From being a relatively unknown protocol, Terra has made its way to the top to become a crypto darling. Founded by Terraform Labs back in 2018, the Terra ecosystem has grown from being a payments network to encompassing a whole suite of products / protocols.
Source: CoinGecko
Undoubtedly, 2021 was a year filled with milestones for Terra, with the chain now being a hive of activity. Here’s what has been achieved on the Terra network over the past year, and also what to look forward to.
Launch of Columbus-5
Colombus-5 was a rather significant upgrade for the Terra network, and introduced a number of key features to Terra (LUNA) as well as TerraUSD (UST).
- LUNA, which used to be transferred to a community pool when UST is minted, is now burned permanently. On top of that, LUNA in the community pool has since been burned. With more use cases for UST being created, more UST has to be minted, thus more LUNA has to be burned. In turn, this causes LUNA to be deflationary.
- The upgrade also increased returns for LUNA delegators, with swap fees from Terra Station being distributed to delegators as well. Previously, swap fees generated were burned. With this new feature, holders are more likely to delegate their LUNA, thus driving down the amount of liquid LUNA.
- Cosmos’ Inter-Blockchain Communication (IBC) protocol has been integrated with Terra. This allows the bridging of assets as well as sharing of data between Terra and other IBC protocols such as Osmosis, Akash, Secret Network, Cosmos Hub, and others. UST is able to greatly benefit from this as it can now be used on these blockchains without much hassle, making it the de facto stablecoin for the Cosmos ecosystem.
UST Supply Goes Parabolic
Source: CoinGecko
UST supply increased over three-folds in November and December, from under $3 billion to $10 billion by year's end. At the time of writing, supply currently sits at $11 billion. The spike in supply came in a timely manner where cross-chain initiatives and new projects on Terra itself were being launched, thus fueling the growth of the Terra ecosystem itself.
Remember the community pool that was burnt with the Colombus-5 initiated? Well, that caused the LUNA in the fund to be burned for UST causing a parabolic increase of the stablecoin. 80 million LUNA (8% of supply) was burned for around $2 billion UST.
Another reason for the bump in market cap can be traced back to the Degenbox strategy introduced by Abracadabra which was widely used by those on Ethereum. A substantial increase in Lido deposits also played a significant role, with users locking up over $3 billion in December itself.
Terra Becomes Second Largest In Terms Of TVL
Soon after the Colombus-5 upgrade and increased supply of UST, there was a sharp spike in total value locked (TVL) on Terra. This could be attributed to a number of factors:
- Users moving to UST in order to deposit to Anchor (Anchor constantly offers ~19% APY returns on UST deposits). The protocol accounts for over half of Terra’s TVL.
- Commencement of the Astroport Lockdrop. The Lockdrop event required participants to lock up their liquidity provider (LP) tokens on Astroport in order to be eligible for Astroport rewards. These were given in the form of Astroport (ASTRO) governance tokens.
- Positive price appreciation of LUNA has allowed the TVL on Lido to increase substantially. As there is a significant amount of bLUNA staked on Lido, the run up in LUNA price over the past few months directly translated to an increase in TVL for Lido.
Source: DeFi Llama
Terra TVL hit an all time high of $21B in mid-December, and surpassed Binance Smart Chain. This put it snugly in second place between Ethereum and Binance Smart Chain. Such a feat is rather impressive considering that the entire ecosystem is made up of a couple dozen projects compared to the hundreds of its two closest competitors in terms of TVL.
Projects which have launched recently
Astroport
There’s a new automated market maker (AMM) in Terra town, and it comes in the form of Astroport. While it may seem like a standard AMM at first glance, it actually has quite a lot going for it.
It offers AMM pools for swapping between various native Terra tokens, stableswap pools for swapping between various stablecoins, and also Liquidity Bootstrapping Pools (LBP) to support upcoming token sales.
Stader Labs
Stader is a staking platform on Terra. It currently allows its users to stake LUNA in a number of strategies:
Plain Staking: Users are able to stake their LUNA in this pool and in return will receive the usual validator rewards. However, these rewards are auto-compounded back into the user's position. This removes the need to manually compound rewards every once in a while. Also, there’s no need to choose a validator to stake with as Stader does it for the user.
Note: The 21-day unbonding period still applies when withdrawing staked LUNA.
