This week, Flipside Crypto takes a deep dive into the progress and development of Terra.
Overview of Terra (LUNA)
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The Year So Far for LUNA
A quick glance at the LUNA token’s growth explains much of the buzz around Terra and its associated projects. At time of writing, the LUNA token was trading around $17.60 — up from $1.31 on January 26. Not a terra-ble return (Unlike this pun. No more, we promise.)
Figure 1: LUNA Token Price Performance - Past 12 Months
Terra’s success in attracting participants is due in part to the program’s exposure to the booming retail payments market in East Asia. The associated e-wallet, Chai, has more than 2 million active users and over $1.2 billion in annualized transaction volume.
Consequently, Terra has proven able to generate robust cash flows, which it can return as rewards to its network participants:
Figure 2: Cash Flow from Terra Tokens
The hype around GameStop earlier this year revealed the value of a token that is immune to interference. Many retail traders were incensed by Robinhood’s decision to temporarily halt trading. Additionally, traders outside the United States frequently have difficulty accessing the U.S. stock market. Mirror offers these users the ability to participate in price action without owning the underlying assets directly.
For more information on the Mirror Protocol, check out the Resources at the end of this article.
Anchor: A Benchmark Interest Rate for Crypto
Strictly speaking, the “federal funds rate” refers to the target lending rate that the Federal Reserve (more specifically, the Federal Open Market Committee or FOMC) establishes for banks that lend to other banks overnight. In practice, the federal funds rate serves as a benchmark for interest rates more broadly, affecting any financial institutions or consumers who borrow or lend money.
Put more simply: a stable baseline interest rate would be a massive achievement for decentralized finance more broadly. Terra aims to supply exactly that via the Anchor protocol, enabling participants to gain a stable, predictable return on their deposits.
Mirror Protocol: Assets Reflected on the Blockchain
Mirror Protocol is a DeFi protocol on the Terra network that facilitates the creation of synthetic assets – termed Mirrored Assets (mAssets). As the name suggests, mAssets mimics real-world assets, giving traders worldwide exposure to these assets without actually owning them.
Mirror Protocol V2: Live on Mainnet
Mirror Protocol V2 was launched in June 2021, just 6 months after the launch of Mirror Protocol. The main new features introduced are the following:
- Pre-IPO assets: Mirror Protocol decentralized method of minting mAssets are now available before they are officially exchange-listed.
- Incentives for governance participation: 50% of MIR will be distributed to voters on active polls, while the rest will be distributed to the protocol stakers. Users can also choose to vote "Abstain" now.
- Governance poll quorum: snapshot of total MIR staked during the poll timeframe will be taken. This is to solve the issue of proposals failing to pass after reaching quorum (dropping below 10%) due to addition MIR stake for governance.
- New collateral options: MIR, LUNA, ANC, bLUNA and aUST are new collateral options to mint mAssets.
- Mint/short LP tokens: to lower mAsset premiums, 'short minting' is introduced via the generation of short LP (sLP) tokens.
So How Does It All Fit Together For Terra (LUNA)?
Thus far, Terra has replicated a number of the components of traditional finance. By utilizing its various components, participants can deploy capital that will hold its value in the form of a stablecoin (UST); vote on the protocol via the governance token (LUNA); earn a predictable return or “interest rate” (Anchor); and use the protocol to gain exposure to other speculative assets (Mirror).
Of course, users are also able to earn crypto-assets in exchange for providing liquidity via staking (a form of lending). And, they can exchange their crypto-assets for other assets — just as traditional finance participants can take part in foreign exchange (forex) markets.
A recent Reddit post provides a visual of these various components side-by-side with the other blockchains who likewise aim to replicate the core components of traditional finance.
Figure 3: Comparing DeFi Technology Stacks
Regardless of one’s favorite network, 2021 has shown that Terra is quietly building a network and ecosystem that will enable it to reproduce the core aspects of traditional finance.
Outlook for LUNA coin
Got questions about Terra, Mirror, or Anchor? Submit them here for a chance to have them reviewed and answered by a community analyst: