Deep Dive into Terra (LUNA) — Part 2.
The January 21st ‘Black Friday’ crypto crash wiped out yet another $136 billion dollars and it seems there’s only been one constant lately: decline after decline after decline. The superlatives are piling up fairly quickly — so much for the crypto supercycle.
The best thing you can do right now is not to look at the crypto charts. Be assured that crypto’s long-term vision of a financial system that functions without any intermediaries, such as banks, insurances or clearinghouses is alive and well. In the meantime, let’s use this opportunity to learn more about crypto in order to understand its endless possibilities.
Raul Pal CEO & Co-Founder of Real Vision & Global Macro Investor hits the nail on the head.
Essentially, it seems that Raoul Pal is arguing that crypto’s fundamental narrative hasn’t changed. The market crash i.e. stress test is accompanied by market liquidations of Bitcoin and Ethereum and Solana’s power outage, while the DeFi narrative continues to stay relatively resilient amid all the recent uncertainty.
One quick look at the Anchor protocol confirms Raoul’s narrative that DeFi has held up without any significant hiccups. This leads me to conclude that DeFi is here to stay. In fact, there is no other financial platform in the TradFi world that can survive a significant 50% drop across the board without significant intervention e.g. think bail-outs etc. I am thus still very bullish on crypto!
In the meantime, I have decided to dip and dabble in yield farming and to recalibrate my thinking in regards to my crypto investment thesis. In particular, I want to use this opportunity to banter about Terra (LUNA) and to update some of my insights on this rising STAR (pun intended).
To be sure, my previous post Deep Dive into Terra (LUNA) was fairly well received. However, as a budding writer (if I can call myself that) I recognize that ‘Your only as good as your last effort’ and my last effort was definitely not up to par — I thought it lacked rigour and substance. So let’s try this again with the benefit of hindsight and some updated information.
So what is Terra (LUNA) anyway?
Crypto insiders should be well acquainted with the Terra blockchain protocol. However, for those of you who have decided to weather the COVID-19 pandemic in the wilderness with no internet connection — very much like Gus, the half-deer hybrid, in the popular US drama series Sweet Tooth, here is a brief summary of the Terra blockchain.
In short, Terra is a blockchain project developed by Terraform Labs that powers numerous stablecoins and decentralized applications (dApps). These stablecoins include the Terra U.S. dollar, or Terra $UST, that is pegged to the U.S. dollar through an algorithm.
Terra $UST is an algorithmic stablecoin that is intended to reduce the volatility endemic to cryptocurrencies like Bitcoin. In contrast, fiat-collateralized stablecoins, like Tether, are pegged to more conventional currencies, like the U.S. dollar, through cash and cash equivalents as opposed to an algorithmic token.
It is important to understand that to mint new Terra UST tokens, a percentage of another digital token and reserve asset, LUNA, is “burned.” If the demand for Terra UST rises with more people using the currency, more LUNA will be automatically burned and diverted to a community pool. That balancing act is supposed to help stabilize the price.
Why is Terra (LUNA) a rising STAR?
Raoul Pal’s Introduction to the Exponential Age and The Next Big Thing have really changed the way I think about crypto. In the latter podcast Raoul postulates that Ethereum is following Bitcoin’s last cycle to the latter due to network effects i.e. Metcalfe’s Law. It ‘almost’ works tick for tick.
Yes, I am aware that Raoul’s cycle projection for Ethereum at $20,000 did not quite pan out and that is why we didn’t bet our entire EtherRock NFT collection on it.
However, Raoul’s charts can be very useful when contextualizing network adoption.
By taking Metcalfe’s Law to its logical conclusion, Raoul further postulates that other Layer 1 smart contracting platforms like Terra move in the same way.
“But I think that if my logic in relation to Metcalfe’s law is correct, then Layer 1 projects will also work. And strangely enough, here is a graph of Solana versus Ethereum in the last cycle when Ethereum was the darling, the new breakout. And the same goes for Terra. It moves in the same way. “
Below is the chart of Luna against Ethereum in the last cycle and it exactly follows Metcalfe’s Law.
I have tried to update Raoul’s chart as it only goes as far as October. However, I have no idea how to generate these nifty, overlapping charts, so here is Luna’s price chart from Coingecko.
