Terra’s native staking token LUNA was one of the best performing cryptocurrencies of 2021, with gains north of 13,000%. Terra also overtook Binance Smart Chain (BSC) in total value locked with $17.62 billion, making it the second largest DeFi chain just after Ethereum.
Much of this growth is due to Terra’s ecosystem, with a community of developers continually building decentralized applications on top of Terra. But it may come as a surprise to know that before there were hundreds of apps built on Terra, there were only two that existed as of early 2021 in the Mirror and Chai protocol.
Mirror allows users to create synthetic assets, mimicking the price behavior of traditional and digital financial assets. Traders use Mirror to gain exposure to these markets without holding or owning the underlying asset. Chai, on the other hand, is a payment app operating in South Korea with over 2.5 million users. These apps were created based on real-world utility, providing convenience for users and driving cryptocurrency adoption.
Its third main app, Anchor Protocol, only launched on the mainnet in March 2021, but it has quickly become a popular yield farming protocol in the decentralized finance (DeFi) space. Anchor is designed to generate returns in Terra’s stablecoin, TerraUSD (UST), by locking up a LUNA or Ether (ETH) equivalent. So far, the total value of collateral locked in Anchor has increased to $5.2 billion, according to the official website, which is already a change of 4,375% since the first day of its launch.
The collateral growth coincides with the expansion of its user base, growing daily to around 440 users, which, compared to Mirror, is growing at nearly three times the rate. The increase in the user base can also be seen as growing alongside Terra’s gradual increase in transactions.
Growth in the number of requests
After the main applications, several new projects have sprung up in the Terra ecosystem in the categories of games, metaverse, DeFi, non-fungible tokens and many others. There are also several cross-chain communication protocols that allow Terra assets to freely migrate to other chains. For example, the Solana Wormhole v2 bridge protocol facilitates asset transfers between Terra, Solana, Ethereum, BSC, Polygon, Avalanche, and Oasis. This was made possible by Terra’s Columbus-5 mainnet upgrade.
The developers have also built projects with the main Terra applications as a base. An example is Orion Money, which uses the peg protocol to generate higher returns for other stablecoins such as Tether (USDT), Binance USD (BUSD), USD Coin (USDC), and Dai. It does this by using EthAnchor, converting stablecoins to Wrapped TerraUSD (wUST), then depositing them on Anchor where the APY can be as high as 20%.
Why did Terra grow?
In July 2021, Terraform Labs, the company behind the Terra blockchain, raised $150 million from several investors, including Arrington Capital, Lightspeed Venture Partners, and Pantera Capital. The funds were intended for incubating projects on Terra, which likely spurred development.
However, Do Kwon, founder and CEO of Terraform Labs, thinks it’s something more fundamental. In an interview, Kwon said what has fostered Terra’s strong community is rooted in the concept of decentralized currency, which Terra is able to achieve with its algorithmic stablecoins.
Terra has a family of stablecoins that are pegged to various fiat currencies, such as the US Dollar, Euro, and Korean Won. It also has a flagship stablecoin called TerraSDR, which is pegged to the International Monetary Fund’s Special Drawing Rights. The price stability of these stablecoins, such as the UST, is maintained algorithmically, prompting users to respect the peg of the stablecoins through arbitrage opportunities.
The algorithm did just that by keeping the dollar pegged to the UST during periods when it deviated from it. Such a design makes Terra stablecoins more decentralized, possibly deflecting regulatory concerns that beset other stablecoins. And according to Kwon, that’s what excites the Terra community.
At its core, Terra needs these stablecoins for its applications, which strengthens its overall use cases, making it more attractive to users and creating a more robust ecosystem.
Terra, the coming year
The $150 million raised last year by Terraform Labs is just the first batch of funds dedicated to advancing Terraform projects. Another $50 million fund was launched by Hong Kong venture capital firm Chiron Partners in December 2021, which is also allocated to support projects.
On January 7, a proposal to provide $139 million was announced and aims to bring more UST use cases — this time, to multiple DeFi projects on Ethereum, Solana, and Polygon for at least the next six months. With all of this in play, is the Terra ecosystem set for the same growth as in 2021?
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