Instadapp

Overview

Enzyme Finance (Rebranded from Melon Protocol but still keeps the $MLN token code) is the property management protocol in decentralized.

The purpose of the enzyme is to provide a product that can allow anyone, anywhere, with any capital, can also conveniently invest in decentralized directions. In addition, managers can also create their own investment funds on the enzyme, medium to Track Performance of Portfolio, and expand the investment strategy with external capital.

For small investors, enzymes are where they can trust investment funds with attractive profit margins, but do not need to directly give their money to these funds as the form of investment fund Traditional centralized.

3 Key Highlights

  1. Completely new Smart Contract structure: Optimal gas costs, simplify integration and increase flexibility.
  2. Support more than 100 types of assets.
  3. As an aggregator (Dex, Lending)
  4. Increasing accessible liquidity: In addition to integrating Dex, Enzyme also integrates paraswap to help Manager access larger liquidity and optimal transaction fees.

Rating (To be discussed in the future.)

AAA AA A style

Objectives

Objective 1: All-in-One Platform

Uncontrollable Constraints

  • The utilities of $MLN are not directly related to the operation of the protocol.

Token High-Level Summary

Token Summary

$MLN is a Utility token of the Enzyne platform. There is the total of 1,824,437 $MLN

Enzyne in DeFi (Products)

Update Sulu

Recently, Enzyme announced a Sulu update that outlines new built-in features to help improve the user experience, including:

  • Borrowing function: Users can borrow to maximize their profits.
  • Toggle token vault: Each vault on Enzyme has its own token, but previously these tokens could not be moved.
  • Staking ETH.
  • Yield farming multi-protocol.
  • Partner and integration with Aave, Curve, Idle and Balancer: Enzyme’s Sulu update is the best part. The integration of hot protocols like Aave or Curve can help increase the number of users as well as polish the name of Enzyme soon.

Efficient Portfolio Management

Cake drawing in Crypto is nothing new. The bigger and more beautiful the cake is, the more likely it is to multiply and divide the account.

However, only products with real applications in life can develop sustainably and create a stable source of passive income for users and development teams.

Currently, Enzyme supports over 200 crypto-assets, allowing portfolio managers to lend and borrow assets as a method of leverage.

In addition, Enzyme integrates trading protocols on synthetic assets, AMM, and management tools to make portfolio managers convenient, thereby maximizing fund returns.

Market Design

Design of the environment in which the tokens and users exist in

Thickness of Market 

TERRA Stablecoin and $LUNA

One of the unique features of Terra Money lies in its token design. It involves a Dual Token Mechanism – the Terra stablecoin and $LUNA. Terra stablecoins are simply currencies denominated in their respective countries while $LUNA acts as the Reserve Token in the ecosystem that backs the Terra Money. It is important to note that $LUNA, however, is not a form of collateral for $UST.

What is TERRA Token used for?
  • Pay for goods or services provided by e-commerce floors
  • Pay rewards for miners that keeps the ecosystem secure
What is $LUNA used for?
  • Use to stabilize the price of Terra stablecoin
  • Vote for governing policies in the Terra protocol such as the transaction fees, tax rates or seigniorage allocation

Terra Ecosystem

Terra is a blockchain protocol that supports stable, programmable and infrastructure development for open finance. This is the most accepted blockchain and generates the most fees after Bitcoin and Ethereum.

Currently, $UST alone contributes more than $2B transaction volume, ~20K $UST in daily transaction fees and the total amount of fees distributed to $LUNA holders has surpassed 10.5M $UST. Terra is growing very quickly.

source: Q1 2021 CoinGecko Crypto Report

  • According to the Q1 2021 CoinGecko’s Crypto Report, the TVL in the Terra ecosystem amounts to $7.5 billion as of 6th April 2021.
  • Terra Money is widely used in popular platforms including CHAI – a payment application with over 2million users.
Terra Station and $UST
  • As of 21 May 2021, Terra Station, the mobile wallet for Terra users, has reached a total number of over 2.7m accounts registered.
  • The transaction volume of $UST on the other hand has also seen a surge in demand due to the launch of the mirror protocol which allows for the trading of financial assets by depositing $UST as collateral. From the last 30 days, it reached a high of 2.3b $UST.

source: Terra Station

Source: Terra Station.

The Terra Dapp ecosystem is very different and has competitive advantages that Layer-2 and other blockchains do not. To some extent, it is possible to describe the growing Terra ecosystem thanks to:

  • The seamless use of native stablecoins in the Terra economy (this not only makes transactions fast and cheap).
  • A Dapp ecosystem incorporating Cefi.
  • Defi is developing in a powerful and unique way.

Terra was also the first party to design an algorithmic stablecoin. It took the project more than 1.5 years to create this solution and is extremely proud of it.

