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Deep dive into Terra Ecosystem

Sooo, I initially wanted to post this in [r/CryptoCurrency](https://www.reddit.com/r/CryptoCurrency/) but do not have enough comment karma, so I been posting to some other subreddits…lol

Hey all,

Been lurking around for a while and first time making a post. Recently I haven’t really been seeing any deep dives or project highlights, seems that posts are just hopium, some technical analysis here and there for a breakout or breakdown, and the obligatory Elon hit piece. So to spice things up I’d like to present my case for Terra and why I believe it is such an exciting project with huge potential for growth!

I remember the first time getting into crypto I was just blown away by the possibilities in blockchain and defi (tbh I’m still very new only been in the space for a few months), maybe many of you remember those first moments as well! It feels like partaking in a revolution that will change the world. However, defi on Ethereum for the average Joe is complicated as projects tend to run independently and are also prohibitively expensive with the gas fees. MATIC network integration has helped lower gas fees but makes the ecosystem even more complicated IMO. Plus not many exchanges support Matic Network which means moving funds still costs a lot of gas. So for the past few weeks I’ve been playing around in the Terra Ecosystem and been loving it! Projects are all interconnected and built on top of each other which creates a uniquely seamless experience that just…flows. Prior to the crash in May, Terra had not yet undergone a “trial by fire”. Prior doubt for how Terra would do in a market crash has now been largely assuaged, and the robustness of the systems has been proven. Add to that the low gas fees and it really does feel like defi made for the masses.

​

[Note: many of these are up-and-coming projects.](https://preview.redd.it/ubkiv6t7w7b71.jpg?width=2500&format=pjpg&auto=webp&s=e1f7326e906f488e8589070159e8415679c3d99e)

**What is** [**Terra**](https://docs.terra.money/ecosystem.html#terra-website-and-socials)**?**

Terra is a blockchain built on Cosmos SDK and developed by Terraform Labs, a company based in South Korea founded by Do Kwon. Its core product is an algorithmic stablecoin called UST. The way UST works is a bit complicated but Ill try my best to explain. UST is pegged to another token called LUNA. UST retains the peg by either burning LUNA to increase the supply of UST (by buying UST), or minting LUNA to decrease the supply of UST (by selling UST). This creates an opportunity for arbitrage where users are incentivized to keep the peg. For example, if UST loses the peg and becomes 1.50$, people will sell their LUNA to UST, increasing UST supply and lowering it until it reclaims the peg. In reverse, if UST is .50$, users will buy LUNA which decreases UST supply until it reclaims the peg. There are videos explaining this here:

[https://www.youtube.com/watch?v=7HLiZxkbxfY&t=917s](https://www.youtube.com/watch?v=7HLiZxkbxfY&t=917s)

[https://www.youtube.com/watch?v=HL8tcVHyHMM](https://www.youtube.com/watch?v=HL8tcVHyHMM)

However, decentralized algorithmic stablecoins have largely failed to hold their peg in the past and gone to 0. (DAI, which is also supposedly ‘decentralized’, holds a large portion of assets in USDC to back it, which conversely makes it centralized.) This is because of something called the “death spiral” where black swan events create enormous pressure to sell the stablecoin, something we saw in the crash back in May. UST lost its peg and dropped to ~.94$ before making a full recovery over the course of a few days. This is actually extremely positive for Terra as a whole, because UST was able to prove its validity in a real world scenario (one of the worst weeks in crypto history) and survived through the crash. Since then, the team behind Terra have implemented reforms to the system to make it even more robust in high volatility market scenarios. *So how was UST able to reclaim its peg where so many others have failed?* By creating an ecosystem that drives organic demand for UST, and this is where other projects in the Terra Ecosystem come into play. As I mentioned before, the Terra Ecosystem just *flows,* and you will see why.

[Anchor](https://anchorprotocol.com/) **&** [Mirror](https://mirror.finance/) **Protocols (backbone of the Terra ecosystem):**

In traditional finance, the first step to access financial services is to open a bank account. On Terra, this takes the form of Anchor.

**Anchor** is a defi savings platform that offers a stable ~20%APY on UST deposits. It provides the most basic services of a bank, depositing and borrowing. In contrast to other defi protocols, Anchor’s main selling point is in guaranteeing the stability of its interest. How is it able to offer stable high yields? Borrowers post collateral in the form of bLUNA (which exchanges 1:1 with LUNA). Since LUNA is a POS cryptocurrency, it generates around 13% interest currently and this interest along with interest on the loan itself is given to depositors. 20% interest is achieved by over-collateralizing the loans.

*However, what would happen if there are not enough borrowers to keep up with depositors?*

A few months ago this question could only be answered in theory. Today, it can be answered in hindsight. Anchor has a reserve fund where extra yield is deposited. The yield reserve fills up during bull markets when more people are borrowing. This is then used to pay depositors during bear markets when people begin to de-risk and there is less borrowing. The system was given a big test in May when LUNA crashed and many borrowers were liquidated. Since then, the yield reserve has depleted rapidly which forced Terraform Labs to step in and inject capital into the reserve (which happened today). Terraform Labs sees this as a one-time intervention to give Anchor enough time to develop into a fully self-sustaining system. Anchor has increased LTV (loan-to-value) ratio since then meaning you can borrow more, is working on decreasing the risk of liquidations, and will soon be implementing the use of bETH as collateral (bSOL, bATOM, and more are in the works). A less volatile asset like ETH *should increase the amount of borrowers.

