Hello all,
This is gonna be a long post.
In celebration of Binance listing UST and LUNA breaking 100$, I would like to update my original post nearly half a year ago on the Terra ecosystem. There's a ton of euphoria right now, and so its always good to take a look back at the fundamentals.
A lot has changed since then and by now I'm sure many more people have heard about Terra, maybe even used some of its dapps. For those that are brand new, I recommend reading my original post first. For those wondering if it's too late to get into LUNA, I will present why I think LUNA still has much room to grow. I won't cover every protocol, just the ones I think are most interesting/significant. Still, there's a lot to go through so let's get started.
A quick refresher
Terra is a blockchain developed by TerraForm Labs based on Cosmos SDK (this is important because it allows Terra to connect to all other blockchains in the Cosmos ecosystem, more on this later). Their main products are a suite of algorithmic stablecoins, the most prominent being UST tied to the dollar. UST retains its peg through its relationship with LUNA, where LUNA absorbs the volatility of UST. LUNA is minted when selling UST, and burned when buying UST. In practice, 1$ of LUNA always equals 1$ of UST, even if UST loses its peg. This creates arbitrage opportunities, where if UST is at 1.50$, you can sell 1$ of LUNA for 1.50$ UST and immediately bank 50% profit. This increases supply of UST as people sell LUNA for UST and the peg returns to 1. In reverse, if UST is at .50$, people buy 1$ of LUNA with .50$ UST, which decreases UST supply until the peg returns to 1. Again, videos on this below:
https://www.youtube.com/watch?v=7HLiZxkbxfY&t=917s
https://www.youtube.com/watch?v=HL8tcVHyHMM
Stablecoins are the most important product in all of crypto, no question about it. I honestly can't imagine a time without stablecoins when people took profits into BTC, itself a highly volatile asset. But stablecoins are also not a risk-less product, they are subject to regulators scrutiny and issued by sometimes shady companies (cough...Tether) that may or may not have the funds available to prevent a bank run. A decentralized stablecoin for defi is a no-brainer, and UST is the best of the best currently (DAI is backed by centralized stablecoins and both DAI and MIM are supply constrained, in that they can only be minted with collateral. There are no limits on how much UST can be minted). Protocols on Terra are important to the extent that they drive organic demand for UST. In other words, LUNA can survive and thrive even if all protocols on Terra die out as long as UST is adopted by other blockchains as their main stablecoin. This sets Terra apart from others, its goal is not competing with Solana, Ethereum, Avalanche, or any of the other L1s, its goal is to create the most robust and usable algorithmic stablecoin for all of crypto. A bet on LUNA is a bet on the adoption of UST. Keep this in mind.
Launched: Anchor, Mirror, Angel, Valkyrie Protocol, Pylon Protocol, StarTerra, Angel, Talis, HERO, Apollo, Spectrum, Orion Money, Kado, Chai, Loterra, LOOP, Stader, Nexus, Harpoon (now Kujira).
Soon to launch: Mars, Kinetic, Ozone, Suberra, alice, Levana, Astroport, Prism, Spar, White Whale, Neptune, Glow.
I may have missed some so let me know if I did.
Even with all these new protocols, the core of the Terra ecosystem is still Anchor, so let's see what has changed since.
Anchor: Savings and borrowing
Last time I wrote about Anchor it was burning reserves and had just been given a lifeline by TFL. Deposits and borrows were a fraction of what they are today. TVL in the protocol has grown exponentially and is one one of the top 10 defi protocols across all chains. Impressive, considering it operates only on the Terra blockchain whereas many other protocols exist across blockchains. Just recently, Anchor devs announced their intent to make Anchor a cross-chain platform, which would undoubtedly bring in even more capital. On top of that, yield reserves have been growing quite consistently with the addition of bETH and rising value of LUNA. However, with deposits continuing to eclipse borrows, there will eventually come a point when Anchor can no longer sustain its close to 20% interest rate. TFL has been transparent about the fact that the rate cannot be sustained forever, so lowering rates is not cause for panic. Even 15% is far better than any traditional banks or other stablecoin earning dapps/wallets (Celsius 8%, Crypto.com 12%, etc). When this happens, I believe devs should implement a tiered structure of interest rates rewarding those that hold ANC tokens with higher interest. But until then, enjoy your 20% for as long as it lasts :)
Mirror: Synthetic assets
24/7 trading of the most popular stocks from anywhere in the world on the blockchain, what's not to like? Unfortunately, Mirror has run into some problems in its time. At one point holding nearly 2b in TVL, Mirror today has only half of that according to DefiLlama. On Mirror itself, the TVL statistic has been removed from the landing page. What happened to Mirror? I believe there were 3 main factors involved: 1. Execution 2. Regulation 3. Full decentralization
- Even in its heyday, Mirror listed new assets far too slowly. And when it did, it listed things like mDOT or mBTC, synthetic versions of cryptocurrencies which serves no discernible purpose other than for LPs to farm MIR tokens. Because all anyone was doing was farming MIR, the price of MIR fell and has not been doing much since. Perhaps Mirror could have done better by focusing on more exotic asset classes to list (commodities?) that would attract new capital into the protocol, but it may be too late for that now considering...