The Milestones That Terra Has Achieved

  • Blockchain generates the most fees behind only Ethereum and Bitcoin.
  • No.1 in widespread adoption.
  • Processes $12 billion (Jan 2021) of annual transaction volume, far ahead of other blockchains.
  • Terra Chai has 2.4 million users (TOP 1 Dapp in terms of all existing user stats).
  • The value locked on the Mirror surpasses $2.5 billion from launching.

Reduce Congestion

Commonly-used Ethereum developer tools are available as Terra counterparts.

source: docs.terra.money

  • Terra has the above infrastructures in place, ready for developers to develop their dApps on the Terra platform.

  • Terra uses a DPoS consensus, which enables batches of transactions to occur in only 6 seconds.

SDKs For Developers

The Terra SDK provides an easy way to programmatically interact with the Terra node in popular programming languages for application development. They currently have an SDK in Python3 and JavaScript, with support for other runtimes coming soon.

Robust consensus and fast block finality

Terra is backed by the Tendermint BFT consensus, using a dPoS-like scheme driven by a set of top 100 validators. This efficient consensus model allows batches of transactions to happen in as little as 6 seconds (a fraction of the time spent on Bitcoin and Ethereum).

Ready for DeFi applications

With basic infrastructure such as price oracles, on-chain swaps, stablecoin assets in various denominations, community governance, and automated monetary and financial policy, the Terra blockchain functions as an economy. An autonomous sovereign economy that is user-driven and provides all necessary incentive mechanics and modular plumbing to power modern DeFi smart contracts.

Safety

Harpoon Protocol

Terra Money leverages on its Anchor protocol, which builds up systemic risk that can threaten its peg when there is large liquidation of assets during a black swan event. Harpoon Protocol is an integration to the Mirror Protocol within the Terra ecosystem. When $LUNA suffers from massive downward price action, it reduces the borrowing capacity of outstanding loans in the Anchor Protocol, triggering liquidations. The current maximum threshold for at-risk collateral in the Anchor Protocol is 50%, exceeding which will result in liquidation of at-risk collateral, where the underlying collateral is converted to Terra stablecoins that are used to repay the loan.

The Harpoon Protocol enables users to manually bid for liquidation contracts at a premium on under-collateralized positions in Anchor’s money market. This bid is capped at 30% in which bidders can profit from executing liquidations by purchasing the at-risk collateral at a discount to the current Oracle price via a competitive market of other bidders. This reduces systemic solvency risk in the Anchor Protocol within the Terra ecosystem.

Ease of Use

N/A

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Mechanism Design

Rules of the game that people have to follow

Governance

1. Decision Making

Governance

The $LUNA token is the governance token of the Terra ecosystem. Those who own $LUNA token is able to vote for changes in the transaction fees, the rate at which Luna is burned (seigniorage allocation) and the tax rate.

Funding for Terraform Capital

Price volatility makes smart contract unusable for most mainstream financial apps. Instead of using volatile assets like $LUNA, Terra uses the Terra stablecoin on the Terra Platform dApp to attract developers to build in the Terra ecosystem. This creates predictable price action, as transactions cost is paid in $UST. $LUNA is instead used to back the value of $UST.

After an initial round of idea generation, Luna validators will vote to accept or reject new dApps for Treasury accounts. Funding for dApps are determined by the validators in accordance with a weight that is assigned to that particular dApp. The Treasury would then prioritise dApps with the most funding. Compared to open-ended voting systems, the advantage is a more objective, transparent and streamlined system.

For the project to be accepted, it needs to exceed 1/3 of the total available validator power. Luna validators can also request for a dApp to be blacklisted if it behaves dishonestly such as mishandling the use of the treasury funds that are given to the developers. In this scenario, the net number of votes (yes votes minus no votes) needs to exceed 1/3 of total available validator power for the blacklist to be enforced. The blacklisted dApp will then be no longer eligible for funding from the Treasury.

2. Resolution mechanisms

Gas Fees

To avoid spamming transactions, validators set minimum gas prices that are fees added to each transaction. This will reject transactions that have implied gas prices above this threshold. Fees are disbursed pro-rata, back to participating validators at the end of every block.

Stability for Terra Money

Should the price of Terra Money deviate from its peg, $LUNA can and is used to drive the value of Terra Money back to its peg by using basic supply and demand to control the value of the stablecoin and keep it as closely pegged to its currency as possible. The mechanism for controlling the money supply involves the uses of its stabilization funds, which is a pool that is contributed via transactions that are carried out within the ecosystem.

