Beginner’s Guide to the Terra Ecosystem

Ever since its launch in January 2018, the Terra ecosystem has been turning heads in the DeFi space. It has been slowly and steadily gaining momentum and has risen a lot in the charts. So much, in fact, that its governance token, LUNA, now hovers at the 11th position in the list of top cryptocurrencies in terms of market cap.

You could say the growth it has seen has been…terrafic! Okay, jokes aside, it really has been an impressive growth. At the time of writing this article, LUNA was trading at over $43. Compared to its launch price of just over a dollar per token, this rise has been huge.

While the recent rise has largely been associated with the Columbus-5 mainnet upgrade, the overall meteoric rise of the platform has many factors at play. And it is these factors that we’re going to discuss in this article. But before we do, let’s take a quick look at what Terra is.

What is Terra?

Terra is one of the go-to Layer 1 networks for most people in the crypto space. It is a decentralized payments system (or rather an ecosystem) that makes use primarily of stablecoins. The ecosystem offers interoperability with the crypto ecosystem as well as the real-world economy.

Over the last three years of its existence, the ecosystem has seen an increase in the usage of the DeFi applications under its hood.

Having been built with the Cosmos SDK framework, the ecosystem has largely been incompatible with the Ethereum Virtual Machine. But with the recent Columbus-5 upgrade, it is now on Stargate. This is what the hype has been all about since it is now interoperable with a lot of other crypto ecosystems such as Solana and Polkadot. But that isn’t all.

The Gravity Bridge, another ace up their sleeve, allows for porting of Terra assets to multiple ecosystems—including Etheruem. And since most DeFi products are built and run on Ethereum, this is a big deal!

An even bigger deal is the host of products that make up the Terra ecosystem. Let’s begin with its synthetic assets issuance protocol, Mirror.

What is the Mirror protocol?

One of the most successful products of the Terra ecosystem is Mirror. It is a DeFi protocol that the Terra network smart contracts power. The protocol is best known for the creation of synthetic assets. 

These Mirrored Assets (mAssets) are synthetic assets that mimic how the real-world assets behave in the market. This gives traders from across the globe open access to the prices of real-world assets without having to own or transact with them.

Minting these mAssets is a decentralized process and is done by the users across the network when they open a position and deposit collateral. To ensure there is sufficient collateral to cover mAssets at all times, the platform lists them to be traded against UST on Terraswap. This gives an additional perk in the form of the ability to manage the mAssets’ markets.

The protocol’s governance token is the Mirror Token (MIR) and is minted by and distributed by the protocol to promote activities that help secure the ecosystem. 

The platform rewards MIR to users who stake their LP tokens. The platform also rewards users who stake their sLP tokens with MIR. I know you’re wondering what sLP tokens are. These are tokens that the users get when they short mAssets. Shorting mAssets is pretty important for them to be in sync with the price behavior of their real-world counterparts.

Much like any other governance token, MIR is pretty valuable. Those who stake it receive voting privileges. They also earn a share of the Collateralized Debt Position (CDP) withdrawal fees. The community maintains the markets and decides where the project is headed.

We talk about the Mirror Protocol in much depth in our recent article (link to article). Feel free to take a look, should you want to know more about it.

For the next big product in the Terra ecosystem, we have the Anchor protocol.

What is the Anchor protocol?

One can argue that most of the DeFi products are tailored to suit the needs of the traders and not many have been made for the general public—the ones who want to save and not trade. That is exactly the issue that Anchor aims to solve.

It is the Terra ecosystem’s savings protocol and it does a pretty good job at it. The protocol provides the users with a stable coin savings product. By that, we mean that it can actually provide stable interest rates to the depositors despite how unbelievable it sounds.

The DeFi space is known for a lot of things. A stable savings product for the masses is sadly not one of them. There simply hasn’t been a simple, convenient, and robust platform where you could lock your money and rest assured that it is generating yield while staying safe.

With the principal-protected stable coin savings product, Anchor, that changes. It stands tall where almost all other products in the DeFi space failed.

For now, though, you’d be happy to know that what it is doing is not magic. It basically uses the block rewards that your assets gain to provide you with stable interest rates. So when you put your assets down to borrow some stablecoins from the platform, they aren’t just lying there. Instead, they’re working to provide you with the yield that the platform promises.

Having been built on the Terra blockchain, the platform accepts LUNA.

If savings protocols allowing for instant withdrawals and paying low-volatility interests interest you, hit the link below and learn all about the Anchor protocol.

Read more: What is Anchor Protocol? An Introduction to Terra’s New Savings Protocol

But if that isn’t your cup of tea, read on, because the ecosystem still has a lot to offer.

What is Terraswap?

Inspired by Uniswap, Terraswap is an automated market-maker (AMM) protocol. Much like the other platforms we’ve discussed in this article, it makes use of the Terra blockchain’s smart contracts. With the help of these smart contracts, the platform allows users to exchange the various assets present in the Terra ecosystem in a decentralized way.

Users can provide liquidity to the liquidity pools on the platform and become liquidity providers. This helps the platform carry out trades at lower fees. For providing liquidity, you are rewarded with LP tokens. As LP token holders, users are entitled to a share of the trading fees of the protocol.

But that isn’t all. You can use these LP tokens on other platforms in the Terra ecosystem too. Speaking of the ecosystem, did we talk of the Pylon protocol yet?

What is the Pylon Protocol?

Multiple savings and payments of DeFi products come together to form the Pylon protocol. These products include yield-bearing protocols such as the stable Anchor Protocol. They rely on the user deposits to power their services.

Pylon enables long-term value providers to have sustainable exchanges with their consumers with the help of Anchor yield redirection and customizable deposit contracts. 

The protocol brings a lot to the table, including a new paradigm for aligning incentives between consumers and creators, borrowers and lenders, payers and payees, investors and entrepreneurs, patrons and artists, and more. It aims to be a future standard for programmable payments.

With the MINE token as the native governance token for the protocol, it is governed by the holders of this token and is maintained by a lot of independent platforms.

We’ve gone much deeper into the world of Pylon in another article of ours (link here), so please check that out to know more about it.

Before you go…

With more than 40 products in the bucket already, and many more yet to come, the Terra ecosystem is huge. What we discussed was just the tip of the iceberg. To discuss the entire ecosystem in one article would be a lot for you to take in. But if you’re really into it, I would suggest you check out their podcast called TerraBites. You’d expect it to be educational (which it is, don’t get me wrong) but it is quite entertaining as well.

Taking a look at the Terra ecosystem, you can’t help but feel a sense of wonder. Not only is it huge, but it is also useful. Almost everything that it needs to function smoothly is already there on the platform, connected properly, and working as needed. And most of what it lacks is being worked on by the Terra team and third-party developers.

While it is difficult to predict the future of the platform, I find myself trusting the platform a lot. It’s refreshing to see so much innovation and connectivity under the same hood.

But that’s me. You should definitely give it a try and see if it fits your needs. Or rather how it fits your needs. There’s something for everyone on the platform, so I’m pretty sure it’s only a matter of time before you find your needs met out there.