One of my favorite projects in DeFi by far, is Terra and its native LUNA coin, which powers the Terra universe. I was initially hesitant to dive into this particular ecosystem because LUNA and its popular stablecoin, UST, is not as easy to acquire here in the US via traditional centralized exchanges. But I’m sure glad I did.
In the last month or so I’ve taken a really deep dive into the world of Terra, gotten involved in the community, and can’t be more excited about what the future holds for everyone as LUNA gets more exposure and UST gets more adoption in the crypto space.
This post is simply an overview of what you can do right now with the current tools and systems Terra currently has in place. It’s not a tutorial or an overview of LUNA’s tokenomics, which are fascinating. I also won’t get into the deeper mechanics of each of these features as there are several other tutorials that do that already, and I’ll link to some of those at the bottom of this article.
So what can you do in the Terra ecosystem?
At best, your US-based savings account currently provides you with a 0.5% yield. What if you could 40x that? That’s where Anchor Protocol, one of Terra’s flagship finance products, comes in.
In its absolute, most simplest form, you can save and earn 20% each year in the form of the UST stablecoin (much like USDC or USDT) using Anchor and literally watch your balance grow in real-time.
If you were to deposit $1,000 into Anchor Protocol’s “Earn” tool today, it would be $1,200 a year from now. If you deposited $10,000 today, it would be $12,000 next year. You get the idea.
Again — the mechanics of this and how this APY is achieved can be explained elsewhere, in particular, by Terra’s founder, Do Kwon, right here.
And this is only the beginning.
Quick note: It may not be FDIC insured, but who is saving $250k in a regular savings account anyway? That being said, Terra is in the process of developing an insurance platform for Anchor and third-party insurance solutions are available.
This is where Terra’s smart contacts capability shines. There are several ways to create and customize your personal investments using Mirror Finance, Anchor Protocol, or directly using LUNA staking on Terra Station.
Exposure to (synthetic) US stocks, Bitcoin, or Ethereum using Mirror Finance:
Mirror Finance is a platform that allows you to trade and leverage synthetic tokens that are pegged (or “mirrored”) to US-based stocks. That means you can get exposure to stocks like Coinbase, Tesla, Twitter, or Microsoft and benefit from that stock’s price appreciation without actually owning the underlying asset. For non-US customers, this is one of the easiest ways to dip into the experience of trading or even shorting US equities in a virtual way.
Currently, Mirror also supports synthetic versions of Bitcoin (mBTC) and Ethereum (mETH). More assets and functionality are on the way with their upcoming V2 upgrade.
Trade assets using Terra Station or Terraswap.io:
Once inside the Terra ecosystem, it’s quite simple to swap between assets like LUNA, UST, South Korea’s KRT, etc. Web platforms like terraswap.io make this easy but you can also do this natively in the Terra Station app. Transaction fees are literally cents on the dollar.
Liquidity Pooling on Mirror or Anchor Protocol:
What if simply owning the stock was not enough? If you’re familiar with my earlier posts, you know that liquidity mining/pooling is one of my favorite things to do right now. Deposit your stock-based assets into a liquidity pool and earn rewards in the form Mirror’s MIR token. Reinvest and compound those earnings and you have an asset that crushes that of any dividend-paying stock.
What I love about liquidity pooling using Mirror, in particular, is that you’re not subject to the same volatility as the rest of the crypto market, since these assets are pegged to US-based stocks. You can also pool on Anchor Protocol, currently offering a 90% return in the form of the ANC token, which can then be staked or converted back into UST to get more of those 20% returns.
Stake LUNA on Terra Station and benefit from current and future project airdrops:
Not interested in all that fancy-schmancy liquidity pooling or synthetic exposure? You can go the more traditional route and stake LUNA to a validator (just like you would with ADA, DOT, SOL, ATOM, and others) and benefit from staking rewards — only staking LUNA adds a bit extra, including:
- Anchor (ANC) and Mirror (MIR) airdrops, weekly
- Airdrops for upcoming/future projects
At the time of this writing, borrowing from Anchor Protocol provides a net gain of 40%. Yes, that’s right — if you borrow UST using Anchor, you actually receive more in rewards as an incentive.
In other words, you get paid to borrow.
Here’s an example of what you could do:
- Provide $500 in collateral in the form of LUNA (you would “bond” it to the protocol and then deposit it into Anchor)
- Safely borrow $125 against that collateral at a safe LTV (loan-to-value) ratio of 25%, but with an interest rate of 38% (not the best interest rate, but see my next bullet).
- Earn incentivized rewards in the form of the ANC token at a rate of 83%. Even better — place those borrowed funds into a liquidity pool or deposit it into Anchor savings to capitalize on an additional 20% return.
If you’re new to crypto, I’ve probably already lost you, but you’re not alone. Having experimented with this feature, I’ve seen it work first-hand and it’s amazing, but I’m also not the borrowing type and am not a fan of the idea of a potential liquidation, so I personally don’t use it.
Frustrated with a particular feature or want a fundamental change or addition to any of these platforms? You can use your tokens to participate in the governance for each platform, which gives you the ability to poll the community for changes or vote on proposals. Your stake in the form of LUNA, ANC, or MIR counts as your vote for proposals added to quorum.
Challenges and Risks:
The biggest risk, honestly, is the same risk that accompanies all cryptocurrency investments — it’s still new and not yet fully insured, but from what I understand, an in-house insurance protocol called Ozone is in the works.
In my experience, the hardest thing about joining the Terra universe is simply the on/offramp capability. How does one go from US dollars to LUNA or UST?
As a US citizen, my only options for doing this are through:
- A centralized exchange like KuCoin, or
- An Automated Market Maker (AMM) like Uniswap or PancakeSwap, which assumes you are already holding cryptocurrency in another form (i.e. ETH or BNB), and then bridge those assets to Terra Station.
Heads up, though: an upcoming platform named Alice Finance is designed to tackle that exact challenge head-on.
Takeaways and Conclusion:
Everything that’s available now barely scratches the surface of what’s capable within the Terra ecosystem. There are several — dozens of projects in the works right now that will expand the Terra universe exponentially in the form of ETFs and self-managed funds, retail savings/investment tools, insurance, lotteries, blockchain bridges, and more. Developers are also harnessing the opportunity to integrate services like Anchor into their native products too.
The Terra Bites Podcast — these folks are simply the best and work hard to bring you content each week in the form of tutorials, the Terra Bites Academy, live streams on YouTube, and weekly happy hour chats on Telegram. It was this video that got me hooked on Anchor.
The Defiant: The folks at The Defiant have only done a few videos on Anchor but if you’re looking for the best tutorial on how to get assets onto Terra from Ethereum via a charismatic British guy, look no further.
How does Terra Work? This video is an excellent explainer on the basics of LUNA’s tokenomics and how an algorithmic stablecoin like UST is able to maintain its peg to the US dollar.
Disclaimer: I am not affiliated with, nor do I represent Terra or Terraform Labs in any way. I am simply an enthusiast for the platform and this content is for educational or entertainment purposes only. None of this should be considered financial advice. As always, do your own research.