Depending on whether the prices are falling or rising above the target, the Terra ecosystem utilises arbitrage opportunities to keep the price of the stablecoins pegged. For example, if the value of $UST rises above the $1 peg, $LUNA holders can swap $1 worth of Luna token for newly minted $UST and sell them for more than a dollar by arbitrageurs in the open market, earning them a profit. This increases the supply of $UST and drives the price of $UST back to the pegged value. This process can be done interchangeably, and investors would be able to take advantage of this mechanism which helps to keep the price of the coins stable. If the value of $UST falls below the target, $UST holders can swap their $UST for $1 worth of Luna to profit from the deviation, reducing the supply of $UST and driving up the price back to its peg.

— The swapping is also capped at 20m per day to prevent whales from manipulating Terra money.

In the Short-Term:

Miners help to absorb the short-term volatility of Terra money. The Terra protocol achieves this through a mechanism of changing the unit mining rewards for miners. During a contraction in economic activity, the system swaps Luna tokens to buy back and burn Terra money in the market (arbitrageurs swap their $UST for Luna). This would reduce Terra money supply until its price returns to the peg. Similarly, during an expansion, the protocol mints and sell Terra money into the market. This increases the supply and ensures that the price does not rise above the target peg.

In the Mid/Long-Term:

The protocol reward miners with long-term stable rewards to incentivize miners to mine Terra money. This is important because the miners play a crucial role in providing the security and stability of Terra money.

These rewards include:

  • Fees from Terra transactions that are paid to miners.
  • Luna burn. This process of seigniorage makes mining power scarcer.

If unit mining rewards are increasing, the system can decrease both the fees and Luna burn. Likewise, if unit mining rewards decrease, the system can increase both the fees and Luna burn. This will ensure that the protocol creates predictable rewards in all economic conditions. These are the levers in which to control the fluctuations in unit mining rewards. In turn, these mining rewards are paramount to ensure miners keep the Terra ecosystem secure and stable.

Commitment from Validators

Terra Protocol uses Tendermint’s PoS consensus mechanism in which, validators approve of the transaction blocks in the blockchain. Miners would stake $LUNA and mine terra transactions. At every block, the protocol elects a block producer from the set of staked miners that aggregates transactions, achieving consensus and ensure proper delivery of messages. The power of Producers Block is based on the amount of $LUNA they stake. Therefore, $LUNA is considered the exploitation power of the entire Terra network.

Since a validator’s voting power is proportional to the amount of Luna they have bonded (staked and locked in the ecosystem) from all delegations — only the top 100 validators in voting power comprise the validating set. Delegates play a vital role in this ecosystem because they determine which validators receive this designation, done through voting by delegating their Luna.

Slashing Risks

Only the top 100 in bonded Luna stake are elected to sign blocks. As such, they play an important role in the ecosystem. Every validator is required to participate in the Oracle process, which involves periodically submitting a vote for the current exchange rate of Luna. A program is set up to automatically submit the votes. If validators fail to set one up, it will lead to downtime and missed votes. Past a certain threshold, this results in delegated stake getting slashed and the validator temporarily jailed. In other words, these delegates are subjected to slashing risks, where they are at risk of having their validator’s stake slashed (penalized), hurting both the validator’s funds (as well as their delegator’s) and their reputation.

The major slashing conditions are:

  • double signing: a validator signed two different blocks with the same chain ID at the same height
  • downtime: a validator was non-responsive / couldn’t be reached for more than an amount of time
  • too many missed oracle votes: a validator failed to report a threshold amount of votes that lie within the weighted median in the exchange rate oracle

Non-Financial Incentive

1. Voting Protocol

Luna Validators

There are 3 phases of Luna token state that is important. This state applies to both delegators and validators.

Unbonded: This is Luna that can be freely transacted as a regular token, with no restrictions. For validators in this state, they are considered not in the active set and thus, does not sign blocks, cannot be punished (slashed) and do not earn any rewards from their operation.

Bonded: While Luna is bonded, it is considered staked, and generates rewards for the delegator and validator it is bonded to. The Luna cannot be freely traded and is locked in the ecosystem until it is fully unbonded. For validators in this state, they are considered in the active set and thus, participates in the consensus, can earn rewards and can be slashed for misbehaviour.

Unbonding: When Luna is undelegated from a delegator, it transitions into an “unbonding” state. During this state, rewards cannot accrue and the Luna cannot be freely traded. This unbonding phase takes 21 days after which the Luna return to an unbonded state and becomes freely tradable. For validators in this state, they are considered not in the active set and does not participate in consensus. Even though they are not earning rewards, they can still be slashed for misbehaviour. Likewise, it will take three weeks for the state transition to complete if the validator does not send a rebond transaction while in unbonding phase.

During the delegation process, delegators will likely choose validators based on their amount of self-bonded Luna, the amount of Luna delegated to them, their commission rates and track records.