Yes, the price is a little off (Luna’s price never went beyond $103.34). However, Raoul’s chart clearly shows that Terra’s network adoption follows Metcalfe’s law, which means that the value is increasing.
Let’s quickly zoom over to Mark Yusko’s comments on Bitcoin:
“The price of BTC doesn’t matter. The daily price is a liar. The value is increasing. The price is going to be volatile because humans and machines are volatile. What you want to do is continue to increase your ownership of the most powerful computing network the world has ever seen. Ownership is edge.”
If Terra’s network adoption follows Metcalfe’s law then it seems logical to increase your ownership in one of the most decentralized stablecoins in the world.
Ownership is edge and I would believe that Raoul Pal might certainly agree with me. Here is why:
Terra’s value is further exemplified by the fact that even though Terra UST is the fourth largest stable coin, it has been growing at a much faster pace than any other stablecoins in 2021.
To be sure, fiat-collateralized stablecoins are increasingly valuable to the crypto ecosystem. It is for this reason that their restriction or their limitation by government regulators could pose a significant opportunity to the Terra (LUNA) ecosystem.
My previous post Deep Dive into Terra (LUNA) did a fairly good job of explaining this decentralization narrative so be sure to check it out for more details.
TL;DR: A decentralized economy requires decentralized money that governments can’t f*ck with.
The thesis is simple: Once (not if) U.S. authorities regulate fiat-backed stablecoins and slap red tape onto their usage, we will see a flight into decentralized stablecoins. Currently, the value of the top 3 fiat-backed stablecoins is +/- $140 billion USD. Who is going to eat their lunch?
The Bullish Case for the Terra (LUNA) Ecosystem
Stable(kwon)coin regulation aside, the beauty with Terra (LUNA) is that it has a very vibrant community #LUNAtics and a massively growing ecosystem. Terra’s plan for mass-user adoption has certainly gained a lot of traction through their thriving ecosystem that brings DeFi to the masses.
In particular, Terra’s ecosystem is very differentiated and is built upon the three solid pillars that can be separated into three categories: Lending ($ANC), Derivatives ($MIR), Exchange ($ASTRO).
Let’s start with Anchor, which is a savings protocol offering low-volatile yields on Terra stablecoin deposits.
It is beyond the scope of this post to go into the weeds of the Anchor protocol but if you are new to crypto like Gus et al. then read this easy to understand post Explaining How Anchor Protocol Works To A Non-Crypto Native
Notably, Anchor aims to deliver a fixed rate of 20% APY on your deposits.
Surely, this is a game changer as I don’t see any scenario where the banks aren’t f*cked; they just don’t know it yet!
If the growth of Anchor’s TVL is anything to go by, we should continue to see strong adoption of the Anchor Protocol. While in its early stages it is reliant on incentives to bring people to the platform, its innovative saving product offers an obvious value proposition to institutional investors.
Certainly the narrative that institutions are looking closely into DeFi has recently gained a lot of traction in the DeFi space.
Enough said — let’s move on…
Afraid of the volatility of crypto and prefer the relative ‘stability’ of the stock market?
Terra has got you covered: Enter Mirror Protocol.
TL;DR: The Mirror is a synthetic stocks platform where you can buy stocks on the Terra blockchain that mirrors real-world stock prices, thereby reducing your volatility to the crypto market.
More specifically, Mirror enables the creation of synthetic assets called Mirrored Assets (mAssets). mAssets mimic the price behaviour of real-world assets and give traders anywhere in the world open access to price exposure without the burdens of owning or transacting real assets.
Again — this is a game-changer. The Mirror protocol is disrupting the disruptors by offering global access to financial assets for everybody.
To be sure, my stock trading days are long over and I personally don’t get excited by the traditional stock market. *That is not to say that I was ever any good at it or that it lasted very long. Raoul Pal has an excellent observation on this:
“Asset prices have not risen. It is the fall in the denominator that is causing all of this to rise i.e. the debasement is making you poorer.”
Raoul Pal illustrates this point by using the S&P 500 / Fed Balance Sheet.
Long story short, the point is that asset (stock) prices just follow the balance sheet. What is going on in TradFi is that the debasement makes it deceptively look like the value of the stock market is going up. But when you look in money printing terms, the stock market is basically holding its own after the massive collapse of 2008.
