- Terra is a programmable payments-based financial ecosystem with a unique set of DeFi protocols.
- Terra is interoperable with some of the largest blockchain ecosystems in crypto. It also connects to Ethereum via cross bridges.
- The total value of DeFi unlocked on Terra is over $8.65 billion today.
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Terra is a Layer 1 blockchain protocol that aims to create a thriving payments-focused financial ecosystem that provides interoperability with the real world economy. The two main components of its ecosystem are the so-called Terra coins, which are scalable arithmetic stablecoins tied to different real-world fiat currencies, and the LUNA token, a volatility absorber that also captures rewards through booking fees and transaction fees.
Terra was launched in January 2018 to build a decentralized payment system using stablecoins. Since its launch, it has become one of the most widely used Layer 1 networks in cryptography, providing interoperability with the real world economy and a broader cryptographic system. A strong sign of its success is the growing adoption of its flagship product, the US dollar-pegged stable UST. It is currently the fifth largest stablecoin in the market and is considered one of the most decentralized crypto assets pegged to the dollar. Terra has also seen an increased use of DeFi applications over the past couple of years.
Terra is built using Cosmos The SDK framework, which means that the blockchain is not currently compatible with the Ethereum Virtual Machine. However, with the recent Columbus 5 upgrade, the Terra has been upgraded to stargate, which means that it is interoperable with some of the largest cryptocurrency ecosystems, Including SolanaAnd dottedand Cosmos. The Gravity Bridge will also connect Terra to Ethereum and most other blockchains, making it easy to move Terra assets across different ecosystems.
With a total value of around $8.65 billion today, the Terra ecosystem is relatively small compared to other tier 1 networks such as Ethereum, Binance Smart Chain, and Solana. However, it offers an innovative set of DeFi applications that are not often seen in the broader crypto ecosystem.
Explore DeFi on Terra
Although Terra’s DeFi ecosystem is relatively young, there are a few notable projects that stand a strong chance of becoming the network’s “big companies.” Unlike many other projects, many of the leading Terra protocols offer innovative DeFi solutions without cloning the most popular applications on Ethereum.
TerraSwap It is Terra’s first decentralized exchange. It is an automated market maker (AMM) based protocol similar to sushi or Uniswap, but specifically designed to switch between original Terra and CW20 codes on Terra. To use TerraSwap, users need to install the official Terraform Labs web extension wallet Terra station and funded with LUNA to cover transaction fees for swapping assets.
anchor It is an innovative decentralized savings protocol that provides a fixed return of 20% on floor treasury deposits. Launched in March 2021, Anchor is one of the most popular DeFi products on Terra, with a market capitalization of approximately $384 million and a total value of approximately $3.36 billion.
Anchor does not set a minimum deposit and has no lock-ups. It generates a stable 20% APY on underground treasury deposits by lending the assets on deposit to borrowers who provide collateral in yield bearing assets. These assets, which Anchor calls “liquid bets” or bAssets, are native tokens anchored in Proof of Stake chains. For example, instead of requiring collateral in LUNA tokens, Anchor requires borrowers to provide collateral in LUNA (bLuna) pegged above the interest rate they pay for their loan.
This means that the protocol has revenue streams. One is the yield from yielding collateral (deposits are covered by collateral, so there is no risk to lenders), and the other is the interest rate paid by borrowers. Anchor can offer a flat interest rate of 20%, known as the “anchor rate”, by storing the excess real yield in the “yield reserve” denominated in floor treasuries when the protocol achieves more than 20% of the borrowers and withdrawing the shortfall from the yield reserve when it is less.
Mirror It is a DeFi protocol that enables the creation of synthetic assets called Mirrored Assets (mAssets) that simulate the behavior of real-world asset prices such as stocks or bonds. Mirror’s goal is to allow anyone to own and trade shares without permission. Users can mint the assets by creating collateralized debt positions using floor treasuries or other assets as collateral – similar to the way MakerDAO DAI borrowers do. Newly minted assets are synthetics representing fractional shares of real stocks such as Apple (AAPL) or Google (GOOGL) tradable on Mirror or TerraSwap.