  • Having more self-bonded Luna will represent more skin in the game for a validator.
  • A high stake shows translate to a reputation that the validator carries, and that the community trusts this validator
  • The commission rate represents the cut of earnings validators will earn from the delegators before they redistribute the rewards back to their delegators.
  • A validator’s track record can be tied to its seniority, past votes on proposals, historical average uptime and how often the node was compromised.

The validators are determined by who has the most stake delegated to them — the top 100 validator candidates with the most stake will become Terra validators. In a way, this represents delegated voting as delegators are entrusting their $LUNA token to validators that will decide on voting protocols such as in proposals. This has the benefit of reducing information asymmetry as well since the validators have more skin in the game when they have more self-bonded Luna and ideally more knowledge of the ecosystem.

Proposals

As part of its fiscal initiative to grow the Terra ecosystem for Terraform Capital, anyone in the community and a member can draft and submit ideas as proposals to effect change for the protocol alongside an initial deposit with $LUNA.

Proposal Voting

Only those who authorise Validator have voting rights.

It is weighted by the amount of $LUNA that votes for a proposal. We can calculate the consensus rate (yes/no) weights of each issue as follows:

In which:

xi is the number of tokens per holder who say yes or no;

X is the total number of tokens those n holders say yes and no.

Oracle Voting

Voters can coordinate to profit from a false price vote. Thus, the protocol limits the vote to a specific subset of users with strong vested interest in the system – miners with a large skin in the game. These miners are more likely to be able to prevent coordination and are incentivized to do so as huge losses would outweigh potential gains, since Luna stakes are time-locked to the system.

In which:

Price means Price Information;

pi is the price information that validator(i) provides;

$LUNAi is the amount of validator(i)’s staked $LUNA;

Total $LUNA is the sum of staked $LUNA by validators.

2. Allocation mechanism

Reputation

The primary function of Luna is to protect the integrity of Terra mechanisms by locking value within the Terra ecosystem through staking. By staking with a validator, the delegator is entrusting their Luna to the validators. This carries an inherent reputation for validators when they stake their funds as they are subjected to slashing risks. Thus, validators are incentivized to behave appropriately to avoid losing trust as a staker.

Distribution of blocks

Block provisions are distributed proportionally to all validators relative to their total stake. All validators will maintain equal weight with each provision. Using an example, a block provision of 1000SDT with 10 validators of equal staking power will translate to 100 SDT in each validator’s pool – this is evenly spread among the validators. The validators will get this share of its own pool according to their self-bonded Luna + commissions. The remaining amount goes to the delegators, relative to their proportion staked to the validator.

Fees Distribution

This is similar to the distribution of blocks with the exception of a bonus fee added to the validator’s pool if it is the proposer validator and it includes more than the strict minimum of required precommits. The bonus is linear: it ranges from 1% if the proposer includes ⅔rd precommits (minimum for the block to be valid) to 5% if the proposer includes 100% precommits. According to Terra, this mechanism aims to incentivize non-empty block proposals, better networking between validators as well as to mitigate censorship.

Terra Delegation Program

To further encourage decentralization among validators on the Terra blockchain, the following guidelines are applicable for the Terra Validators:

• Run a testnet validator • Maintain threshold uptime (≥99%) • oracle votes (≤20% missed) • gov participation (≥90% in last 10 polls) • Min. 3-month run-time • Sign up Disqualifiers: • Breach of any of the above metrics • Moving commissions above 10% • Other behaviours which put you in poor standing with the community

Locking $LUNA On Voting

Proposals are submitted on the network through creating a proposal, depositing some Luna tokens, and reaching consensus through a community vote.

Taxes

Taxes are used as a stability fee, and the protocol charges a small percentage transaction fee ranging from 0.1% to 1% on every Terra transaction, capped at 1 TerraSDR. This is paid in any Terra currency, and is disbursed pro-rata to stake at the end of every block.

Future Plans

The following mechanisms are planned to reduce the concentration of power in the top few validators:

  1. No penalty for re-delegation. This is to allow delegators to easily switch from one validator to another, in order to reduce validator stickiness.
  2. Hack bounty for the community. This is an incentive for the community to hack validators. There will be bounties proportionate to the size of the validator. In a way, a validator becomes a bigger target as its stake grows.
  3. UI warning indication. Users will be warned by Terra Station if they want to delegate to a validator that already has a significant amount of staking power.

Structure

1. Bargaining Protocol

Pace of Validating Blocks

To become a validator, one needs to be among the top $LUNA holders for them to do so. The Columbus Mainnet will have 100 validators, but over time this will increase to 300 validators according to a predefined schedule. This will increase the decentralization of its network. Terra uses a DPoS-like consensus, which enables batches of transactions in the Terra network to occur in only 6 seconds, costing only a few cents.

