Luna Terra - Overview and Investment Thesis
by MianBao, June 2021
This is intended as a layman’s introduction to Luna and the Terra Network for 10 Bagger Club members.
We want to recognise the enormous contribution made to the 10 Bagger Club group in the crypto channels by TonyM of Hegemony Finance. Much of the information, including price forecasts outlined here, are derived from TonyM’s expert knowledge running a leading blockchain consulting and trading business. Many 10 Bagger Club members have had direct experience learning from TonyM and are very grateful.
Terra’s focus is on minting or issuing country based stablecoins (blockchain tokens pegged to a real-world currency like the USD) and has established 18 so far. Terra earns revenue whenever its stablecoins are used in any kind of transaction. In less than 12 months the Terra’s UST stablecoin has become one of the leading stablecoins with a market cap of $1.6 billion. Stablecoins such as Terra is the currency that forms the foundation of the DeFi world.
While DeFi apps native to the Terra ecosystem already use Terra’s stablecoins and form a very large use case of support, other DeFi apps on other blockchains such as Etherium’s, Binance, Solana, and Polkadot can all use Terra’s stablecoins. This is known as interoperability and uniquely built into the foundation of Terra.
So where is Luna in all this? Luna is at the centre of the Terra ecosystem and has a role somewhat like a reserve currency. Its main function is to stabilise or maintain the peg for all Terra’s stablecoins. Luna is the coin that represents the overall performance of the Terra network. Luna is of course also tradable on seven major blockchain exchanges including Binance, Huobi, Bittrex, and Kucoin with more to come.
The investment case for buying Luna right now should focus on the following catalysts:
Increasing use of Terra’s stablecoins across the growing Terra network of Defi apps
The rapid expansion of new DeFi apps within the Terra ecosystem - 85+ new apps about to be launched
Adoption of Terra’s stablecoins by DeFi apps on other blockchain networks across the entire DeFi space
Impact of dramatically increased stablecoin interoperability with other blockchains in the next few months
The reduction of issued Luna over time. As new stablecoins are minted this has an inflationary effect on the price of Luna because a corresponding amount of Luna is removed from circulation or burned. With demand increasing for Terra’s stablecoins, the price of Luna increases. The mechanics of this are outlined below.
An increasing quantity of Rewards, analogous to interest, paid to holders of Luna who stake or pledge their Luna to the Luna liquidity pool.
Staking Rewards are important to the Luna investment thesis. After you purchase Luna you can stake or pledge them to the Luna liquidity pool and receive rewards in the form of new Luna and other Terra stablecoins. On the one hand stakers receive a small share of the transaction fees earned by the whole Terra ecosystem. Currently, this is a rate of about 4.5% APR. Another kind of reward is called an Airdrop and these are rewards given to stakers by apps in the Terra ecosystem. At present, there are only 2 major apps - Mirror: synthetic asset trading and Anchor: loans - that provide these rewards to stakers. Airdrops are exciting.
As new apps go live in the coming months Airdrops will be accrued by Luna stakers in much greater volume. The combined airdrops from the 19-20 new apps launching in the next couple of months are expected to bring an additional 30% income to Luna stakers. This will go even higher later in the year as other apps launch and stakers could potentially see an additional 50-80% return on their staked Luna. While these returns will not be earned indefinitely, Luna stakers could be looking at almost doubling their investment over a 12 month period before even considering the forecast price appreciation of Luna. The longer term rewards for staking Luna are expected to settle down to about 14+% APR.
The price of Luna has been trading in the $6-7 range recently. The consensus forecast price range for Luna by the end of 2021 is $25 - $45.
However we believe that the impact of the explosive growth drivers described above will result in:
- Luna moving to $50 by the end of Q3 2021
- Luna achieving $100 by the end of Q4 in 2021 When these price points are achieved we expect Luna to move in the direction of $1000 by the end of 2022.
There is a strong case for Luna not only as a 10 bagger but even a 20 bagger in the next 12-24 months at current prices.
We recommend watching this YouTube before continuing:
Overview - Key Points
This may get a little technical but hang in there!
The Terra Network aims to be a one-stop blockchain shop, providing decentralized, desirable, necessary, and affordable financial products to everyone, all from a single blockchain ecosystem that is interoperable with other major blockchains.
Terra at its core is a blockchain protocol for issuing stablecoins. But Terra is also an ecosystem of decentralized finance applications that will drive the use of its stablecoins. The Luna token is at the centre of Terra. The analogy with the earth and the moon is that while Terra represents the earth or a vast Defi Ecosystem, Luna provides a force that keeps Terra’s stablecoins stable within the ecosystem. More on this below.
