The World of Terra: Staking, UST, and Native Projects

This article originally appeared on the Figment.io blog on March 2, 2022 here.

Recently, Terra broke through to become the 2nd largest Proof of Stake (“PoS”) network by staked market cap, overtaking the Ethereum Beacon Chain (a.k.a. “Ethereum 2.0”) in the process. Earlier this year, it overtook Binance Smart Chain in its rapid rise to the top. This dominance speaks both to IBC’s quality as a growth catalyst and the value that Terra itself brings to the blockchain ecosystem at-large.

The ultimate goal of Terra is not to compete with other Layer-1 blockchains, but to bring real use cases of cryptocurrency into people’s daily lives. Historically, Terra has accomplished this through the development of payments apps, encouraging the adoption of its suite of stablecoins, and bringing reliable traditional finance synthetics to the blockchain. In the future, it’s likely that increased mainstream adoption will lead to even more innovative projects in the Terra Zone.

‍TERRA’S CULTURE OF DECENTRALIZATION

Terra arose as a response to the trend of centralized stablecoins, such as USDT and USDC, which are meant to be backed by corresponding reserves of USD. Terra’s algorithmic stablecoin, UST, maintains its peg to the dollar by a mint/burn mechanism utilizing its native governance and staking token, LUNA. LUNA’s current supply is a decentralized algorithm entirely based on the principles of supply and demand for Terra’s stablecoin, UST. When demand for UST goes up, rather than allowing the price to arbitrarily increase, arbitrageurs will burn LUNA for UST which they can sell at a profit. This results in increased supply of UST, which will drive its price downward, and vice versa.

Terra’s algorithmic method of maintaining parity with USD is both simple and robust, but with rumors of certain nations requiring stablecoin issuers to maintain co-equal amounts of reserves, a solution in the Luna Foundation Guard (“LFG”) may allow it to both comply with TradFi requirements and maintain decentralized principles. Additionally, concerns about a possible “death spiral” if sales of UST cause a glut of LUNA in the marketplace are somewhat alleviated by LFG’s ability to tap these reserves to maintain the dollar peg.‍

TERRA IN THE GLOBAL MARKETPLACE

The Terra decentralized community collectively controls over $2.7 billion in assets, which they can deploy as needed. Terra’s mainstream adoption has been bolstered by several initiatives that have secured its visibility and adoption in the global market, in some cases bolstered by influxes of funding from the community treasury. The major ones include:

1. CHAI App — Payment platform used in South Korea by merchants and widely adopted by retail customers as a result.
2. Partnership with Washington Nationals — LUNA holders recently voted in favor of a partnership with this baseball team both for publicity and as a means of increasing the adoption of UST among fans and the team’s sports facility itself.
3. MemePay — Payment system in Mongolia built on top of Terra that enables instant stablecoin payments at cabs, gas stations, and department stores, as well as payments between friends.

Chai was built with one singular purpose in mind: to be the most prolific payment app for merchants in Korea. So far it is succeeding, with over 1700 merchants accepting payment through Chai and over 2.5 million total users as of late-2021. Chai is a laudable solution to payment system problems that are common in Asian markets, like long settlement times and high transaction fees. Chai streamlines this by using Terra’s blockchain for nearly instant settlement times, cutting transaction fees to 1.3%, and integrating merchant Chai profiles to staking through a Stripe-like SDK checkout service.

In a unique move, Terra recently voted to allocate $40 million in funding toward a partnership with the Washington Nationals MLB team to be paid out over the next five years. Terra branding will appear behind home plate at Nationals Park and throughout the stadium’s displays. The Nationals will rename their elite suites behind home plate after Terra, release a five-part video series explaining the Terra network, and could accept payments in UST as soon as 2023. Approval of the partnership occurred entirely through decentralized governance.

MemePay is similar to Chai in that it’s a payment system filling a gap left unfulfilled by existing TradFi products. Described as similar to Venmo, it allows users to send and receive payments between friends and directly to merchants. It features integration with the messaging service MemeChat, and has seen strong adoption in Mongolia using the Terra stablecoin MST (derived from Mongolian currency), with over 50,000 users as of December 2021.‍

TERRA STAKING WITH FIGMENT

Figment has been a staking services provider since Terra’s inception, and has maintained validator dominance by consistently being one of the top 10 members of the active set based on voting power. We expect our ranking and dominance to continue growing, and as a result of this responsibility to reliably secure the Terra network we maintain our validators to keep up an extremely high degree of performance at any given time.