Proof of Stake

The Terra blockchain is built using the Cosmos SDK and uses the Proof of Stake consensus mechanism. Terra has a limit of 100 validators, which makes it less decentralised than other Proof of Stake networks.

This makes Terra Blockchain which can react a hundred transactions per second. Terra’s transactions usually are solved in 6 seconds only costs a few cents.

2. Community information

Price Oracle

The system relies on a decentralized price oracle to estimate the true exchange rate. The mechanism is as such:

For any Terra money such as TerraKRW, TerraUSD, TerraSDR – miners submit a vote for what they believe to be the current exchange rate in the target fiat asset. This vote is then tallied by taking the weighted medians as the true rates after a determined number of blocks. Terra money is rewarded to those who voted within 1 standard deviation of the elected median. Those who voted outside may be punished via slashing of their stakes. The ratio of those that are punished and rewarded may be calibrated by the system to ensure that a sufficiently large portion of the miners vote.

Token Design

Rules of the game that tokens have to follow

Token Policy

1. Monetary Policy

$LUNA

$LUNA is the root staking property on the Terra blockchain. Owning $LUNA is equivalent to owning a portion of transaction fees from a network like Visa.

$LUNA tokens accumulate value from the Terra ecosystem in many ways:

  • All transaction fees from Terra stablecoins will be redistributed to $LUNA stakers in the form of Staking rewards.
  • All transaction fees from on-chain transactions will also be redistributed to $LUNA Stakers as rewards (to be implemented at Columbus 5 stage)
  • A portion of the assets that the Terra system accumulates during its operation will be redistributed to the highest performing $LUNA Validators, in the form of Staking rewards!
  • Staking $LUNA, you have to learn and choose the best Validator for you.
  • $LUNA allows holders to participate in network administration.
  • $LUNA will also accumulate value from all protocols and future developments on the Terra ecosystem.

Important

Anyone who wants to build anything on Terra, whether it is developing payment systems like Chai, Defi (Mirror / Anchor), Aggregator protocol, NFT, etc., all developers must Stake $LUNA to demonstrate the development team’s commitment to the platform.

Many types of assets like the Mirror, Anchor, Spar, Buzlink and Terra Stablecoin, etc. are gradually building up Terra’s economy. And $LUNA controls all these exciting new asset types, hundreds of which are interoperable, programmable, and resonant with others.

Inflation And Change In Supply

Inflation

Total amount of Initial Cir. Supply (March 2019) is 63.25% (Distribution Section) and maintained until the end of 2019. This is a huge number of tokens when the project has just launched. And apparently it impacted the price of $LUNA, which fell from $3.27 to as low as $0.14 (end of March 2020), despite the inflation rate being 0% in 2019.

At the end of January 2020, Cir. Supply started to increase slightly at 0.3% inflation and increased sharply from April 2020 to July 2020 (0.3% to 3.53%). From July 2020 until now, the overall inflation rate is gradually decreasing, with the inflation rate in April 2021 reaching 1.9%. In which, we notice that there are 2 months of spikes, October 2020 and December 2020 (4.9% and 5.31%).

2019 is the year of continuous discounts of $LUNA. However, the demand for $LUNA is increasing to absorb the previous supply gradually. And the proof is that the value of $LUNA has increased rapidly since July 2020 (the same inflation rate of 3.53%).

Change In Supply

Regarding the change in supply, the supply growth in 2019 is absent. Starting from April 2020, the amount of $LUNA circulating in the market increased rapidly and peaked at 3.62% in 7 months. And since then, Chang in Supply is dwindling as its inflation.

In summary, with stable inflation, a decrease in the supply of $LUNA in the market, and a large demand for Terra Stablecoins, the value of $LUNA will increase. Proof of continuous price increase from July 2020 to date ($0.22 to $22) has x100 for $LUNA holders.

Money Supply

The maximum supply of $LUNA tokens are fixed. If 1,000,000,000 $LUNA tokens are exceeded, the system will burn extra LUNA tokens until equilibrium supply level is achieved.

Interest Rates

Taxes are used as a stability fee, and the protocol charges a small percentage transaction fee ranging from 0.1% to 1% on every Terra transaction, capped at 1 TerraSDR. This is paid in any Terra currency, and is disbursed pro-rata to stake at the end of every block.

Inflationary Features

As more LUNA tokens are burned, the native tokens become scarcer. This would make $LUNA more valuable.

Distribution

Whenever $LUNA tokens are swapped to $UST or any Terra money, a percentage of $LUNA token that is swapped to $UST will also contribute to the Treasury that will be reinvested into the Terra ecosystem.