[A clear drop in borrowers in mid-May. However, Anchor has proven to be a safe haven during bear markets as total deposits have continued to increase steadily. Just like in TradFi, people sell off equities and put their cash back in their bank accounts. Unlike TradFi, cash sitting in Anchor accrues 20% interest per year.](https://preview.redd.it/hw3d9gpdw7b71.png?width=2034&format=png&auto=webp&s=ef69106f1543a143cc24c76fadb3dc5be051dc5b)

After opening a bank account, the next step might be to begin investing by buying equities. Enter Mirror Protocol.

**Mirror** is a synthetic stocks trading platform akin to Synthetix on Ethereum for those who are familiar. What sets Mirror apart are its liquidity pools and integration with Anchor. Depositing on Anchor creates a transaction that yields a token called aUST (Anchor UST). This can be thought of as a receipt for your deposit. Users are able to take the aUST and short-farm massets (Mirror assets) on Mirror to stack yield. The aUST represents your Anchor deposit and so is by itself an appreciating asset, meaning you **are not** losing the yield from Anchor by moving the aUST to Mirror.

https://preview.redd.it/2hy7twriw7b71.png?width=2018&format=png&auto=webp&s=3a225c70596eaa3fe1c6a7c03d2ce8d2e53fffaa

Interest on Mirror is paid out in MIR tokens, which can then be used to stake for 18%APR and participate in governance proposals, deposited with equivalent UST into the MIR Long Farm for even greater yields, or exchanged for UST and deposited back into Anchor. Long/short farming on Mirror allows you to create “delta neutral” strategies where you short and buy the same asset and stack the yields from both sides. You are protected by the volatility of the underlying asset by buying and shorting at the same time – thus delta neutral. There’s a great overview of interesting strategies here:

[https://www.youtube.com/watch?v=Ttqo4s6is5c&t=1042s](https://www.youtube.com/watch?v=Ttqo4s6is5c&t=1042s)

As a side note, MIR only has a market cap of around 200 million, whereas Synthetix (SNX) has market cap of 1.3 billion. However, Mirror has higher TVL than Synthetix.

[Total Value Locked TVL in Defi protocols](https://preview.redd.it/9l54qegmw7b71.png?width=1938&format=png&auto=webp&s=5ca8dc12e0fb776f7c1cc36cbced95f7e1115906)

Granted, MIR price has been falling, but I think it represents significant undervalue that will eventually be recognized.

But perhaps buying or shorting massets tied to individual stocks is too risky for you and you would prefer the relative safety of ETFs. In that case you won’t have to wait much longer!

Enter [Nebula Protocol](https://twitter.com/nebula_protocol?lang=en). Though yet to launch, Nebula aims to decentralize ETF investing by creating “[clusters](https://forum.neb.finance/t/initial-clusters-on-nebula-to-be-cont/22)” of massets on top of Mirror. This means the ability to buy safer diversified ETFs while also allowing for some very interesting themes such as a Meme Coins Cluster that is essentially an ETF of meme coins for the more speculative amongst us. Clusters will be created with input from the community.

**New Projects:** [Pylon Protocol](https://gateway.pylonprotocol.com/) and [Orion Money](https://orion.money/)

Pylon Protocol has been the newest project to launch in Terra. It is primarily a launchpad for Terra based projects that serves some other functions as well. Notably, it will integrate with Anchor by allowing users to deposit into the system and then using the yield from Anchor to pay for recurring transactions (eg. subscriptions, loan payments, etc). At the end of the term, you receive your initial deposit back in full.

Orion Money is a cross-chain stablecoin application that leverages the yield of Anchor allowing for the deposit of other stablecoins like USDT, USDC, DAI, and BUSD.

**Future Projects:**

There are too many to get into, so you can look for yourself [here](https://terra.smartstake.io/p/all).

Also shoutout to [Angel Protocol](https://twitter.com/angelprotocol) that is creating perpetual charity donations through delegation of LUNA and donating the returns!

**Airdrops**:

Saved this for last as the cherry on top. The Terra ecosystem is probably the most generous to its users in terms of airdrops. LUNA stakers are automatically eligible to receive weekly airdrops which can last up to two years from launch. Projects currently giving weekly airdrops include Anchor, Mirror, and Pylon Protocols. New projects launching on Terra often have “genesis” airdrops, which can be quite substantial. Nebula and Orion have both announced genesis airdrops! Furthermore, new projects often offer pre-sales to members of the community. The newly launched Pylon Protocol sold its MINE token for .01$ each during pre-sale and is already worth .08$ a few weeks later. (Currently Pylon’s Phase 2 launch is letting users deposit UST for fixed terms which generate interest in the form of MINE tokens) Typically a company IPOs after all the big investors have already bought in. Retail (you and me) are the last on the train. Pre-sales are like getting into a company before its IPO, and Terra has set this precedent early on. Due to the interconnectedness of projects in the ecosystem, once the precedent has been set, I believe that users would expect it and new projects would be incentivized to follow suit.

