NFTs, DeFi and Stablecoins, have all been blowing up in popularity which is great! But it means the Layer 1 blockchains, which provide the underlying architecture for all of these applications, have recently been booming in price.
A good Layer 1 blockchain should be fast and cheap to use, full of original and disruptive decentralized applications, and offer positive token economics for holders of the platform’s native currencies.
Perhaps this goes some way to explaining why the Terra blockchain has been one of the fastest growing Layer 1 protocols this year!
Terra was founded in January 2018 by Korean company “Terraform Labs”, and its principal aim is to provide a one-stop ecosystem of decentralized, programmable money that can easily be exchanged or staked for a stable yield.
Terra is powered by the Terra LUNA coin, which helps stabilize the price of Terra’s stablecoins whenever they rise above or fall below their respective “pegged price”.
The Terra LUNA token was launched in July 2019, and has since been followed by 15 other stablecoins, including TerraUSD, TerraGBP, TerraEUR, and TerraCNY. The most widely circulated of these coins is Terra’s USD coin, which is the most used stablecoin in Terra’s DeFi ecosystem.
Similar to how DAI works on the Maker protocol, Terra’s stablecoins work together, with the LUNA token being burnt or minted in response to market supply and demand. This means Terra's stablecoins are algorithmically-designed to stay at the same price regardless of what is happening in the market, and without centralized interference.
As stablecoin usage on Terra increases, users who stake Terra's native LUNA token receive more fees.
LUNA is a non-inflationary currency and considering that the LUNA token is also needed for minting stablecoins, this probably explains why increased usage of the Terra blockchain has equated to LUNA outperforming many assets in 2021.
However, one thing to bear in mind about stablecoin platforms in general is that they tend to attract the attention of government regulators, who might see decentralized currencies as a threat to either their current economic model, or to their future hopes of launching a government-controlled CBDC.
In fact, documentation shows Terra CEO Do Kwon, a resident of South Korea, was served with a subpoena at the Messari crypto conference which took place in New York in September 2021. Kwon and Terraform labs are now counter-suing the SEC, claiming that Kwon, as a South-Korean citizen, does not fall under US jurisdiction. And also that approaching Kwon with a subpoena at a public conference was “an intentionally brazen display meant to publicly intimidate and embarrass” the CEO.
Actions like this from the SEC may create a chilling effect on crypto innovation, but it does also demonstrate the real need for decentralization in crypto, and Terra seems to be way ahead of the game in that regard. One thing that Terra’s stablecoins have over Ethereum’s DAI coin, at least in the short term, is their scalability. The Terra ecosystem is completely designed around stablecoins, as opposed to many computationally-heavy projects. Terra also offers near instant and feeless on-chain swaps between currencies, and hosts an array of disruptive dApps that allow stablecoin holders to make the most of their savings.
Terra is famous for its stablecoins, but it’s also one of the fastest growing dApp ecosystems in the crypto space. The co-founder of the Terra project, Do Kwon, recently stated that more than 60 projects are preparing to launch in the next month or so, and more than 100 other projects have declared plans for the end of this year or early 2022.
But here we’re going to give you the lowdown on 4 of Terra’s most interesting, O.G dApps that play a key role in the ecosystem.
Let’s start with Anchor, it’s a protocol that enables Terra to provide users with savings accounts, lending opportunities, and most impressively, the opportunity to earn a fixed 20% rate of interest on their crypto. This feature is particularly novel in a space dominated by variable savings accounts that are affected by market volatility and is achieved by balancing out the token yields of all of the assets staked as collateral on the Anchor platform.
To put it more simply, Anchor uses the blockchain and some ingenious mathematics to effectively “set the benchmark interest rate” for the crypto space, much like central banks do in the world of fiat, except in a trustless manner that doesn’t rely on the interference of a committee of individuals.
Anchor’s open source code can also be easily integrated into other applications across the internet, meaning it’s potential for mass adoption across the upcoming metaverse is almost limitless.
Mirror brings Synthetic or “Mirrored assets” to Terra, which are tokenized representations of non-native assets, like company stocks and cryptocurrencies from other blockchains. This gives traders around the world exposure to a broader class of assets, without having to leave the permissionless environment of crypto. As of November 2021 there is 1.66 billion UST worth of value locked in the Mirror protocol, making it a direct competitor to Ethereum's Synthetix platform, which launched a full 3 years prior to Mirror.
Terraswap is the main exchange on the Terra blockchain, enabling fast on-chain swaps of stablecoin assets for negligible fees. Using the Automated Market Maker model familiar to users of Uniswap, Terraswap helps to bring on-chain liquidity to the platform, and rewards liquidity providers with the trading fees collected from their respective pools.
Terraswap supports assets native to these key dApps like Anchor and Mirror, therefore providing an important piece of DeFi lego for the platform.
And finally, Wormhole acts as a bridge between Terra and other blockchains or DeFi networks and provides users with a unified interface through which they can exchange crypto assets and NFTs. The Wormhole Token Bridge connects Terra with Ethereum, Solana, and Binance Smart Chain, with Polygon still to be added. This application puts Terra in a central position of the crypto world, and ensures that it will be part of the cross-chain future of crypto.