How The Terra DeFi Ecosystem Is Changing The Game - DeFi or Decentralised Finance Explained
DiFi simplifies and drives financial transaction efficiencies by providing a viable alternative to traditional financial intermediation - think about the high fees, settlement delays, etc. when dealing with banks, credit cards companies and payment networks. With Terra, lower transaction fees are made possible by bypassing traditional settlement networks and reducing settlement time.
Terra offers transaction fees starting at .1% and capping at 1% max, as well as high speed transactions averaging about 6 seconds. While there are multiple other Layer 1 and Layer 2 solutions attacking this problem, few do this without sacrificing price, speed, security, or a mixture of all three as Terra has. Terra overcomes DiFi adoption caused by congestion and resulting high fees of networks like Ethereum. Cardano, another well-known player in the crypto world, has been working to overcome this on their own network for over five years without headway. Terra on the other hand is already there. Layer 1 & 2 Explained
Aside from overcoming existing blockchain inefficiencies for DiFi, Terra already provides a robust and highly successful DeFi product ecosystem providing real-world integration for users through an ever-expanding portfolio of financial products.
Another thing that Terra does well in the real world is to help resolve the problem of access to financial services on a global scale (financial democratisation via DeFi). Live in Africa and can’t get a PayPal account approved? Or in Vietnam and have limitations on accessing foreign stock markets to buy Apple or Microsoft shares? Can’t borrow money? Can't earn more than single-digit interest rates on deposits? The applications and partnerships of the Terra Ecosystem have already started providing real-world solutions to overcome these problems. They are currently preparing to launch multilingual versions of their Dapps.
What Is A Stablecoin?
A stablecoin is a type of cryptocurrency whose value is tied or pegged to an outside asset, such as the US dollar. Stablecoin adoption has exploded and can be seen with their meteoric market cap growth from roughly $6 billion at the end of 2020 to the current market value of over $100 billion. Well known stablecoins include USDT, USDC and DAI amongst others.
At its core, the Terra Luna Network is focused on issuing or minting stablecoins and so far has over 18 country based stablecoins issued including TerraUSD (UST), TerraKoreaWon (KWT) and TerraAUD (AUT). UST is already one of the largest stablecoins in the blockchain space. Terra earns income in the form of transaction fees and taxes whenever its stablecoins are used.
Unlike other stablecoins Terra’s are not backed by the asset (say the USD, Etherium, or BTC) that they are pegged to but rather maintain their stability algorithmically through a dual-coin concept. Put simply, there is a stablecoin on one side such as Terra’s UST and Luna on the other. The supply and price of Luna adjusts in order to keep Terra’s stablecoins stable.
Watch these 1-2 minute YouTube videos before reading on.
What Are Terra Stablecoins?
What Is The Luna Token?
Something unique to Terra’s stablecoin algorithm is that when a new UST stablecoin is issued or ‘minted’ an equivalent amount of Luna is ‘burned’ or reduced from the Luna pool. This can be likened to an inflationary impact on the price of Luna: additional demand for UST or other Terra stablecoins causes a reduction in total Luna resulting in an increase in the price of Luna. Think about it.
To drive the usage of its stablecoins, Terra is creating an ecosystem of DeFi protocols and apps that have real world financial functions.
The Luna ecosystem currently has two major applications — Mirror and Anchor — (there are others) yet these have caused the creation of over 1.5 billion of UST in just 6 months.
Mirror Protocol is a synthetic exchange that runs 24/7. It is decentralised and uses UST to trade synthetic assets including real world stocks like Google and Amazon.
Anchor Protocol provides 18-20% deposit yields on UST.
Chai app facilitates fast consumer transactions in Korea using debit cards backed by KTW stable coin and has over 2million uses.
But over 85 new app projects are set to launch in coming months. These are expected to cause UST demand to explode and the value of Luna to gain rapidly.
If you own Luna and want to take full advantage of this asset you need to understand Staking. Staking is an important part of the Terra ecosystem. Staking is analogous to a real world central bank account where you get a reward like interest but don’t risk your capital. If you have Luna you can stake or deposit them into the liquidity pool of Luna which supports the entire Terra ecosystem.
You are incentivized to do this by receiving staking rewards. These rewards accrue to a staker from across the entire Terra ecosystem whenever any kind of transaction takes place. So if someone uses Mirror, Anchor, Chai, Terraswap or other Terra app, any Luna that you have staked you will earn rewards in the form of additional Luna or other stablecoins. You will also receive something called Airdrops. Airdrops are a kind of reward akin to an interest payment accrued by Luna stakers and paid by Terra’s various apps from income they earn.
With so many new applications about to launch, the staking rewards for Luna are expected to increase substantially. It can be expected that when investors realise the rapidly increasing income possible from staking that this will also drive growth of demand for Luna. Staking rewards are targeted to be about 14% over time.
