Terra ecosystem has developed an interdependent world. Cover design by B(3,A)Rhunter.
Terra provides a decentralised algorithmic stablecoin. To ensure their coin has long term viability, Terra built an entire ecosystem around the stablecoin. The ecosystem currently consists of a payment app (Chai), a savings protocol (Anchor), a synthetic stock market (Mirror) and a bunch more. An insurance protocol (Ozone) is planned to launch soon. Each utilizes Terra’s stablecoin, increasing its demand, which is important — as we will find out later.
Chai is a South Korean e-wallet application that allows its users to pay with Korean Won (KRW). Transactions are processed in the background via Terra’s blockchain and transaction fees are paid to the Terra network (instead of VISA or Mastercard). Settlement time, from vendor to customer wallet, is much faster than with bank accounts, and transaction fees are significantly lower. Chai in numbers:
I will walk through the tokenomics of Terra, Mirror and Anchor in detail and show that they are quite complex. One might wonder why separate tokens and protocols were used, complicating the design compared to an all-in-one solution. Do Kwon, one of the Terra founders, explains this nicely:
Do Kwon, founder of Terra on decentralisation
To get a more basic intro to tokenomics check out my BanklessDAO post on Bitcoin & Ethereum.
Terra has recently gone through an update to Columbus-5, this article reflects the current Columbus-5 version of the network. You can read here about what changed.
Terra & Luna tokenomics
Terra (UST) represents the stablecoin. Luna represents the reserve or governance token — used to hold Terra to its peg. The stablecoin is not only used in the Terra ecosystem; bridges have been built to enable usage in other ecosystems like Solana.
The tokenomics due to the inbuilt stablecoin are a bit more complex than those of Bitcoin and Ethereum, but the details below should help explain how it works.
Genesis supply of LUNA