Exchange Regime

As outlined under the structure of $LUNA tokens, the Terra money’s peg are dependent on burning and minting of $LUNA tokens via an elastic money supply.

Proposal to Burn All Seigniorage

The process of seigniorage is as such:

Whenever the demand for $UST increases as the ecosystem grows increasingly robust, more Luna has to be burn to mint Terra stablecoins. A portion of this amount of Luna that is burned is routed to a community pool that funds the fiscal policies as proposed and voted by Terra governance, as well as to reward Luna stakers that voted accurately within a band in the price oracle.

Due to the rapid pace of seigniorage burn that has resulted in too many funds being routed to the community and oracle reward pools, a Proposal was suggested to burn all of the seigniorages. The effect of this proposal is threefold:

  1. Burn all remaining funds in the community pool
  2. Route all future seigniorage to be burned instead of being routed to community / staking reward pools
  3. Amortize the distribution of the existing oracle_reward_pool to 3 years instead of the current 1 year

This will address the following respectively:

  1. It would simplify the narrative of Luna economics as all fees go to staking returns for Luna
  2. It would prevent the community pool from becoming overfunded while leaving the current pool well funded.
  3. It would keep staking rewards attractive but not insane.

This proposal was, however, rejected during the voting process. Of the 326M amount of available votes, a total of 151M votes were cast. Among which 96.45% voted for no. Thus, the amount of yes votes failed to exceed the 1/3 threshold for the project to be accepted – it has to exceed the 1/3 threshold of yes votes during the voting process.

Read here.

To mint $UST, there will be an amount of $LUNA burned in proportion to the amount of $UST produced. Example: If you want to make 5 $UST, you need to burn ~ 0.5 $LUNA (e.g. $LUNA/$UDT is $10). This burned $LUNA number is called “Seigniorage“.

This burned $LUNA will not be lost, it will be placed in a Fund. This fund will have 2 purposes:

  • Community support: Used to support user initiatives to promote the Terra ecosystem.
  • Rewards for $LUNA stakers.

However, Seigniorage spawn more and more due to the speed of creation is too fast. This leads to too many rewards.

This recommendation includes:
  • Burn all remaining money in the community group.
  • Reroute all seigniorage in the future that will be burned instead of being forwarded to the community rewards & Staking group as before.
  • Change the current Oracle reward pool allocation time to 3 years instead of 1 year.
The impact of this change is:
  • It will simplify the cost story regarding $LUNA, with all fees now going back to Luna’s Staking returns, as well as a 1 $UST mint just burning $LUNA worth $1.
  • Preventing “overeating” rewards in the community. Staking will still be viewed as incentives, but it is not too “crazy”.

After the Proposal was approved, $LUNA will become more scarce, when all rewards are reduced. Further, the main feature of $LUNA is creating $UST. If the Terra Ecosystem grows, $UST will be used more, and $LUNA will also be more scarce.

In short, this proposal will affect Terra in three ways:
  • Making the price of LUNA more stable, limiting the inflation that leads to $LUNA devaluation. Every $1 UST minted is equivalent to $1 in $LUNA burned.
  • Limit overspending in community funds.
  • Staking reward still retains its appeal but not excessively.
Ozone Insurance

Ozone Insurance is an upcoming project by Terra to facilitate levered coverage of technical failure risk in the Terra defi ecosystem. Funding for Ozone Insurance will primarily come from the community pool which if the proposal becomes successful – can end up burning all Luna contained to bootstrap the funding for the Ozone Protocol. Thus, the outcome of the proposal above can mostly be attributed to funding for Ozone Insurance with concerns of the community pool being “double burned”.

2. Token Valuation

The value of $LUNA token will be proportional to the growth of the Terra ecosystem. This is because as the demand for Terra money increases, more $LUNA tokens have to be burned for Terra money. This will make $LUNA tokens scarcer and hence more valuable.

The Terra ecosystem is currently expanding on top of its Anchor protocol which allows for a high fixed savings rate of 20% and the Mirror protocol, which allows for exposure to any asset with an active price feed. Its latest development includes Alice Finance, which is a decentralized platform for impact investing. These platforms will accrue more demand for Terra money which will drive the valuation of $LUNA tokens.

$LUNA Price Analysis

$LUNA validators are not inflationary validators. Instead, the authorised person earns a variety of fees. With the low fee of Terra blockchain, staking brings a profit of 12% APY.

However, more than 30% of the $LUNA supply is currently staked and every time you stake you need to wait at least 21 days to unlock it. This means that if the price of $LUNA starts to go parabolic, any $LUNA staking will not be sold on the exchange any time soon.

Note that parabolic is the perfect word to describe the price action of $LUNA since early 2021. It has increased more than 10x since January 2021 and continues to rise.