- regulations. It started when Uniswap delisted synthetic tokens from their DEX frontend, this included all Mirror based tokens. Shortly thereafter, we learned that Do Kwon (founder of TFL) was served (albeit unjustly) a subpoena by the SEC at Mainnet 2021 over Mirror. Hardly surprising that the SEC would be concerned about a synthetic stock market. Although Do pushed back against the SEC by suing them back, this created a lot of FUD regarding Mirror and cast its future into shadows.
- Perhaps as a result of these events, TFL relinquished any control of Mirror and turned it into a fully decentralized protocol run 100% by the community. Although decentralization is regarded as the holy grail in crypto, it became quickly apparent that full decentralization too soon without any leadership is not beneficial to anyone. A quick look at Mirror governance tells the story.
Full decentralization without leadership is a mess.
Long story short, I think Mirror is unfortunately a dying protocol (contrary to my original thesis) and there's not much I can see that would save it.
On the bright side, there are plenty of new protocols that have since launched or are launching that will soak up the value of Mirror, let's take a look at some of the most prominent ones.
Launched:
NFTs: NFTs arrived on the Terra blockchain with the same insane excitement as any other blockchain. One of the earliest and most hyped projects was Galactic Punks (punks in space) which minted on Randomearth. Since then tens if not hundreds of additional projects have launched and minted. I won't talk about any of them individually in detail as there are just too many. Feel free to browse Randomearth! My personal favorite is definitely Hero. Just look at Do Kwon's profile picture, how cool is that?
Pylon/StarTerra: Both of these are launchpads on Terra, and both are pretty unique in terms of launchpads. Pylon was the first and incubated by TFL. It uses a clever system called "Pylon Pools", where users can deposit UST in exchange for tokens from new project launches where the amount is determined based on how long you lock your UST, options being a 3 month/6 month/12 months vesting period. This is a "risk-less" investment in that you recover your original UST amount at the end of the vesting period, and also allows smoother project launches that dampen price volatility. There is also Pylon Swap, where users that stake Pylon's own governance token MINE are allocated a certain amount of new project tokens in a presale (though these are much rarer with the preferred being Pylon Pools. Overall the protocol works as its intended, though there have been criticisms that MINE stakers are not rewarded enough for holding MINE. The team behind Pylon is working on improving benefits for stakers with recently implemented retroactive airdrops for long term stakers. I am excited to see what other innovative launches they come up with in the future.
StarTerra is the first gamified launchpad where stakers are divided into 1 of 3 factions and rewards are allocated differently to the stronger of the factions. To be honest, I have not looked much into this project as their launch was very rocky and received a lot of community distrust. However, I know that since then the team has worked hard to improve their reputation with the community and projects are continuing to partner with StarTerra. Anyone more involved, feel free to comment below on this project!
Loterra: If crypto isn't gambling enough, you're welcome to gamble more with Loterra! Basically a lottery protocol that charges 1UST per ticket and draws every 3 days. There are some cool features though. LOTA stakers are rewarded a portion of every lottery winning including jackpots. There is also the ability to play "lossless" lottery, where it uses Anchor yield to buy recurring tickets whilst keeping your principal amount intact.
Orion Money: One of if not the most anticipated and hyped up project launches on Terra which to be honest up to this point has done little more than disappoint. Orion is a stablecoin savings protocol that leverages the yield of Anchor on other blockchains. It allows deposits of USDC, USDT, BUSD, and others on Ethereum, BSC, and Polygon and pays up to 15% interest by converting and depositing these coins into Anchor. It was said to be the one to open the floodgates to the masses. However, Orion has not seen the expected growth as TVL has stagnated and even fallen over the past few months with only a couple hundred million in TVL, this compared to Anchor's 5 billion in UST deposits (over the same period Anchor deposits increased by several billion). Furthermore, Orion hyped up its airdrop for months and required all recipients to stake to the Orion validator in order to be eligible. Months of staking led to a measly 1% of all tokens being airdropped to loyal stakers. Of course, free money is free money, but it still leaves a sour taste in your mouth. With UST now being available on Binance (listed today), Huobi (listed yesterday), Kucoin, and potentially many more exchanges to come, UST on-ramp will become increasingly easy and there is little reason to not use Anchor directly within Terra. That being said, credit is due for a solid team and an innovative product that unfortunately just has not gained much traction.