Staking is easy by the way. You set up a Terra Station wallet on your desktop, transfer in the Luna purchased on an exchange like Binance and choose a ‘validator’ to stake with. You start earning immediately.
A central tenet of Terra is its interoperability with other blockchains. (Terra is built on Tendermint which is the technology underpinning interoperability on the Cosmos platform). Also referred to as ’Inter Blockchain Connectivity’ or IBC this facilitates bridging between other blockchains. The key point is that Terra’s stable coins can be used by application developers with diverse use cases across other blockchains. A financial application on the Etherium blockchain for example can easily use UST as the stablecoin underpinning its business.
As Terra was designed on the concept of interoperability across the blockchain universe, when full interoperability is achieved (via an upcoming upgrade called Columbus 5), the money is on this being a major growth driver accelerating the adoption of Terra stablecoins. It will open UST up for integration with major blockchains such as Solana, Polkadot, Binance smart chain, Cosmos and Etherium 2.0. It will also facilitate the launch of many new ‘Chai’ equivalent apps offering high return savings and merchant transaction services to real world users.
These short articles also describe Terra Luna; a little technical but worth it:
These links will help you get set up for Staking Rewards with your Luna:
How to set up a Luna Terra Station wallet for Staking and Airdrops
Overview - Expanded
What is Terra?
Terra is an up-and-coming blockchain powerhouse, founded by Do Kwon and Daniel Shin, which has amassed a $7.8 billion market cap on its reserve currency asset - Luna - in under three years since its creation. The exchange-traded current market cap of Terra LUNA is over $2.5 billion at the currently low price of $6 per Luna.
When you hold Luna you are part of the broad and rapidly expanding Terra DeFi Ecosystem. It aims to become the most leading and most comprehensive DeFi concept platform by methodically building out a full range of DeFi applications or Dapps based around its stablecoins. On offer are financial services paralleling those of our real world financial system with blockchain equivalents representing currency, loans, stocks, interest, transaction settlements, etc.
(Terra Dapps and ecosystem partnerships listed here https://docs.terra.money/ecosystem.html#terra-website-and-socials ) With Terra, you can earn interest on its stablecoins, spend these crypto currencies easily with merchants, and replace most of your banking needs with one seamless DeFi experience. A real-world user won’t have to understand or deal with wallet addresses, cross chain swaps, and other crypto concepts but rather will access a full range of decentralised banking services from a very simple online interface. Over time, Terra aims to pave over banks, credit networks, and payment systems like PayPal with one uninterrupted and rewarding blockchain experience.
Luna is the first stablecoin with Visa and Mastercard master merchant licences (allowing it to issue consumer debit cards from a decentralized bank), tradeable synthetic stocks and assets, and savings accounts earning 20% interest. From its base in S.Korea, it is actively launching in 15 other countries right now.
Most people thinking about investing in blockchain space say they would jump in if they could find one that had real-world applications and a strong use case. This is Terra Luna.
Moreover, unlike almost all other blockchain concepts, the Terra team decided to build the front end, real-world use case, first and then put their energy into the blockchain back end. This has already been achieved and proven itself. As of today the UST has a $1.6b market cap and is the fifth largest stablecoin in issuance. The UST is used in various countries and has over 30 apps running on it already for various forms of e-commerce. And this is continuing to increase. As one example, the CHAI payments system for Korean consumers already has 2.5 million users and is growing rapidly.
To summarise, Terra Luna is a one-stop blockchain shop and aims to provide decentralized, desirable, necessary, and affordable financial products to everyone, from a single blockchain ecosystem that is interoperable with other major blockchains.
Maps of the Terra Ecosystem are below and a clever interactive map can be viewed on the link below if you want to drill down into the various Dapps: https://www.learn-terra.com/map
What is Luna?
Luna’s role is to secure the price-stability of Terra stablecoins Luna serves as a foundational asset for the entire Terra network and ecosystem.
Luna is the native staking and governance token on the Terra blockchain The more activity there is on the terra blockchain, thanks to DiFi apps like Mirror and Anchor and many more to come, the more value Luna captures.
How Does The Terra Luna Ecosystem Work?
At its (monetary) heart the Terra model is essentially a Dual Coin ecosystem with the UST (a stablecoin) on one side and Luna on the other. To keep UST stable, meaning pegged to USD (vital to consumers using Terra applications like buying movie tickets or taking out a loan), Luna adjusts up or down (unlike other stablecoins that need real $ to back them up). The basic mechanics of the UST/Luna dual-coin concept can be seen here:
To attract people to hold Luna for this purpose, namely supporting the peg of its stablecoins and accepting the price fluctuations of Luna as it keeps the UST stable, Terra has created all kinds of incentives or rewards. Staking is one of these. Airdrops are another. These allow you to accrue additional amounts of Luna. Nice, right? In fact the whole Terra ecosystem is designed to incentivize both participation and rapid organic growth of the entire system.
