The Tie Research
The Terra Triforce: Rise of the Lunatics
By Tommy Schreiner
April 18, 2023
- They created their own stablecoin, which uses a dual-token elastic supply mechanism: UST and Luna.
- They launched two homegrown projects, Mirror (synthetic stocks) and Anchor (makes UST yield-bearing), to create an immediate use-case and demand for their stablecoin.
- They created off-chain demand for UST by establishing a deep network of real-world usage from online and offline merchants in Korea (used by 5% of the population) and Mongolia (used by 3% of the population) with Chai and Memepay.
- What is the Terra blockchain?
- Protocol flywheels: How do Luna and TerraStables work?
- On-chain flywheels: What is Anchor? What is Mirror?
- Off-chain flywheels: What are Chai and Memepay?
- Other complementary protocols
- What is the future of Terra? What is Columbus-5 and how does it change the rules of the game?
- Conclusion and Opinion
- Developers can write smart contracts in their programming language and development environment of choice.
- The Tendermint BFT (Byzantine Fault Tolerance) can still secure and replicate an application on many machines even if ⅓ of them fail arbitrarily or maliciously. However note that this is comparatively low tolerance when compared to Bitcoin, which fails at the 50% threshold.
- If a third of the validators are malicious, the blockchain will merely pause temporarily until consensus is met instead of forking the network.
- Blocks and transactions are shared across nodes.
- Can run on multiple chains as it is connected by the Cosmos IBC (Inter Blockchain Communication)
- Node centralization.
DPoS consensus mechanisms typically rely on a small number of delegates to secure the network and put the network’s interest first. This can create issues of centralization if there are too few delegators entrusted with securing the entire network, as 51% control of the delegates would be enough to control the entire network.
- Do Kwon has indicated that future airdrops would be targeted to validators who have fewer delegates (note: users who want to stake Luna but don’t or can’t run their own validator stake their Luna with validators and are called delegates, or delegators).
- The Terra Delegation Program was launched to encourage the decentralization of delegators to smaller validators. Some of the requirements included having less than 1.5mil in delegations, running a testnet validator, maintaining threshold uptime (≥99%) oracle votes (≤20% missed), governance participation (≥90% in last 10 polls), and a minimum of 3-month run-time. The total amount (50 million $LUNA) earmarked for this program from the Terra Foundation was redelegated and dispersed equally amongst the 43 remaining qualifying participants.
- The price of UST deviates from the peg by 5%, to $0.95. This requires the protocol to contract the supply of UST to maintain the $1 peg. To make this opportunity valuable to arbitrageurs, the protocol will let you mint $1 worth of Luna with your purchased UST even though the price of UST is $0.95. This allows the arbitrageur to immediately pocket $0.05 per UST dollar purchased. This grows the supply of Luna because arbitrageurs are minting extra Luna from the protocol, and contracts the supply of UST because they are turning it in to mint that Luna, which eventually restores the peg.
- The price of UST deviates from the peg by 5%, to $1.05. This requires the protocol to expand the supply of UST to maintain the $1 peg. To make this opportunity valuable to arbitrageurs, the protocol will let you mint $1 worth of UST for Luna to turn in and burn even though the price of UST is $1.05. This allows the arbitrageur to immediately pocket the $0.05 difference when they turn around and sell that newly-minted UST back to the market. This grows the supply of UST because arbitrageurs are continually minting discounted UST from the protocol, and contracts the supply of Luna because they are turning it in to mint UST, and this constant pressure will eventually restore the peg.
- $1 worth of KRT (Terra’s stablecoin pegged to the Korean Won) is purchased
- $1 of Luna is burned
- Luna’s supply contracts and this creates upward price pressure
- Higher Luna prices create greater worth and stability to the token, which creates stronger backing for the UST peg
- Alice app + card will utilize Anchor’s yield to pay out a portion of that dividend to users in a front-facing, user-friendly way.
- Orion Money: from their litepaper --
- Pylon Protocol: is a suite of savings and payment DeFi products that build on top of Anchor Protocol to provide services for users. From their documents, “Pylon introduces a new paradigm of incentive alignment between payers and payees, consumers and creators, patrons and artists, investors and entrepreneurs, borrowers and lenders, and many more relationships.”
Currently live is a fair project launchpad called Pylon Gateway that allows crowdfunding with yields. Users deposit UST into a pool to receive a share of the token’s distribution. The project’s tokens are distributed proportionally to the investor’s stake in the pool. The Pylon protocol’s token “MINE” mimics Luna’s mint/burn role in the UST mechanism by absorbing the value of the project’s launched token on Pylon. Up to 10% of the yields generated by project launches will be used for MINE buybacks.
- Loop Finance - First AMM Dex on Terra
- Mars Protocol - Terra’s lending and borrowing protocol will issue both collateralized and uncollateralized debt to users. Users can earn protocol fees by staking MARS (akin to Sushi).
- Seigniorage distribution. Currently, the protocol directs all seigniorage to the community fund (which is used for funding projects in the Terra ecosystem), but because UST has grown so fast over the year the pool is currently overfunded. Col-5 will burn all seigniorage.
- Swap fees. Currently, all swap fees are burned. In Col-5, swap fees will be distributed to stakers. This should have the effect of increasing rewards for Luna stakers as the ecosystem continues to grow. Remember that this has the benefit of increasing the stability of the UST peg (backed by growth!).
- Some technical changes like cosmos-SDK upgrades and Oracle performance optimizations
- Terra will include Cosmos’ IBC modules which enable Terra Core to “talk” to all tendermint-based chains. This introduces a new world for Terra to interact with.
- Instead of burning the overfunded community pool, the funds will go toward funding Ozone, an insurance protocol to insure the Terra DeFi ecosystem. This will begin with creating insurance for the Anchor Protocol first.
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