Time to take a deep dive into Terra, its growing stablecoin economy and some promising protocols.
Terra is a layer 1 blockchain built on the Cosmos SDK that enables low-cost transactions in nearly 7 seconds.
Its main product is a suite of industry-leading decentralized stablecoins pegged to a range of fiat currencies.
By far the most used stablecoin is TerraUSD (or $UST), which, as you might have guessed, is pegged 1:1 to the US dollar. I’ll discuss how this peg mechanism works later, but first we must understand why we need a decentralized stablecoin.
As traditional finance (TradFi) proves to be becoming more restricted and censorable, the need for decentralized finance (DeFi) is forever becoming more prominent. The financial institutions you work with are constantly limiting what you can do with your money.
- daily limit
- low interest
- High handling fee
Even more worrying is the rise of financial censorship, where governments can restrict or completely exclude you from the financial system.
With no access to funds, you are effectively limited by your constitutional rights.
By using DeFi (Decentralized Finance), we remove the centralized organization and replace it with trustless algorithms managed by the users themselves.
This removes the need for trust and, more importantly, the risk of false censorship.
In their current state, USDT and USDC underpin most DeFi activity outside the Terra ecosystem. This breaks all the systems around it.
For DeFi to truly exist, it must be built on decentralized stablecoins. This is an undeniable fact. That’s why we need UST. This indicates a huge demand for UST, causing it to be minted at the fastest rate in the past month.
As demand for UST exceeds supply, UST will have a tendency to trade above the peg, which leads us to its peg mechanism. 1 UST can be exchanged for $1 worth of LUNA, regardless of the UST price. As long as $UST trades above the pegged price, there are arbitrage opportunities.
Arbitrageurs will buy LUNA and burn it at the price of UST for arbitrage profits. Here is a simple example where UST = $1.05 (above the peg): the arbitrageur will:
- Buy $1 worth of LUNA
- Burn $1 worth of LUNA to mint $1 UST.
- Sell $1 UST for $1.05 on the exchange
At the end of this process, three things will happen:
- Increased buying pressure on Luna
- The increased supply of UST brings supply closer to demand, helping to re-peg the UST.
- The arbitrageur makes a profit of $0.05.
A simple way to look at the value acquisition of $LUNA relative to $UST is: for every $1 increase in demand for $UST, $LUNA will have $1 buying pressure and then run out of supply.
While this is true, I think a common misconception is that as demand for $UST rises, the price of $LUNA must rise. Actually not.
During periods of extreme market volatility and sell-offs, selling pressure from the market will outweigh buying pressure from $UST demand, causing prices to fall. Sadly, no, $LUNA is not immune.
This is not to say that the demand for $UST and the price of $LUNA are zero correlated; to a certain extent, they are certainly correlated. As mentioned earlier, an increase in $UST demand will increase the buying pressure on $LUNA, and there is an inherent link between them.
$LUNA has been burning at a truly extreme rate due to the unprecedented growth of $UST. Over the past month, we’ve burned:
- $45 million Luna
is equivalent to:
- 5.5% of total supply
- 11.1% of circulating supply
You may be wondering now; what is the most promising protocol built on Terra? the first is
Anchor Protocol – $ANC
$ANC has a MC of $950 million and a TVL of over $13 billion, making it the largest lending platform in DeFi, accounting for 6.5% of all TVL in DeFi.
Anchor is unique in that:
- Target stable depositor yield on $UST (currently 20%)
- Using collateralized derivatives like $bLUNA and $bETH as collateral The team has also made significant changes to its token economics to increase the value capture of $ANC.
The second protocol worth mentioning is
Astroport Finance- $ASTRO
Astroport is a DEX built on Terra that provides:
- constant product pool
- Stableswap immutable pool
- Liquidity Bootstrap Pool (LBP)
3 months after launch, it has some impressive numbers:
- $1.45 billion in liquidity makes it the 7th largest DEX in TVL
- Trading volume exceeds $600 million on some days, making it the second most traded DEX on the day
Staking for the protocol is not live yet, but it is expected to appear this month:
- $xASTRO: – Cumulative Transaction Fees – Voting Rights – Liquidity and Transferability
- $vxASTRO – lock
- $xASTRO – Generates more fees – Increases voting power – Provides LP boost
Third individual Kujira-$ KUJI
The application on Kujira’s ORCA focuses on the democratization of liquidation by removing the need for technical knowledge and speed.
They make use of liquidation queues where users can bid to buy liquidation collateral at a discount.
Currently, ORCA’s liquidation queue is only implemented in Anchor, but the team is negotiating with other cross-chain lending protocols.
Its governance token has an MC of $38 million, incurring fees in the form of liquidated assets.
The Terra ecosystem as a whole is growing rapidly, here are some general statistics:
- $73.4 billion in $UST transaction volume on the network since genesis
- The average UST daily trading volume over the past 2 weeks is $770 million, equivalent to 1% of the current total daily trading volume
- 100,000 daily active wallets
- $UST up 28% in 1 month
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/this-article-understands-the-current-status-of-terras-ecology-which-protocols-are-the-most-promising/
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