As an investor in Luna, a key point to note is that the total supply of Luna coins out there is designed to decrease over time. And all Increased use of Terra’s stablecoins across any and all parts of the Terra ecosystem (including use in other blockchains through interoperability) drive this. In turn as fewer Luna exist, the Luna that remains will increase in value. We like this a lot! There will of course always be enough Luna to go around in the future but at some point few people will have a whole Luna, rather they will have a fraction of a Luna, such as 0.00546 Luna for example.
How Big is Luna / Terra and Is It Undervalued? Yes!
The most popular metric for DeFi is the TVL (Total Value Locked) metric. TVL represents the total amount of assets secured in the various DeFi applications and smart contracts and identifies how much capital is actually in “use” across an entire DeFi ecosystem.
As a comparison, the $2.37 + billion TVL of Terra is more than the combined value of some of its peers: $SOL, $AVAX, $ONT, $NEO, $FTM & $ZIL. On the other hand, Luna still has a market cap of about 1/10 of these other blockchains. Terra’s expanding range of DeFi apps is quickly going to attract a lot more capital into its ecosystem.
What Has Been Going On With The Price of Luna Recently?
Luna has dropped from its USD $20 highs last month to the $6-7 range in the past couple of weeks. Obviously most crypto currencies have gone down recently with BTC and ETH leading the way.
That said, Luna and the UST stablecoin have proven that they can withstand a series of shocks to the system. In fact, the price instability of Luna has acted precisely as intended in its dual-coin role stabilizing the UST and maintaining its USD peg. So understanding a little about the mechanics of Luna as outlined above is important to understanding the reasons for price fluctuations in Luna. Luna is designed to absorb instability and has done just that.
There were other factors at play that impacted the volatility Luna experienced recently, including the shakeout of over-leveraged speculator positions, but this has arguably been a good thing for the system.
There are several upcoming initiatives about to be rolled out within the Terra ecosystem that are expected to go a long way to reducing future volatility in the system. The upcoming launch and impact of Columbus 5 is one of the most important and exciting initiatives.
Where Is The Price of Luna Going?
Luna began to get attention over the past year as it skyrocketed into the top 20 coins by market cap. For those who don't know, Luna was trading at $0.50 back in December 2020 and $0.83 as late as the end of January 2021. Since then it has gone on a meteoric rise, tapping $22 before pulling back and consolidating in the $18-19 range.
Needless to say Luna was impacted by the recent black swan event that impacted the whole crypto sector. Since then, over the past week or two Luna has been fluctuating over around the $6 - $7 mark. For those who understand what Terra / Luna is setting out to do and want to be part of it, the current price of Luna is a rare entry point and buying opportunity. However buying in anywhere under $15 could be considered good buying territory.
Why? With the ongoing rollout of new DeFi services and expanding Terra ecosystem there is a strong case for Luna reaching $100 by the end of this year. The next three months and the roll out of Columbus 5 and another 85+ new DeFi apps connected to Terra will drive this.
Terra recently announced plans to integrate large-scale cross-chain interoperability with Bittrex Global, and Ethereum and Solana are not far behind. This follows the surge in demand for stablecoins as their utility increases globally. Furthermore, Terra's innovative dual-coin model is designed to be robust enough to help other blockchain ecosystems scale using TerraUSD. While 2021 should be a strong year for the price of Luna, 2022 could well be an even bigger growth story on the back of this year if Terra checks all its boxes in its DeFi rollout. To date the Terra team have proved that they can methodically build out the blocks that make up their DeFi ecosystem and it should continue to do so with increasing speed.
As the leading decentralised stablecoin and third largest layer one blockchain by TVL, with an established real-world use case and a rapidly expanding DeFi ecosystem, Luna is as strong buy under $10 and should be a 10 Bagger by year end.
Hope this is helpful. Brad @MianBao
Core Assets and Apps Within The Terra Ecosystem
UST/KRT/MNT - Terra stablecoins, soft-pegged to fiat currencies (1 UST ≈ $1 / 1 KRT ≈ ₩ 1)
CHAI - Consumer payments platform
These are outlined in fairly easy to understand language in the links below. Recommended reading:
Early Investors in Terra Luna
Terraform Labs had 12 investors in its $32 million seed round in August 2019, led by Binance Labs, Dunamu, Huobi Capital, OKEx. Kakao Ventures, HashKey Capital, and LuneX Ventures funded Terraform Labs across the 2019 undisclosed funding rounds. In the latest January 2021 funding, Terraform Labs raised an additional $25 million from Pantera Capital, Coinbase Ventures, Galaxy Digital. Many notable VC crypto funds have invested in Terraform Labs.
Links and Resources
Synthetic stocks and assets