In exchange for our services, Terra charges a flat commission fee of 10% for retail delegators. This commission is purely based on our capacity to provide network participation as a validator, and does not in any way involve custody of others’ tokens. We believe that the principles of decentralization are best served when everyone maintains full control of their own tokens, and our validator services reflect this too.

In order to stake your tokens with our validator, simply visit the Staking section of Terra Station and find our validator profile, where you can “Delegate” as many tokens as you wish. For those who would like to delegate a large amount, feel free to contact our Sales Team directly.

‍TERRA’S MAIN DAPPS: ANCHOR, MIRROR, NEXUS, & LOOP FINANCE

The amount of projects on Terra has increased by over 500% since May of last year, currently totalling over 160. While there is no shortage of projects being built on Terra, some have been around longer than others. The following native projects have provided excellent use cases and serve as solid examples of what can be built on the network, with Anchor and Mirror themselves being originally launched by Terraform Labs to bootstrap adoption of UST:

1. Anchor Protocol — Decentralized high-yield savings accounts, liquidity pooling, borrowing, and lending.
2. Mirror Protocol — Decentralized, always-open market for synthetic equities such as Alibaba and Apple. Includes staking, liquidity pooling, and governance.
3. Nexus Protocol — A yield maximization tool that features automated Loan-to-Value Ratio management for user vaults.
4. Terraswap — Original AMM for Terra ecosystem. At least 60 tokens available for swapping.

Anchor derives its yield from yield-generating assets, such as LUNA or ETH. With these assets, you may borrow up to 50% of your collateral to mint UST, which you can then use in any way you choose. You can sell it for another asset, bridge it to another chain to farm additional yield, or deposit it back into Anchor for a 20% fixed-income yield, which is pretty remarkable. Anchor’s native token can be used to drive additional yield through liquidity mining incentives or for on-chain governance. A key risk in the Anchor Protocol is when the deposited collateral cannot yield enough APR to pay UST lenders, and even with injections from Terra’s Stability Reserves, there are concerns that Anchor may be too big to fail.

Mirror is a protocol that creates synthetic assets called mAssets (mirrored assets) which “mirror” the price of their off-chain counterpart. There are currently 34 tradeable mAssets listed on Mirror’s exchange, including mAAPL, mBABA, mTSLA, mNFLX, mUSO, mAMZN, mVIXY, mGOOGL, and mTWTR. Notably, mAssets are also tradeable on Pancakeswap and Uniswap. There are a variety of other ways that users can interact with Mirror, including depositing UST as collateral to mint mAssets, long- and short-farming mAssets, or simply using Mirror Token (MIR) to vote on governance proposals, provide liquidity to pools, and earn pro rata withdrawal fees.

Nexus arose as a solution to the aggravating problem users of Anchor and Mirror encounter when manually keeping track of their loan-to-value (LTV) ratios to ensure that their borrowing positions would not be liquidated. Nexus’s solution is for users to deposit collateral in Nexus vaults, where LTV ratios are automatically kept high by smart contract.

Terraswap is the original AMM within the Terra ecosystem. It features the ability to seamlessly swap between many different tokens, including bonded tokens and user-created CW-20 tokens found in the Terra ecosystem. Users can also provide liquidity to liquidity pools.‍

UPCOMING PROJECTS WE’RE EXCITED ABOUT: ASTROPORT, MARS PROTOCOL, & ANDROMEDA PROTOCOL

Several new projects are generating attention in the Terra ecosystem, which will expand both user functionality and decentralization. Major projects that have gotten our attention are the following:

1. Astroport — A new-and-improved take on market functionality in Terra. Wraps up and improves many features found in standalone protocols within Terra, including liquidity pools, native dapp integration, and oracle integration.
2. Mars Protocol — A decentralized autonomous credit and lending protocol. It will utilize dynamic rates to automatically adjust to market conditions. The goal of the protocol is equal access to credit for all.
3. Andromeda Protocol — Facilitates the creation of Andromeda Digital Objects (“ADOs”), which are vehicles for coordinated effort across multiple blockchains, DeFi protocols, and dApps. Coined the “WordPress” of blockchain applications.‍

CONCLUSION

Figment has been a leader in Terra adoption since the network was being built, and we are excited about the amount and sheer variety of projects people are building on it. These projects are not merely rehashes of existing protocols, but are exciting evolutions in blockchain that may exponentially increase Terra’s adoption in conjunction with other mainstream initiatives.