Terra Blockchain: the payment system with different use cases

5 min readJul 30, 2021

Although it has gone unnoticed compared to other more popular ones, I was truly amazed by how the developers of Terra, a Blockchain created through the Cosmos SDK (Software Development Kit) are working. SDK indicates a set of tools that developers and computer scientists can use to create blockchain-based systems, together with everything that goes around them, what is called “Ecosystem”.

Among the classic examples we have decentralized applications, identity providers, traceability systems, wallets, payment systems or smart contracts, and decentralized finance.

In this article, we will analyze Terra from its background, real-world applications, and the functioning of different its platforms.

What is Terra?

His name means Earth in Italian, and his native Token, Luna, means Moon. Terra is a blockchain capable of making use of so-called smart contracts, created using the developer tools made available by the Cosmos SDK. The blockchain is powered by the native LUNA coin and the TerraUSD (UST) coin, the Terra blockchain has become a very solid and vibrant building ground for blockchain-based applications.

Terra created an all-in-one payment solution using a variety of intuitive tools, enabling businesses to implement blockchain technology to accept and automate Terra-based payments without intermediaries. Furthermore, Terra uses a dual-currency system to keep the price of UST stable, and of all other stable coins (there are also the equivalents of the euro, the pound, the Korean Won and many other legal tender currencies in the world. ).

This has contributed to the growth and adoption of the Terra network and of both the LUNA coin and the UST coin. Additionally, Terra is responsible for the development of several successful cryptographic projects, including Mirror Protocol and Anchor Protocol.

Backgroud

Terra was born from the Korean company Terraform Labs, incubated by the Terra Alliance, a group of 15 eCommerce companies based in Korea, group founded by Daniel Shin and Do Kwon in 2018.

Shin is the creator of the Chai payments application (widely used in Korea), the TMON e-commerce platform and the Fast Track Asia startup incubator.

Kwon is a computer scientist with work experience in Microsoft related to the development of artificial intelligence for the understanding and processing of language, as well as the founder of Anyfi, a telecommunications company.

Mission

Terra’s ultimate goal is to “substitute” the traditional banking system through the mass adoption of stablecoin cryptocurrencies and the DeFi infrastructure.

Much progress has been made through a series of partnerships, for example with CHAI, a land-based payment app used by 25 million South Koreans.

In the future of Terra, people will buy and sell using digital money stored in wallets on blockchain-based mobile phones. Traders will accept multi-fiat stablecoins that are automatically traded behind the scenes and on-chain. For some, the US dollar may be too volatile. Terra has therefore created a mechanism that issues regional stablecoins that can also be easily traded.
By providing liquidity, holders will earn interest on unused money by storing it in DeFi applications.

Terra works had been able to reduce commissions on commercial transactions to 0.5% (or less), and this value is still improving. This should involve more and more partners, as partners increase, the commissions will also decrease, creating a virtuous circle.

How Terra works?

Terra uses a delegated Proof-of-Stake (PoS) as a consensus mechanism, the validators are in fact some nodes of the network to which it is possible to delegate the Luna Token, earning UST interests on the fees of the network, and some airdrops sometimes. The network is limited to about 100 validators, to increase the speed of transactions and together provide an acceptable level of security.

Terra UST

Anyone familiar with dollar-pegged stablecoins such as USDT and USDC will know that not only are they pegged to the dollar, they are also backed by dollars as collateral. For every 1 USDT issued, there is 1$ placed in reserve as collateral.

Terra stablecoins are not backed by dollars. Instead, just like DAI, Terra issues algorithmic stablecoins backed by a cryptocurrency over-collateral. These stablecoins maintain anchored value using a circular dual-token system that creates arbitrage opportunities via seigniorage (see video above).

Seigniorage is the difference between the cost of issuing an asset and the value of the asset at face value.

If it costs the US government $ 0.05 to produce a $ 1 bill, the $ 0.95 difference is profit.
On Terra seigniorage is defined as:

seigniorage = new minted currency — acquisition cost.

In Terra, every time a stablecoin is issued algorithmically due to demand, the platform profits from it. It puts those profits into the Terra pool to finance projects in the Terra ecosystem and reward users.

Ecosystem

Anchor Protocol: Liquidity pool with a fixed 20% interest on UST deposits.
Mirror Protocol: decentralized finance protocol with syntethics assets like Bitcoin, Ethereum and some stocks.
Payment systems like MemePay, CHAI and PayWithTerra. First two are currently used by the 3% of population in Mongolia and 5% of people in South Korea. Third one provides a Stripe-like API system for web payments gateway.

Buy me a coffee

I am not going to bother you with some great explanations here, just wanted you to know that if you enjoyed this article and you wish to know more about Terra or some of the other most used blockchains, just let me know.

If you wish to offer me a coffee for the hard work, I am very happy to accept 1 or 2$, at this address:

terra1fpq00kq06gejqx7jqmrh0h2xjs3x7ea0h2596m

Thnak you very much!