This is due to the huge demand from $UST causing it to be greater than $1 many times at the end of January and February. So Terra burned millions of $LUNA each week to generate the $UST needed to maintain the pegged price of $UST ($1).

Source: terra.smartstake.io

The question is where does all this $UST need come from?

The answer seems to be Protocol Mirror, Binance’s booming DeFi ecosystem and more.

  1. Mirror Protocol

    Mirror Protocol is built by Terraform Labs and operates on the Terra blockchain. Mirror Protocol makes it possible for you to mint tokens that reflect the prices of stocks and other assets. This would mean connecting the Crypto Humans to traditional financial markets like Amazon, Tesla, and even GameStop stocks.

    Source: mirror.finance

    These synthetic tokens are called m-assets, which are minted by collateralising the $UST. At least 150% of the $UST value of m-assets must be deposited. So if you want to buy a stock worth $1,000, you need to deposit at least $1,500 worth of $UST.

    To do this, Terra airdropped to $LUNA and $UNI holders on the first day of its launch. So you can use m-assets on Ethereum and transport them to and from the Terra blockchain using the Mirror Financial Shuttle Bridge. But that is not all, because Binance Smart Chain (BSC) is also built using Cosmos SDK.

    It is likely that in the near future, Mirror will launch new products:

    • Yield Bearing Stock.
    • Self-direct Index Funds.
  2. Binance Smart Chain
    Source: bscscan.com

    BSC can easily interact with Terra Blockchain. There are more than 64M $UST on BSC, some Yield Aggregators like Auto Farm or provide a quite high yield on m-asset pairs like UST-Amazon, UST-Tesla, UST-Netflix.


    Source: https://mirror.smartstake.io/

    Mirror Finance alone has reached a TLV of $2.35B, nearly $500M of which are m-assets. The craziest part is that Terra station allows you to easily send $UST & m-assets directly to Ethereum and BSC.

    Source: Cointelegraph.com

    The recent upgrade on Cosmos also enables asset swaps between the Terra blockchain and substrate-based blockchains, such as Kusama and Polkadot. This crazy interoperability is why I think Terra’s upcoming developments will be a game-changer for the crypto space.

  3. Anchor Protocol

    Source: Cointelegraph.com

    In June 2020, Cointelegraph announced Terra partnered with Cosmos, Solana, and the Web 3 Foundation, which developed Polkadot and Kusama, to create a protocol called Anchor.

    Lending & borrowing protocols are currently offering a volatile interest rate. They fluctuate every day depending on the supply and demand of each lending pool. Obviously, those who prefer stability are not in favor of this.

    But this stability is quite hard to find in the crypto space. One of the only methods of accumulating interest that offers a relatively stable return is to stake on the Proof of Stake (PoS) blockchain as validators or delegators. This is exactly what Anchor will leverage to deliver the first products.

    Any cryptocurrency deposited into Anchor will be staked on the Proof of Stake blockchain behind the back end. It is quite similar to Cosmos, and also Solana.

  4. Alice Finance

    Now, what happens when you have a strong payment network to invest in stocks and commodities and have also found a way to earn steady interest on your savings in decentralised way?

    Source: alice.co

    Terra has essentially created a complete alternative to the current financial system. All that is left to do is bring all of these protocols together and provide it with all in a really user-friendly interface.

    Alice is a one-stop service in the future of finance.

    Source: Twitter.com

    All above things that we will see $UST on more blockchains and exchanges. That result is due to an initiative recently announced by Terra, Terra will reward anyone who convinces DeFi Protocol to incorporate $UST.

    This will be very easy to do because Terra can be compatible with a lot of blockchains. It will lead to increased demand for $UST and $LUNA to mint that $UST. That is why I think the $LUNA has a lot of potentials.

Financial Incentives

1. Platform Activities

Growth-driven Fiscal Policy

Every time $LUNA tokens are burned, a portion of it goes to the Treasury. The funds from the Treasury are used to invest in the Terra ecosystem, primarily for the building of dApps. A dApp can be eligible for funding if it registers for consideration as an entity that operates on the Terra network. This incentivizes developers to build on the Terra ecosystem as their costs of doing so are being funded. Since Terraform Capital’s aim is to increase the GDP of the blockchain ecosystem, the organizations and proposals that bring the highest net positive impact to the economy will have a higher likelihood to be chosen.

Become a Validator

In Terra’s consensus model, Luna holders do not stake their tokens directly, but delegate their Luna to a validator. This allows normal Luna holders who don’t want to set up a validator node can participate in staking rewards.

Stabilising Terra Stablecoin

Miners are incentivised to maintain the anchor rate of the Terra Stablecoins. They are also arbitrageurs and receive the rewards for this work.