Besides allowing users to mint and trade synthetic stocks, Mirror is particularly attractive to liquidity providers as it offers market-neutral liquidity mining strategies with a relatively high return.
tower/column It is a payoff redirection protocol that builds on stable, payoff protocols such as the anchor. It allows users to make secure or refundable deposits to pay for different services or invest in projects. Instead of risking capital and buying or investing in things with direct deposits, Pylon users can take advantage of Achor to redirect their return toward whatever purpose they see fit.
For example, instead of making a risky investment in a crypto startup through a DEX initial offer (IDO), Pylon users can make refundable deposits where they invest only the return rather than the capital. Instead of investing capital, users lock up the return-bearing capital and redirect the return towards investment. In this way, users reduce their risk and projects can still raise capital from the recurring revenue stream earned from the commissioned return.
The protocol is maintained by several independent platforms and governed by holders of Pylon’s original governance token, MINE.
Domain It is the first decentralized platform to improve returns on Terra. It works similarly to the original Ethereum aggregator tools such as Yearn Finance, Vesper Finance, and Harvest Finance. Spectrum improves user productivity by automatically collecting rewards from various liquidity pools or other Terra-based yield farming products.
Spectrum’s current flagship product is Vaults, where users can share their assets and choose between two gas-saving strategies: automatic installation and automatic storage. With automatic pooling, treasuries automatically increase the amounts of deposited tokens by accumulating yield bonuses back into the initially deposited liquidity pools. With automated warehousing, vaults automatically share rewards in relevant governance management contracts.
Orion It is an Ethereum-based protocol that integrates with the Anchor protocol on Terra via the EthAnchor bridge across the chain. It allows Ethereum users to earn fixed interest rates on Ethereum stablecoins such as wUST, DAI, USDT, USDC, FRAX and BUSD. Behind the scenes, Orion is exchanging these stablecoins for rolled UST (wUST) and depositing them in the Anchor Protocol for the rate of Anchor UST. When users want to withdraw their deposit, Orion automatically reverses the process or cancels the ground vault on Anchor, converts it to the desired stablecoin, and deposits it back into the user’s Ethereum wallet.
The current fixed rate of return on Orion ranges between 13.5% and 16.5% for the various stablecoins, which is slightly lower than the 20% anchor rate. However, the rates of return are among the highest offered on the Ethereum stablecoins.
Other upcoming projects
Besides the projects mentioned above, which are already up and running and used by a large number of Terrans, there are a few highly anticipated additional protocols currently in the works and slated to launch by the end of the year. Alice, Spar Finance, Mars Protocol, Lube Finance and Levana Protocol topped the list.
Alice is building an easy-to-use mobile front-end application that derives fast payments and access to high returns from Terra-based DeFi protocols. The product will mainly cater to the original non-crypto users, allowing them to link their bank accounts, buy Terra coins, earn high returns by utilizing Anchor, and spend UST using the project’s debit card.
Spar is building an active decentralized money management protocol in Terra and Mirror. The protocol will allow money managers to demonstrate their skills and retail investors to invest alongside them. Spar aims to offer investors informal returns that are usually earmarked for private funds while providing professional investors with the ability to manage their own funds.
The Mars Protocol is building a money market for borrowing and lending in Terra. It will work similar to how Aave or Compound works on Ethereum, only for Terra and Mirror assets on the Terra blockchain.
Meanwhile, Loop Finance is building a decentralized exchange to trade Terra assets and NFTs. The project will launch a Chrome extension and a mobile wallet app.
Finally, Levana is looking to offer leveraged products that are easy to use on Terra. Set Protocol has launched similar products on Ethereum, offering enhanced exposure to both ETH and BTC. Levana’s first product will be the Levana Leverage Index token (LLI), which will represent 2x leveraged Terra assets tradable on any Terra decentralized exchange. The first token will be LUNA 2x-LLI, which will provide investors with a simple way to gain exposure to LUNA’s leverage without the risk of liquidation.
In conclusion, the Terra ecosystem has quickly emerged as one of the most powerful in the DeFi space. Terra has successfully cemented its place in DeFi by focusing on stablecoins for real-world payments, and projects on the network offer innovative alternatives to those on Ethereum and other Layer 1 networks. As cross-chain interoperability begins to take hold, Terra’s DeFi network is well positioned to see further growth in the future.
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