Liquid Staking: Users are able to stake their LUNA, and in return will receive LunaX (a liquid token). This token can be used to LP for extra rewards, or swapped for other tokens essentially leveraging their staked LUNA. With the liquid tokens, the 21-day unbonding period can be avoided.
StarTerra
StarTerra is a gamified launchpad on Terra which allows holders of its governance token (STT) to participate in fundraising rounds for upcoming projects. The gamification factor comes into play when users have to join factions by staking STT in order to compete for allocations.
There are three factions, namely; Lunatics, Degens, and Interstellars. The faction with the highest number of staked STT will be granted the largest share of allocation. On top of that, extra allocation will also be given out to stakers via lottery.
Meanwhile, there is a separate “Whalecraft” tier which encompasses the top 100 STT stakers on the StarTerra platform.
Kujira
Kujira provides tools and dApps to its users without them needing knowledge of smart contracts and access to large capital. It currently has two products which are live:
ORCA
Allows users to bid on discounted, at-risk collateral on Anchor. While this is usually done via bots, users can simply do so now using ORCA. When positions are liquidated in Anchor, the liquidated collateral are sold from the lowest to highest premium. It is then split amongst everyone bidding at the same discounted rate.
Using ORCA, one is able to bid at any premium rate along with their desired amount. Think of it as placing a limit order on a cryptocurrency exchange.
Beluga
Beluga is a multi sender dApp. It allows users to send native Terra tokens to multiple users simultaneously. Similar to existing protocols on Ethereum as well as other chains, it simplifies sending out batch transactions.
Upcoming Projects
Prism Protocol
Prism is a derivatives protocol which aims to allow users to manage risks associated with volatile prices in crypto. It splits a crypto asset into two components: Yield Tokens (YT) and Principal Tokens (PT). For example, LUNA can be refracted to create a perpetual $yLUNA and a perpetual $pLUNA. By doing this, Prism allows users to sell their future yield for a period of time, which is effectively them borrowing against that future yield. This removes the risk of getting liquidated.
The $yLUNA gives holders the right to claim airdrops from protocols on Terra, and also to LUNA staking yield. Meanwhile, $pLUNA allows holders to use it as collateral in other protocols for lending and borrowing, and it can also be used to provide liquidity in the $pLUNA - PRISM pool to earn trading fees.
Mars Protocol
Mars is set to launch on Terra as a lending and borrowing platform. While such platforms are already widely available in the DeFi space, Mars sets itself apart with a number of unique features:
Uncollateralized borrowing by smart contracts: Certain smart contracts will be allowed to borrow assets from the Mars liquidity pools without posting collateral. This will allow Mars to access borrowing demand from non-depositor borrowers, thus leading to higher borrow demand and utilization rates.
Dynamic interest rates using control theory: unlike other money market protocols, Mars utilises a dynamic interest rate model with control theory. This allows the protocol to target an optimal utilization rate, and interest rates will change every block in order to suit this optimal utilization level. Capital efficiency will then be improved as borrowing and lending rates will be reactive to market conditions.
Edge Protocol
Edge aims to become a “community-based” money market, allowing users to create their own money markets. These lending pools can either be accessed freely by the public, or private whereby a targeted audience is allowed access.
Once created, the parameters of the pools can be further customized; such as the assets available for borrowing / lending, the interest rate model, fee structure, and also the oracle to pull data from. These pools are similar to Fuse pools deployed on Rari Capital.
Some use cases of Edge pools are:
- Building bank operations on a platform
- Treasury management for protocols
- Alternative revenue stream for TeFi protocols and users
What the future holds for Terra
In an ever-developing space, one can only guess what the future holds for Terra. However, if Terra continues to expand at the rate it is currently doing so, we expect it to become a behemoth of a blockchain, and not just in terms of TVL, but onchain activity as well. Various protocols available on other blockchain platforms are expected to sprout on Terra. From money market protocols, all the way to structured products. Today, Terra has already cemented its position as one of, if not the most established of the Cosmos chains out there. It should look to build on that advantage to challenge for a share of the crypto pie.
Explore more of the Terra ecosystem by registering a wallet at the Terra Station to see for yourself what all the hype is about!
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Shaun is a Research Analyst at CoinGecko, who has lived and breathed crypto since 2017. Previously a community manager for Synthetix and RedFOX, he dived down the crypto rabbit hole to grasp a better understanding of the industry. He now spends copious amounts of time on Crypto Twitter and Telegram, searching for the next idea for CoinGecko Research. Follow the author on Twitter @ShaunPaulLee
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