Apollo/Spectrum: Both are yield compounders that do exactly what they are supposed to do, there's not much more to say here. Use them to boost your yield on LP pairs within the Terra ecosystem. Spectrum launched a bit under the radar but has since proved its robustness with audits and UI enhancements. Apollo had a pre-launch token mining program which was a great success and one of the fairest launches to date. Kudos to both platforms.
Nexus: Nexus is a yield optimizer leveraging Anchor Earn and Borrow. During the May crash, many accounts borrowing UST on Anchor were liquidated when the price of LUNA used as collateral (called bLUNA) plummeted. New borrowers became hesitant to borrow for fear that they would be liquidated overnight. If there are no borrowers, Anchor Earn cannot sustain its high interest and the protocol would collapse. Nexus aims to help alleviate the problem by providing a system of automated loan managements. You deposit bLUNA into their vault which they use to borrow UST at a preset ratio safe from liquidation and autonomously readjusts itself to maintain the same rate. The borrowed UST is then deposited into Anchor Earn, the interest from borrowing and depositing is used to buy PSI tokens, and the PSI tokens are used to pay interest to those depositing bLUNA into the vault.
Kujira: The Japanese word for whale. Contrary to Nexus protecting from liquidations, Kujira aims to allow everyone the opportunity to benefit from liquidations, whereas before, liquidations would be sniped by bots. Kujira lets you bid for liquidated bAssets (bLUNA, bETH) at a discount to their current value by depositing UST. It works like a charm from what I can tell, though I haven't personally used it (feel kind of bad profiting off people being inadvertently liquidated...but free market and all that, the option is there).
Stader: Probably the most interesting protocol in this list. Stader is a liquid staking and auto-compounding platform that allows you to stake LUNA without any unbonding period (usually 21 day unlock on TerraStation). The base yield from LUNA is compounded automatically while still allowing stakers to receive all the airdrops they would have received if they had just staked LUNA normally. In exchange for staking LUNA on the platform, you are given a token called LUNAX, which is a representation of your stake much like how your UST turns into aUST when you deposit into Anchor. LUNAX will open up a whole new world of degen leverage opportunities that are currently in the works. Check out the video below, I don't think I can explain better than him.
https://www.youtube.com/watch?v=L0PTNguCP88&t=621s
Angel: A one of a kind charity protocol that is always worth a mention. Angel provides perpetual donations using yield generated from staked LUNA. It runs a validator for staking LUNA, and all interest generated from staked LUNA is given to charities. It is a great concept and definitely worth supporting. To date they have already donated hundreds of thousands of dollars to various charities around the world that you can see on their website.
Other launched projects (that I am not very familiar with) include, TerraFloki, Loop, Valkyrie, and maybe others I've missed. And onto the up-and-coming projects, there are a few highly anticipated ones around the corner.
Coming soon
Astroport: Can you believe Terra has the second highest TVL of any chain without a fully fledged AMM DEX? Neither can I. Astroport, incubated by Delphi Labs (a big investor and supporter of Terra who also helped design Axie Infinity), aims to be Terra's go-to exchange. Currently there is only TerraSwap, which is essentially a re-skinned version of Mirror's backend that leaves a lot of functions to be desired. People who've been in the ecosystem all know the number of times TerraSwap has broken or been hit with stupidly high slippage out of nowhere. Astroport is launching in a few days and is currently in Phase 2 of its "lockdrop" campaign, a 3 step process to ensure the DEX launches with substantial liquidity already provided and rewarding early providers with ASTRO tokens. It is a bit complex but if you're interested it is quite an innovative model and you can read about it here. Phase 2 is ongoing and you still have the opportunity to contribute to the ASTRO liquidity bootstrapping pool for ASTRO rewards if you want to! https://lockdrop.astroport.fi/active-phase Astroport will make the Terra ecosystem even more robust and give users one more reason to never leave again. The DEX launches in 3 days!
Ozone: Terra's native insurance protocol has been in the works for some time. It will allows you to buy insurance in case of UST depeg, smart contract risks, etc. Ozone was funded recently by TFL with ~4 billion UST from burning the LUNA held in their community funds. Last month, Risk Harbor announced they would be in charge of operating Ozone. https://finance.yahoo.com/news/risk-harbor-announces-charge-terras-150000785.html When this project finally launches, it will provide safety assurance for many users, opening up the ecosystem even more to the masses. As a side note, the community pool burn of LUNA resulted in so many fees that will go to pay staking interest that the rewards for staking nearly doubled to around 9-10% per year and will remain consistent for the next few years.
Mars: Another project incubated by Delphi Labs, Mars is a lending and borrowing protocol set to launch early next year. Not much is known about it yet, but it is also highly anticipated. You can watch this video to learn more about it https://www.youtube.com/watch?v=2waIb2_jseg&t=394s
White Whale: Allows retail investors to help maintain UST's peg and profit from arbitrage opportunities by pooling assets.