*Note: airdrops are taken into account when calculating LUNA staking rewards.

[Source: https://terra.smartstake.io/airdrops](https://preview.redd.it/4am2v9jzw7b71.png?width=2452&format=png&auto=webp&s=4ef01e228ebb0e7a9a5eed256d1503f6747b119f)

*Overall, the ecosystem is still young but the integrations are incredible. It feels more like a cohesive unit than other defi projects. I think this is quite compelling because it creates better user experiences and can flourish on its own. Once you enter, there’s no need to exit. Even if other blockchains or exchanges don’t adopt UST (though I don’t believe this to be the case. Recent announcements from* [*Bitfinex listing UST*](https://twitter.com/bitfinex/status/1413436111788068864)*,* [*Harmony One partnership*](https://twitter.com/harmonyprotocol/status/1412806345833672704)*,* [*Solana integrations*](https://twitter.com/MercurialFi/status/1413130414470799369) *suggest adoption is increasing and certainly many more to come), the Terra ecosystem will continue to thrive. And finally, to close the loop, organic growth fueled with greater external adoption will drive demand for UST where even in market downturns, people will continue to use UST in protocols such as Anchor thus securing the accuracy of its peg and legitimizing UST as the best decentralized stablecoin.*

**TLDR: Terra has created a truly decentralized stablecoin within a flourishing ecosystem in the form of UST that has proven its resistance to drastic market volatility. However, Terra’s vision doesn’t stop within its own ecosystem, it aims to be the most utilized decentralized stablecoin on all blockchains. Given all the FUD surrounding USDT, the centralization of USDC and DAI, it seems that the defi space really is in need for a true decentralized stablecoin.**

**Disclaimer**: I hold LUNA as well as MIR so may be biased in my perspective. However, during these bearish times, greater conviction to hold can only be granted by greater understanding of the underlying asset. Stay safe out there!

Also, any Terrans out there that would like to add or correct anything please feel free to do so!

What do you think?

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23 Comments

  1. My favourite eco right now. It feels incredibly simple and neat and is its own money market. It’s weird it doesn’t even feel like it’s crypto in the sense there no scheme’s or over the top innovation its just a great working project.

  2. Great stuff. Let’s do it!!

    So how do I get on. Would you want to follow up with how to start? What wallet do I use. What coin do I hold and transfer to that wallet?

    Thanks! Of course I could go to YouTube but you explain it so well here!! Keep going!!

  3. Great write up. You forgot to mention Chai, terra stable coins are being used by over 2 million Koreans for retail payments. LUNA stakers receive some of the payment processing fees from these transactions.

  4. Man, that is a great writeup with some good detail! I’m really excited about Terra and have been trying out some of the various features with small chunks of money. I think this is something that is well defined and well integrated and as you mentioned, could replace the tradfi banking system.

    Looking at it now, for example, I am planning on a small home improvement project (About $10k). I have the cash available, but by instead buying and providing bLuna as collateral, I can borrow the money for the improvement and get paid to borrow, ultimately reducing the true cost of the project. Plus, getting LUNA now at a relatively depressed price, can take advantage of the capital appreciation over the life of the loan as well.

  5. Thanks man! I read it all, but it still is a bit complex to grasp for me. Just needs some time I guess. I am staking Luna and continue adding every now and then.

  6. It’s such a pain to get into these from the US. The MIR on Coinbase is Eth based for anyone who thinks they can withdraw it easily.

    Also for Anchor, with the way the loans are, I don’t really see people actually using it to “borrow” money. Because of the loan to value ratios, you pretty much already have all the money you need. It’s not like buying a car or house where you don’t have that money right now. I see the loan as a way to just reduce the net cost of the purchase. Like you could’ve bought the item in full, but decided to “borrow” money to reduce the cost, kind of like how some people use credit cards – except in this case you need collateral to cover 50%.

  7. I was just trying to find info out about how to buy UST, but was getting confused as I couldn’t find where to buy UST coin.
    Is LUNA the same? Can I stake LUNA on anchor? Or do I need UST?

  8. Terra will fail for two reasons: ponzinomics and no collateral backed stablecoin

    Ponzi tokenomics means they are paying out investors with new investors money. Depositors are earning 20% interests, so who is taking a loan out for 20% on UST, when I can get 10% anywhere else? No one would take that loan, so they print and distribute ANC tokens to borrowers to incentivize borrowing. ANC holders are being diluted because they are giving away tokens.

    The stabilization mechanism is bound to fail. With ANY GOOD STABLECOIN there is collateral so the coin is pegged. CUSD or USDC are backed by real dollars or by crypto assets so if u want your stablecoin back there is something with value to exchange it for. Ust has no collateral, they use an algorithm to print and burn coins to peg it to a dollar, this makes it vulnerable to black swan events when a lot of people try to withdraw the coin will crash. It’s already lost it’s peg a few times.

    Stay away

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