking rewards are first distributed to validators who take a commission for maintaining their validator and providing its operations, and then delegators receive staking rewards which they can withdraw individually.
The rewards a delegator receives from staking are proportionate to the size of their stake and are structured in such a way that rewards increase as transaction volume increases.
With that, $LUNA ownership is an investment in the long-term growth and success of Terra.
Where do Staking Rewards come from?
Staking rewards come from three sources: gas (compute fees), taxes, and seigniorage rewards.
Gas is a compute fee that’s added onto each transaction to prevent spamming. Validators set the gas fee limit and reject transactions with gas prices above this threshold. At the end of every block, gas fees are disbursed to the participating validators proportional to stake.
Taxes are used as a stability fee. The Terra protocol charges a small transaction fee ranging from 0.1% to 1% on every Terra transaction, capped at 1 TerraSDR. This fee is paid in any Terra stablecoin currency and is dispersed proportionately to stake at the end of every block.
Seigniorage Rewards are rewards paid to validators for participating in the Luna exchange rate oracle process. Every time a validator votes within the reward band, they win rewards from the seigniorage pool, proportionate to their stake.
4. What is TerraUSD ($UST)?
TerraUSD (UST) logo
TerraUSD (UST) is the most popular stablecoin by Terra, with the next most popular being the Korean Quan, TerraKRW (KRT).
Like all of Terra’s stablecoins, TerraUSD is a decentralized stablecoin that is scalable, yield-bearing, and interchain compatible.
TerraUSD (UST) Features:
TerraUSD is an algorithmic stablecoin, where the cost of minting is equal to the face value of the stablecoin minted (ie. in order to mint 1 UST, only $1 of the reserve asset ($LUNA) must be burned.
Terra’s stablecoin monetary policy is infinitely scalable and helps DeFi apps and protocols achieve their full potential without limitations. Also, TerraUSD and all Terra stablecoins share liquidity, meaning UST can be swapped for KRT (and vice versa) on-chain with negligible transaction fees.
TerraUSD and other Terra stablecoins can generate stable yields via Anchor, a savings protocol delivering dependable APRs powered by block rewards of leading proof-of-stake blockchains.
TerraUSD and other Terra stablecoins live on both the Ethereum and Solana blockchains with support for more blockchains coming soon.
5. What are some working products atop of Terra?
There are multiple working products with real users, generating real revenue, powered by Terra including:
- CHAI - South Korean e-commerce payment application
- MemePay - Connect with friends and local businesses and make stablecoin payments
- Mirror - Synthetic asset protocol tracking the price of real-world assets
- Anchor - Earn a stable yield on Terra Stablecoin deposits
- Zengo - Buy, Sell, Store, and Earn Crypto all within one App
Notable Products Powered by Terra:
CHAI website homepage
CHAI is a popular South Korean e-commerce payment application with 2.2m+ users. All payments made through the app are facilitated with Terra’s $KRT stablecoin and 100% of the transaction fees generated are distributed to $LUNA stakers.
Currently, CHAI is generating $1B+ in transaction volume per annum, and the more e-commerce purchases settled via CHAI, the more revenue will be shared with $LUNA stakers.
Also, Mike Novogratz, notable investor and CEO of Galaxy Digital recently pointed out on Twitter that CHAI is up to 80k daily active users:
More in-depth CHAI usage statistics can be viewed at CHAISCAN.
Mirror website homepage
Mirror is a DeFi protocol that allows the creation of synthetic assets (mAssets) that track the price of real-world assets. Mirror’s synthetic assets are intended to be used in smart contracts across different DeFi protocols and applications, bringing the world’s assets to the blockchain.
For instance, mAssets are currently being used in the popular yield farming platform, Harvest Finance, and feature highly attractive APYs:
Harvest Finance Pools (Source)
Moreover, Mirror uses Terra’s stablecoins to mint mAssets, where an issuer must lock up 150% of the current asset value in Terra stablecoins or mAssets as collateral.
6. Where to Store $LUNA & TerraUSD?
Terra Station Wallet interface
Terra’s $LUNA token can be stored and managed on the Terra Station Wallet. Here, you can use your $LUNA to interact with the Terra blockchain by managing your wallet, swapping tokens, and delegating $LUNA to validators.
The Terra Station Wallet is a desktop/web browser wallet and can be downloaded by visiting Terra’s website (Terra.Money) for Google Chrome, Windows, and Mac. Users of Station Wallet maintain full control of their private keys and can store $LUNA and all of Terra’s stablecoins on the wallet.
Terra Station dashboard (Source)
Apart from simply storing $LUNA and TerraSDRs, users can:
- View all past transactions and review history based on a category.
- View all validators ranked by delegation return and view info such as voting power, self-delegation, commission, up-time, etc.
- Select a validator and delegate $LUNA tokens to begin earning passive income from staking rewards, and transaction fees.
- View your rewards history to see how many rewards you have stacked up.
- Withdraw your rewards at any time and also undelegate when you want.
- Easily swap between different Terra assets
- If you have staked $LUNA you can participate in Terra’s on-chain governance by voting on and/or submitting proposals
TerraSDR (ie. TerraUSD $TUSD) Wallets
TerraSDRs are ERC-20 compatible and can therefore be stored in any Ethereum-based wallet supporting ERC-20 tokens in addition to the Terra Station Wallet.
That said, the best wallets for storing TerraSDRs are non-custodial Web3 wallets that provide seamless access to the best DeFi applications like Uniswap, Harvest Finance, Balancer, etc.
Popular TerraSDR wallets include:
- Metamask (web)
- Trust Wallet (mobile)
- Argent (mobile)
- Coinbase Wallet (mobile)
- MyEtherWallet (MEW) (web)
7. Where to Buy & Sell $LUNA & TerraUSD?
Terra (LUNA) and TerraUSD (UST) can be bought and sold on a peer-to-peer (P2P) basis but the most popular way to buy, sell, or trade $LUNA and $UST is through centralized and decentralized cryptocurrency exchanges.
You can buy and sell LUNA and UST with cryptocurrency or fiat currency at the following top DEXes and exchanges. In most cases, you will be able to buy LUNA and UST with BTC, ETH, or stablecoins.
- Binance - BTC, BNB, UST, BUSD
- Huobi Global - BTC, USDT, HT, KRW
- KuCoin - UST, USDT, BTC,
- Bittrex - BTC, USDT,
- Bithumb - USDT, KRW
- KuCoin - USDT, BTC, ETH, LUNA, DOT, USDC, MIR, SNX, AAVE, YFI, ATOM
- Uniswap - USDT, MIR, mTSLA, mQQQ, mAAPL, mAMZN, mVIXY, mUSO, mGOOGL, mBABA, mSLV, mNFLX, WETH, mIAU, mTWTR, mMSFT
- Bittrex - BTC, USDT
- Bitfinex - UOP
In addition to the exchanges listed above, $LUNA and $UST are also traded on a variety of other exchanges and platforms that enable people to buy, sell, or trade cryptocurrencies.
Hope you enjoyed that read :) Let me know if I have missed something in the comments.