Levana: Short for Leverage any Asset, basically does what its name suggests. It will allow you to go full degen and buy leveraged assets such as 2x LUNA. What's not to like?
Prism: A very innovative protocol that will split yield-bearing assets such as LUNA into principle and yield components, name pLUNA and yLUNA, where one represents the base token and the other represents the future yield of the base token. This allows you to do things like theoretically borrowing against your future yield revenue. I am very excited to see the full functionality of this protocol once it goes live.
Airdrops
Finally, we can't talk about Terra protocols without talking about airdrops. Almost every protocol launched on Terra has had some form of airdrop to different participants in the ecosystem, particularly LUNA stakers. It is a tradition I expect will continue. Even projects launching on other blockchains have airdropped or will airdrop LUNA stakers, including Comdex and Shade Protocol on Secret Network (all part of overall Cosmos ecosystem).
Full airdrop chart, credit to Crypto_Carlosa on Twitter for making and updating it.
Beyond Terra
Terra now has a whole suite of defi projects driving demand for UST, but UST is not limited to Terra. Since I last wrote about Terra, UST has found its way to Solana, Fantom, Harmony, and linked with other Cosmos blockchains through Cosmos IBC and been listed on Osmosis (the premier DEX for all Cosmos-based blockchains, UST serving as the de-facto stablecoin). As regulation around centralized stablecoins inevitably continues to tighten, I predict defi ecosystems will increasingly adopt UST as their central stablecoin.
UST has also appeared on several centralized exchanges since, the most notable being Binance just this morning (a great Xmas gift for all). It is also listed on Kucoin, Huobi (just yesterday), Coinbase Pro, and others. Though being listed on CEXes is not the premier goal of UST, it definitely drives adoption and lowers barrier of entry for anyone who wants to enter the Terra ecosystem, which is a great thing for all.
Rumor has it (though not really a rumor anymore since Do Kwon confirmed it) that TFL is in talks with the government of Busan to in some way utilize their stablecoins. If it ever comes to fruition, it would represent a killer use-case and validation for decentralized stablecoins used by a government. However, government bureaucracy moves slow so I wouldn't hold my breath.
Spending UST
The big question on everyone's minds is how to even spend all that yield, assuming you aren't a complete degen leveraging everything to the limits. So what options are out there?
Chai: A payment company that launched with Terra in the beginning and uses Terra stablecoins. It can be used in Korea and is actually a huge use-case for Terra that I haven't mentioned but is worth a further look if you are interested.
Crypto.com: My go-to method. Just transfer your LUNA and convert to USDC/USDT (they haven't listed UST yet) and top up your Visa debit card. I don't wanna shill for CDC but fuck it their card is awesome (its metal from second tier up), the benefits are great, and its so easy to use. And just a tip, the Crypto.com app exchange rates are god-awful so its better to sell your LUNA first on Binance or elsewhere and transfer BUSD to CDC over Binance Smart Chain (super low fees), then convert to USDC/USDT to top up (no fees for swapping stablecoins).
Binance: With Binance listing UST and also offering their own debit card, spending UST should be incredibly easy for anyone with a card.
Kado Money: Kado allows you to spend UST directly on many different things, as well as providing a card that can be topped up with UST.
Terra Cards: Gift cards using UST (for US based users only)
Travala: Pay for flights and hotels using UST! Easy as that. They also accepts dozens of other crypto too.
Is it too late to get into LUNA?
No one can predict price movements, but with a long term time horizon, strong assets tend to move up and to the right (just look at a long term chart of any asset you can think of, heck even Bitcoin).
LUNA is now trading around ATH at 100$, a huge milestone for everyone involved. However, now is not the time to be FOMOing in, this is true for any asset at ATH's. The listing on Binance has been rumored for a while and may prove to be a sell the news event, as LUNA is already up more than 100% in the past month leading to this listing. Of course, I would be more than happy to see LUNA continue to make ATHs, but I urge caution and restraint to everyone. DCA in if you must. That being said, I believe LUNA is still undervalued compared to other blockchains. As a ratio of MktCap to TVL, LUNA is priced lower than almost every notable blockchain in the top 10 besides Fantom. And none of the other coins have tokenomics on par with LUNA, a hyper deflationary token as long as UST adoption increases. Again, a bet on Terra and LUNA is a bet on UST and algorithmic decentralized stablecoin winning the stablecoin war.
So for an answer to the question, I would say it's not too late. However, there may very well be better entry opportunities in the short term. Stay safe out there all you apes.
Any questions or comments are welcome!
TLDR: The defi ecosystem on Terra is thriving. It has come a long long way since the crash in May. UST is being adopted across blockchains and listed on more and more major exchanges both CEX and DEX. As UST is minted, LUNA is burned. More UST = higher value of LUNA, not financial advice.
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