Terra encourages Miners to remain “loyal” to the network even in volatile markets and commits to long-term growth.

2. Financial Returns 

Staking

Staking rewards

These provide the incentives to keep long-term interest in Luna ownership. Since Terra runs on a DPoS consensus, people who owe the native tokens can delegate their $LUNA to validators and earn transaction fees on $UST. In the Terra protocol, staking rewards are first distributed to validators who take a commission for providing their services. Delegators can then withdraw the rewards individually from the validators. Even when demand for the Terra money is low, the algorithm will increase fees so that validators can still be rewarded.

Staking rewards come from three sources: gas fees, taxes, and seigniorage rewards. Rewards from stake are determined largely by the relative size of stake and are structured in such a way that rewards increase as transaction volume increases. Luna ownership is thus an investment in the long term growth of Terra.

Gas Fees

To avoid spamming transactions, validators set minimum gas prices that are fees added to each transaction. This will reject transactions that have implied gas prices above this threshold. Fees are disbursed pro-rata, back to participating validators at the end of every block.

Taxes

The protocol charges a small percentage transaction fee ranging from 0.1% to 1% on every Terra transaction, capped at 1 TerraSDR. This is paid in any Terra currency, and is disbursed pro-rata according to their stake at the end of every block.

Seigniorage Rewards

Validators participate in the Luna exchange rate oracle process, and win rewards from the seigniorage pool every time they vote within the reward band, proportional to their stake.

Price Appreciation

As the ecosystem becomes more robust and active, demand for Terra money will increase. In order to keep the peg for the Terra monies, $LUNA have to be continuously burned which would make the native token more valuable and scarce. Investors can thus earn through price appreciation of $LUNA.

Income Of Validator

Validators and their delegators will earn the following fees:

  • Compute fees: To prevent spamming, validators can set a minimum gas fee for transactions included in their mempool. At the end of each block, computation fees are disbursed to participating validators proportionally to staking.
  • Stability Fee: To stabilise the value of $LUNA, the protocol charges a small percentage transaction fee ranging from 0.1% to 1% per Terra transaction, capped at 1 TerraSDR. This is paid out in any Terra currency and disbursed proportionally to staking at the end of each block in TerraSDR.
  • Seigniorage Reward: Validators participating in Oracle Exchange Rate receive a share of seigniorage if they report truthfully and win votes (vote within the reward range around a weighted average).

Besides revenue, there are scarce incentives:

  • Swap Fee: A small spread is charged on atomic swaps between Luna and any of Terra’s currencies, this is burned and creates scarcity in Luna and indirectly rewards those validators.

Note that validators can set a commission on the fees received by their authoriser as an additional incentive.

Staking Rewards

The primary function of Luna is to protect the integrity of Terra mechanisms by locking value within the Terra ecosystem through staking.

However, in providing network security, Luna holders and delegators are exposed to the risks of maintaining a long-term position on a fluctuating asset. Staking rewards therefore provide the incentives to keep long-term interest in Luna ownership.

In the Terra protocol, staking rewards are first distributed to validators who take a commission for providing their operations, and then are withdrawn individually by delegators.

Rewards from stake are determined largely by the relative size of stake, and are structured in such a way that rewards increase as transaction volume increases. $LUNA ownership is thus an investment in the long term growth of Terra.

Staking rewards come from three sources: gas (compute fees), taxes, and seigniorage rewards.

Providing Liquidity

The provision of liquidity through pools that interact with Terra Stablecoins (specifically $UST) provides a great source of profit.

Recently, Terra has been active on BSC and combined with projects like Pancake, Smoothy, etc., and put pools with attractive yield to attract users.

Airdrop

The airdrop is both an important incentive and a near-risk-free return that $LUNA stakers can receive. Terra always drops rewards from key projects like Mirror, Anchor, and more projects coming soon.

This incentivises $LUNA stakers to be loyal and makes it easier to grow the ecosystem. According to statistics, $LUNA staker is making a passive income from these rewards only after Pancake on BSC.

Source: assetdash.com

Token Architecture

Useful for non ERC-20 tokens. And how financial products are structured.

Token structure

Allocation

Luna’s genesis release is 1 billion $LUNA, with initial allocations broken down as follows:

©Collected By EconomicsDesign.

Sale Structure

Token distribution

Token Release Schedule

Conclusion

Terra’s interoperability with many protocols is what drives the fast and robust growth in the ecosystem. Terra money has many uses as outlined above, and can potentially revolutionize the DeFi space in the way we transact, manage and handle our finances. Although it has not yet achieved mainstream adoption, one should definitely keep an eye out for new projects that are coming into the Terra ecosystem which can help attain Terra’s goal of being a currency that is useable by the mass.

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