I have a whole post on this but just watch this amazing pod with Raoul Pal and Robert Breedlove.
Be that as it may, access to the blockchain synthetic assets market offers use cases for traditional assets that “were previously super boring”. For example, mAssets can be used for collateral, yield and leverage.
Here is a great pod by Ark Invest with Do Kwon who is the Founder and CEO of Terraform Labs that really cuts the mustard if you want to take a deep dive into Terra’s Anchor and Mirror Protocol. Do Kwon flashes it out at a level of detail that is easy to understand.
Let’s keep the ball rolling…
Astroport is the third pillar of Terra’s thriving ecosystem. It is an AMM (Automated Market Maker), which is, in short, a decentralized exchange protocol building on the Terra blockchain. It is developed by a joint venture entity formed and governed by Delphi Digital, IDEO CoLab, Terraform Labs and Astroport builders.
If you are not familiar with the concept of Automated Market Makers (AMM) then check out @HideNotSlide who explains things rather well:
Coin 98 rightly notes that Astroport is expected to be the liquidity hub for all of the assets on Terra. Besides the upgrade in the AMM model, Astroport also offers an attractive feature: dual liquidity mining and an innovative way to leverage the use case of the ASTRO token.
For more info on Astroport go to Astroport — Medium. Gabriel Gareth Foo has also written a nice piece — WTF is Astroport and why it’s going to supercharge the Terra ecosystem.
It is important to understand that an AMM is the most important primitive as it is a core building block of any DeFi ecosystem. Allowing assets to freely flow in a trustless and capital efficient manner is paramount in a decentralized economy.
Gabriel Gareth Foo also observes that Astroport coupled with Columbus-5 and Wormhole V2 will open Terra’s floodgates to liquidity from across the metaverse, while enabling $UST pairs for all assets beyond the Terra blockchain.
There are certainly many projects in the pipeline worth bantering about but I am running out of steam. In fact, there are over 160 projects that have recently gone live or are lining up to be launched on Terra’s network.
Here is a snapshot of Terra’s ecosystem as at November 23rd, 2021. I would assume that a few more protocols have joined the party since then. Go to Terra Money — Ecosystem for an updated list.
Here are five other protocols that have caught my attention.
Mars Protocol —Decentralised credit protocol of the future on Terra:
Mars Protocol is a Lending Protocol on Terra. It is said to be the “bank” of the future by being non-custodial, open-source, transparent, algorithmic, and community-governed.
Mars Protocol is the first protocol on Terra to offer 2 types of borrowing: collateralized and uncollateralized borrowing. And the uncollateralized borrowing feature is expected to increase the borrowers’ demand, utilization rates, and returns for Mars lenders.
Surely, you might ask yourself what then is the difference between the Mars protocol and the Anchor protocol?
The TL;DR answer:
Mars = a decentralised banking protocol
Anchor = a Saving-as-a-Service (SaaS) protocol
For a detailed answer have a look at this thread:
Let’s keep the rest short from now on.
Levana Protocol: Enables the creation of leverage assets.
Talis Protocol: The First DAO Art Marketplace and PoD Shop.
White Whale: Terra’s up-and-coming arbitrage platform.
ApolloDAO: Yield Management Platform Built by DeFi Users for DeFi Users. (
There are too many projects to cover but suffice to say:
“More projects on Terra diversify and amplify the demand for UST, accelerating the expansion of the stablecoin supply and accruing value to LUNA holders,” Do Kwon
In summary, my attempt to learn about Terra (LUNA) has answered many questions but also opened a rabbit hole that I am eager to explore. Terra’s ecosystem is breathtaking so I invite you to go to jump onto their website at Ecosystem | Terra Docs and start exploring.
It’s time for a bit of a break as the Lunar New Year (설날) is just around the corner in South Korea! I shall be taking a little break from crypto.
Happy “LUNA” New Year’ing ya’ll! (Ah how appropriate!)
Frei Bier / Twitter: @FreiBIER13
Frei Bier Crypto Newsletter | Substack
DISCLAIMER: My writings are merely a reflection of my learning journey and my attempt to compartmentalize the cryptoverse. I am learning out loud so feel free to correct me or disagree with me. This is not investment advice but my hope is that you find value in some of my links and ideas.